Regions Financial Corp (RF) 2012 Q4 法說會逐字稿

Good morning, and welcome to the Regions Financial Corporation quarterly earnings call.

My name is Paula, and I'll be your operator for today's call.

I would like to remind everyone that all participant phone lines have been placed on listen-only.

At the end of the call, there will be a question-and-answer session.

(Operator Instructions)

I will now turn the call over to Mr. List Underwood to begin.

Thank you, operator, and good morning, everyone.

We appreciate your participation on our call this morning.

Our presenters today are our President and Chief Executive Officer, Grayson Hall; our Chief Financial Officer, David Turner; and also here and available to answer questions are Matt Lusco, our Chief Risk Officer; and Barb Godin, our Chief Credit Officer.

As part of our earnings call, we will be referencing a slide presentation that is available under the Investor Relations section of Regions.com.

With that said, let me remind you that in this call and potentially in the Q&A that follows, we may make forward-looking statements which reflect our current views with respect to future events and financial performance.

Forward-looking statements are not based on historical information, but rather are related to future operations, strategies, financial results, or other developments.

Those statements are based on general assumptions, and are subject to various risks, uncertainties, and other factors that may cause actual results to differ materially from the views, beliefs, and projections expressed in such statements.

Additional information regarding these factors can be found on our forward-looking statement that is located in the appendix of this presentation.

Grayson?

Thank you, List, and good morning and welcome to Regions' Fourth-Quarter 2012 Earnings Conference call.

We certainly appreciate your participation and respect your time.

We view 2012 as a transformational year for Regions, with fourth-quarter results reaffirming our positive momentum, and providing a solid foundation for the future growth of our franchise.

During 2012, we achieved a number of key milestones through the successful execution of our capital and business plans.

We completed the Morgan Keegan divestiture; we issued approximately $900 million of common stock; redeemed a preferred stock issue to US Treasury; and repurchased a related warrant.

We significantly improved asset quality, our risk profile, and strengthened enterprise risk management.

Our credit rating has improved.

We further enhanced our technology platform.

We issued $500 million of preferred stock, and redeemed $345 million of trust-preferred securities.

Most importantly, we achieved sustainable profitability.

On a continuing operations basis, full year 2012 net income available to common shareholders was $1.1 billion, or $0.76 per diluted share.

Lower credit-related expenses, driven by significant improvement in asset quality, benefited 2012's results.

Let me point out just a few notable asset quality metrics.

Non-performing assets, including held for sale, dropped $1.1 billion, or 36% year-over-year, the lowest level in four years.

Net loan charge-offs declined 47% for the full year, the lowest annual level since 2008.

In addition, results also reflected successful efforts to expand and deepen customer relationships, increase prudent loan production, strengthen expense management disciplines, and improving funding mix and cost.

Our emphasis on customer service and customer loyalty, along with enhanced product offerings and delivery channels, enable us to grow and deepen our customer relationship.

As a result, non-interest income on an adjusted basis increased despite a number of business headwinds.

Mortgage banking revenue was especially strong in 2012, as mortgage production totaled $8 billion.

This includes $1.6 billion in HARP II related production.

Throughout 2012, approximately 50% of HARP II applications involved customers new to Regions mortgage, which allowed us to introduce new customers to Regions Financial and expand our business opportunities across all our lending segments, in both wholesale and retail.

Total new and renewed loan production across all customer segments was a strong $57 billion for the full year.

New production totaled $28 billion in 2012, up 14% from the prior year.

Unfortunately, our strong production results have not yet translated into balance sheet growth, as period-end loans outstanding were down, reflecting the continued de-leveraging actions of our customers, and further de-risking of our investor real estate portfolio.

However, we did demonstrate favorable balanced growth in our commercial industrial portfolio and our indirect auto portfolio.

In 2012, we also continued to improve our deposit and funding mix, lowering both average deposit and total funding cost 19 basis points.

As a result, we were able to expand our net interest margin 4 basis points for the year, despite another challenging year of low interest rates.

From an expense management perspective, full-year 2012 expenses, excluding goodwill impairment in 2011, were down 2%, in line with expectations, and included net reductions in staffing of about 1%, or 280 positions.

In the current challenging revenue environment, effective operating expense management is critical.

As a result, we remain committed to generating positive operating leverage.

At the same time, we must continue to invest appropriately in people, technology, and products, to ensure that we have the best team, the right technology, and competitive products to improve productivity and efficiency.

Again, 2012 was a transformational year for Regions.

We clearly demonstrated that we have a viable business plan in place, and that we are successfully executing on that plan to build a strong foundation for prudent, profitable, and sustainable growth.

I'll turn it over to David for a discussion of fourth-quarter 2012 financial trends.

Afterwards, I'll return to spend a few moments discussing 2013 growth opportunities.

David?

Thank you, Grayson, and good morning, everyone.

Let's begin on slide 3 with a quick snapshot of our fourth-quarter 2012 financial results.

We reported net income available to common shareholders from continuing operations of $273 million, or $0.19 per diluted share.

Adjusted net income available to common shareholders from continuing operations was $311 million, or $0.22 per share.

Pre-tax, pre-provision income from continuing operations was $493 million on an adjusted basis.

Net interest income was $818 million, and the resulting net interest margin was 3.1%.

Non-interest revenues were up 1% from prior quarter, while non-interest expenses were down 2% on an adjusted basis from the prior quarter.

From a credit standpoint, net charge-offs decreased 31% linked quarter, while total loan loss provision was $37 million.

Let's look at some of the details, starting with the balance sheet.

Regions experienced continued growth in our commercial and industrial and indirect auto loan portfolios.

However, this growth was offset by declines in real-estate-related loan portfolios.

As a result, average total loans for the fourth quarter were down $1.1 billion, or 1.4% linked quarter.

That being said, we expect to see growth in loan production, and anticipate this production will outpace attrition by the second half of 2013.

As a result, based on what we know now, we are projecting loan growth in the low-single digits for 2013.

For the quarter, total ending loan balances were primarily impacted by a decline of $991 million, or 11.4% in the investor real estate portfolio.

At quarter end, investor real estate ending balances stood at $7.7 billion, down $3 billion from one year ago.

This portfolio now comprises 10% of our total loan portfolio, compared to 14% a year ago.

We expect this portfolio to continue to decline at a moderate pace over the next couple of quarters.

More specifically, we believe that we have approximately $1 billion of investor real estate that we will de-risk and then grow from there.

Our owner-occupied commercial real estate portfolio, which is comprised primarily of community banking and small business, which tends to exhibit the same behavioral trends as consumers, declined this quarter due to customer de-leveraging and lack of demand.

Linked quarter, we experienced an average loan decline of $203 million, or 1.9%.

Although price competition has increased, a majority of the decline was related to pre-payments and scheduled pay-downs.

However, as noted, commercial industrial loan demand remained solid in the fourth quarter, driven in part by our integrated approach to specialized lending, where our local bankers work with experienced lenders to meet customer needs.

Total production for this portfolio was a solid $10.4 billion.

Pipelines remain solid, and are slightly above the same level at this time last year, as our clients fund expenditures, capital expenditures, working capital needs, and increasingly, M&A activity.

Commitments have increased 4.2% linked quarter, and 12.2% from the prior year.

Our consumer services portfolio, which makes up 39% of our total loan portfolio, decreased by $352 million, or 1.2%, as consumer deleveraging continued.

As you may recall from prior quarters, our strategy has been to sell our fixed-rate conforming mortgages.

Late in the fourth quarter, we began the process of retaining our 15-year, fixed-rate conforming mortgages.

We believe this strategy supports our overall efforts to grow the balance sheet and effectively manage our exposure to interest rate risk.

Declines in our home equity portfolio continue as customers take advantage of opportunities to refinance.

However, we recently launched a new home equity loan product to attract a new set of customers.

Results have been encouraging thus far, as loan productions for lines and loans increased 23% over the prior quarter.

Average indirect auto loan balances increased 6.7% quarter-over-quarter.

We expect the indirect portfolio to continue to grow at a steady pace throughout 2013, driven by expansion in the dealer network, from approximately 1,900 dealers to 2,400 dealers, as well as by increases in auto sales volume.

Total loan yields were up 3 basis points linked quarter to 4.21%, primarily due to interest recoveries on non-accrual loans.

Moving on to deposits, as shown on slide 5, deposit mix and cost continued to improve in the fourth quarter, and total low-cost deposits increased $2.1 billion from last quarter.

Timed deposits fell to 14% of total deposits, down from 16% linked quarter, s a result of our continued success in re-pricing and growing low-cost deposits.

This positive re-pricing and mix shift resulted in deposit costs declining to 22 basis points for the quarter, down 6 basis points from the third quarter, and we expect to drive additional improvement in deposit cost.

Looking ahead to 2013, we currently have $8.3 billion of CDs that will mature.

Of that, $5.4 billion matures in the first half, with an average rate of 1.51%, and $2.9 billion in the second half, with an average rate of 53 basis points.

This compares to our current average going on rates for new CDs of approximately 20 basis points.

Further, our overall total funding cost improved to 50 basis points, a decrease of 6 basis points linked quarter.

Now let's turn to net interest income on slide 6. Net interest income on a fully taxable equivalent basis was $831 million, or relatively flat linked quarter.

The resulting net interest margin was 3.1%, up 2 basis points from third quarter's 3.08%.

We were pleased with the performance in the margin.

However, there were some temporary positive impacts from interest recoveries and acceleration of deferred fees related to loan payoffs.

Together, these items added about 2 basis points to the margin, so really you should level-set our margin at 3.08%.

However, even without these impacts, margin remains stable and in line with our expectations.

Even though the low-rate environment continued to push on portfolio yields, with pay-downs and higher-yielding securities being re-invested at today's low levels, that effect was largely offset by the improvements in deposit costs, and the lift from our trust-preferred securities call.

In a continued low-rate environment, we continue to see opportunity to protect the margin through a number of factors, including continued reduction of deposit cost, and our retention of 15-year mortgages.

These factors support our outlook for a relatively stable margin in 2013.

Of course, a rise in interest rates would further benefit the overall margin and net interest income.

Let's look at non-interest revenue on slide 7. Fourth-quarter non-interest revenue from continuing operations was $536 million, a 1% increase linked quarter, primarily related to an increase in service charge income.

Mortgage banking revenue, while down $16 million from third quarter, remains strong, and continues to be driven by new home purchases, and refinances aided by the government's HARP II program.

Approximately 63% of mortgage loans were refinances, and 37% were new home purchases.

20% of total loans were HARP II- related; and importantly, as of the end of the fourth quarter, less than approximately 20% of our loans eligible under the HARP II guidelines have been refinanced.

As a result, we expect mortgage revenue to remain strong for the next few quarters.

Moving on to expenses on slide 8. Non-interest expenses totaled $902 million, an increase of 4% linked quarter.

However, excluding the expense associated with the termination of a third-party investment in a REIT subsidiary, which I'll speak to shortly, and debt extinguishment costs related to our trust-preferred call, non-interest expenses were $849 million, representing a $20-million, or 2%, decrease over the prior quarter.

Additionally, during the quarter, professional and legal expenses benefited from a $20-million decrease in legal reserves.

As we have previously communicated, we remain focused and disciplined on expense management, and constantly challenge all of our associates to be mindful of every dollar they spend.

Additionally, we expect further improvement in credit-related expenses.

As a result, we anticipate 2013 expenses from continuing operations to be below those of 2012.

Let's look at some of our credit metrics on slide 9. We continue to make progress with respect to asset quality in the fourth quarter, as several credit metrics improved, including criticized loans, non-performing loans, and net charge-offs.

The provision for loan losses was $37 million, or $143 million less than net charge-offs.

Total net charge-offs decreased linked quarter by 31%, or $82 million, to $180 million.

Net charge-offs as a percent of total average loans dropped below 1% for the first time in over four years.

In-flows of non-performing loans decreased to $350 million, from $463 million linked quarter.

Non-performing loans decreased 11% from prior quarter to $1.7 billion, the lowest level in almost four years.

And total non-performing assets decreased $296 million, or 13% linked quarter.

Notably, one of the best and earliest indicators of asset quality, that's business services criticized and classified loans, continued to decline, with criticized loans down 12%, or $639 million from the third quarter.

Our coverage ratios remain solid.

At quarter end, our loan-loss allowance for non-performing loans stood at 114%, or 1.14 times.

Meanwhile, our loan-loss allowance to loans remained solid at 2.59% at the end of the fourth quarter.

Based on what we know today, we expect continued improvement in asset quality going forward.

Let's take a look at capital and liquidity on slide 10.

Our capital position remains strong, as our estimated Tier 1 ratio at the end of the quarter stood at 12%, and our estimated Tier 1 common ratio increased approximately 30 basis points to 10.8%.

Additionally, in the fourth quarter, the Company successfully issued preferred stock totaling $500 million, and part of the proceeds were used to redeem $345 million of trust-preferred securities.

Also in the quarter, we extinguished a $203-million liability associated with an investment by a third party in one of our REITs, and we incurred $42 million pre-tax, $38 million after tax, in early termination cost.

This redemption removed approximately $28 million of associated annual expenses.

We will continue to prudently evaluate liability management opportunities as we look to efficiently manage our liquidity, debt, and capital positions.

Tangible common book value reached $7.11 per share in the fourth quarter, up from $7.02 in the third quarter, an increase of 1.3%.

Based on our interpretation of Basel III, we estimate our pro forma Basel III Tier 1 common ratio will be approximately 8.9%.

Liquidity at both the bank and the holding company continues to remain solid, with a loan deposit ratio of approximately 78%.

Lastly, based on our understanding of the new amendments, Regions remains well-positioned to be fully compliant with respect to the liquidity coverage ratio upon its implementation.

Overall, this quarter's solid results provide positive momentum as we head into 2013, and provides a foundation for sustainable growth.

With that, I'll turn it back over to Grayson for his closing comments.

Thank you, David, and just let me make a few brief closing comments, and then we can open up the lines for your questions.

As I indicated earlier, 2012 was a year of progress for Regions.

As we look ahead to 2013, we expect to face a business environment that in many ways resembles the year just completed.

The pace of economic recovery continues to be positive, but incrementally slower than desired.

Our industry, our customers, and our economy continue to deal with substantial level of both global and domestic uncertainty.

But overall, our confidence is building.

As a result, we do anticipate a stronger second half in 2013, as the economic and fiscal uncertainty abate, and our markets continue to strengthen.

The Regions team is focused on growing our customer base and generating positive operating leverage.

Our efforts to de-risk have begun to moderate.

Our expectation is that business should stabilize and begin to grow this year.

We have demonstrated growth in some customer segments, such as commercial industrial and indirect auto.

Additionally, we have experienced strong growth this year in our mortgage business.

But the growth needs to be balanced across all of our lines of business.

We continue to be encouraged by our level of loan production, but we need to begin to realize net growth in our outstandings.

Our confidence is growing and our business continues to strengthen across the organization, as we see improved pipelines, applications, and originations.

We remain disciplined in our efforts to control expenses, and continue to see opportunities to improve efficiency; but we are committed to a balanced approach that invest in technology, people, and products where the opportunity to grow revenues or improve efficiency exist.

Our capital position and capital management process are much improved, and we are committed to returning an appropriate level of capital to shareholders as our performance dictates, subject to supervisory review.

In closing, our business model is a relationship banking strategy.

It works to build deeper and more productive banking relationships by addressing the specific financial needs of our customers.

We believe this approach will build shared value for our customers, communities, shareholders, and associates.

Now let's open up the line for your questions.

Thank you.

(Operator Instructions)

Your first question comes from the line of Erika Penala of Bank of America.

My first question is one on your margin outlook.

You've spoken in conferences in the past about being open to using some of your excess capital to call some of your long-term debt.

I guess the first question is, A, are you still open to that in 2013, and B, does your margin guidance for stability include potentially calling some long-term debt?

Yes, Erica, this is David.

We have consistently wanted to put ourselves in the position to optimize our balance sheet structure in terms of its cost on the liability side.

We've been doing that through our deposit side, as you've seen.

From a debt side, you've seen some of our utilization of our excess capital, if you will, to right-size and adjust the funding.

We do have other opportunities.

Without going into specifics, I think if you evaluated what we have outstanding, you could probably glean what would be some potential targets.

We do have elements of that, not all, but elements of right-sizing our liability structure baked into our margins, but we want to see how things play of out during the year.

There's still uncertainty with regards to the economy, so we hadn't baked in all the potential opportunities that we do have, but some are.

Okay.

I'm sure you'll be asked this question several ways, but let me be the first to attempt it.

Your adjusted expenses were [$3.471 million] last -- this past year.

I guess, as we're thinking about the magnitude of decline, will it be similar to the 2% decline that you talked about in 2012, or is there an efficiency ratio that you could point us to as a target?

I guess that's the one question I'm getting from investors in terms of magnitude of that outlook?

Yes, we have not quantified that yet.

We kind of gave broad guidance that we would be down in '13 from '12, just like the guidance we gave you last year at this time.

Things that we can point to -- there is no one particular silver bullet in that expense number.

If you look at our expense run rate, you'll see that honestly our largest expenses end up being salaries and benefits and occupancy, and we think those are two areas that we will continue to work on, to bring those down even further.

We moved our credit card servicing in-house from paying a third party that we think will have some savings.

We talked -- I talked earlier about the savings related to one of our REITs.

Again, there's no one place that we can point to.

Credit-related expense is another that as we continue to improve non-performing balances and levels, we have some opportunity there.

I think net-net, we can see that being down.

As we get closer and go through the year, perhaps we can put a finer point on that.

Erika, we've really tried to build a strong expense culture over the last few years, and have -- to David's point, when you look at our two predominant expenses, which really been personnel and also in facilities, we continued to rationalize both.

Last year we were down on a net basis some 280 positions, but we actually had added back over double that number that we had added back as we brought in our credit card processing.

We had to have a number of people added there, as well as we've added people in risk management, and we -- quite frankly, we've added people, bankers, that are in customer-facing positions.

But we've been able to offset that through efficiencies in other parts of the Company.

We invested an awful lot in technology, in our branches, to improve the efficiency of that entire branch channel.

We continue to think branches are an important part of our distribution strategy, but we're trying to rationalize the expense of that channel to try to improve the efficiency of that channel.

But as David said, our expense strategy, expense management strategy's really not a branded program, but it's just a way of making sure we've got a strong culture that's focused on efficiency improvement across all of our businesses, and continues to look for ways to reduce our overall expenses, and we did that successfully in '12.

We believe we'll be successful again in '13, and have guided to that point.

Erika, I should have added, you asked about target.

We think we can have an overhead ratio still in that mid-50 to upper-50 range.

We still have some work to go.

Over time.

Over time.

Of course we need -- revenue's a component of that, too, and we need more revenue to get us to those levels.

Okay.

Thank you for taking my questions.

Your next question comes from Kevin St.

Pierre of Sanford Bernstein.

Good morning.

As we think about potential capital return and the CCAR process, you're over a percentage point higher on Basel I Tier 1 common than you were the last go-round in the CCAR, and Basel III, by your estimate, seems to be already where it would need to be, if not higher.

Could you talk to us about your capital plan, and what your capital return priorities would be?

Sure, Kevin.

We like being in this position a lot more than going into where we were a year or so ago, which gives us an opportunity to do different things.

Obviously, we would like to use first and foremost our capital base to grow organically.

We think we, as I mentioned, we think we can grow our loan book in '13, but that's really number one.

Number two, we do believe that we have a capital base and profitability where we're accreting capital that allows us to return more to the shareholders than we have in the past.

We, as you know, submitted our capital plan in the first part of January, and we'll be discussing that with our regulatory supervisor.

It's a little too early to be able to talk about what that looks like, but having an appropriate return to the shareholders in the form of dividend and share buybacks clearly is something that we think makes some sense.

As you know, we acquired our credit card portfolio about a year-and-a-half ago.

We look for opportunities with asset classes like that to use our capital, as well.

So that's kind of the four things that we really think about in terms of positioning ourselves from a capital standpoint.

We do know and acknowledge where we are with regard to Basel III, and our Tier 1 common under Basel I, and we think that gives us optimal flexibility to work with our shareholders and to grow our Company.

Okay, thanks.

Similar question on the loan loss reserve side.

You've got, no matter how we look at it, whether it's reserves to NPLs, or reserves to annualized charge-offs, high levels.

Do you think that there is a floor to the reserve-to-loan or reserve-to-NPL levels, or how much of that can we expect to see flowing through earnings in 2013?

Kevin, this is Grayson.

I'll make a few comments, and then I'll ask Matt and Barb if they'd like to comment on this, but we tried to stay very disciplined to our process.

We've had a methodology that we've been following on calculating our allowance.

It's a very analytical process, and we've been confident in that process.

We continue to believe that as credit improves, that you will see that allowance moderate closer to what peers have, given the relative mix of our portfolio.

If you saw this quarter continued improvement, and absent any economic shocks that we don't anticipate today, we think that pace of recovery continues.

That being said, we have to let our process work, and we have to be very disciplined in that regard.

Matt, Barb?

The only other thing I'd add is I think as we've stated before, we don't -- we certainly do not see levels of reserves sinking to the levels they once were, once upon a time when they were in the 1%-of-outstanding-type range.

We think they'll settle out industry-wide at a floor that's something north of probably 1.5%.

I think times have changed in that regard, and of course with a FASB statement out there that we certainly don't anticipate coming into play for quite a while, but I think that does show prevailing changes of thought as it relates to where levels of reserve go.

Certainly concur with everything Grayson said about our methodology and its consistent application, and that methodology and our processes, together with the pace of our improvement, will dictate those reserves as we go forward.

Barb, anything you'd like to add?

Nothing to add.

Great.

Thanks very much.

Your next question comes from Michael Rose of Raymond James.

Just a clarification, if I could, on the expense guidance.

Are you going off the adjusted number?

I'm sorry if I missed it, the $3.471 million?

That's right, from an adjusted standpoint.

Okay.

I noticed the head count was actually up a little bit this quarter.

Was that just more seasonal in nature, or can you just give some color there?

Yes, you saw head count was up just a little bit this quarter.

Sort of as we move toward a transforming, if you will, a little bit to more of a growth strategy for '13, we added a few bankers in that regard.

But you'll see that moderate some as we get into the year, as we drive some efficiency out of some other areas.

One final question, if I could, on the thoughts on share buyback.

Now your stock is trading above tangible book value.

Does that kind of change at all your mindset around buybacks versus dividends?

Thanks.

Well, Michael, I think that as we've gotten this question before, clearly when you're trading below or at tangible book value, that makes you think one way -- the higher you trade on that from a share buyback, you have a tendency to question that and lean in another direction.

That being said, we're still trading closer to tangible book value, and if you look at our embedded cost of equity, it's still high.

You think about the return that you get from an investment kind of buyback compared to where you're going to put that marginal dollar, and that kind of informs us, as well.

Again, we submitted our plan in January.

I guess our industry's not quite as dynamic as we once were to take advantage of what market forces are, and that's just the way it is today.

That being said, we think we'll have an appropriate return to our shareholders, and we'll be releasing that information at the end of March.

Great, thank you.

Your next question comes from Matt O'Connor of Deutsche Bank.

Hi, guys.

Just some thoughts on the timing of when loans might bottom out, or maybe how much they go down before -- you mentioned some growth in the back half of the year, just any sense of how much more run-off -- and not to pinpoint as to 2Q or 3Q, but any more clarity around the trajectory of loans would be helpful?

Matt, if you look at our loan growth last year, our loans period end to period end were down about $3.6 billion.

$3 billion of that was in the investor commercial real estate portfolio.

It has been a -- in terms of trying to forecast that run-off, it's really been driven largely by the improvement in the economy, and the availability of credit elsewhere for some of these distressed credits.

The runoff for '13 was faster than -- I mean for '12, for '12 -- was faster than we had early in the year forecast.

As you probably are aware, when we got into the fourth quarter of 2012, there were a number of decisions being made in anticipation of tax code changes that created a sense of urgency around resolving some of these more distressed credits, and so we saw some special activity there.

All that being said, the run-off in that portfolio was a little faster than we had anticipated in '12.

We see it today moderating in '13, and moderating from a couple of regards.

One is we think that we've got the number of distressed credits in that portfolio down to a level that we believe most of our run-off in that portfolio will come in the first half of the year.

The second issue is in 2011 in investor commercial real estate, we did about $1 billion of production.

In '12 we did $2 billion, so we more than doubled the production in that portfolio, in that customer segment.

We're encouraged by the early signs we see in '13, so we think we'll have a good '13.

We think we start to see stabilization of that portfolio by mid-year '13.

That being said is that our forecast -- the accuracy of being able to forecast that is challenging, but we believe that's where we think we are today.

Okay, that's helpful.

Just on the net interest margin, the relatively stable, I guess that would be versus the 3.08% core?

Yes, that's right.

Okay.

That's 1 or 2 points either side of that.

Yes, and is that just relatively steady throughout the year?

You've got, with the CDs coming due, and obviously there's some seasonality in 1Q, there's some pluses and minuses, but relatively stable throughout the year?

That's right.

There's obviously more challenges early given where the 10-year is.

We do forecast a low but slightly improving rate towards the back half, so it gets a little more expansive, potentially expansive, in the back half.

The first half is more challenging on that comment, but we still think we can maintain stability even then.

We do have a number of time deposits maturing in the first and second quarter.

Those maturities are more heavily weighted towards the end of first quarter than the first part of first quarter, so we do think that while we indicate a stable margin throughout the year, our forecast would say that stability is easier to come by later in the year than early.

But we still believe we're going to be able to achieve a fairly stable margin.

The part that we can't forecast is as we get resolutions on distressed credits, many times we get the benefit of interest recovery, which aids our margin, like you saw it happen this quarter; gave us about 2 basis points of benefit.

Those come when they come, and so you can't predict them, but we would anticipate through the year that all likelihood we'll see some repeat of that activity.

Okay.

Thank you very much.

Your next question comes from the line of Ken Usdin of Jefferies.

Good morning, everybody.

Grayson, I just wanted to follow on the last question there, and just expand it a little bit to just the average earning asset side of things.

Understanding you'll have some loan growth, but as you just mentioned you do have quite a bit of the CD book running off.

You've got some of the long-term debt, as well.

Can you just talk to us about how the earning asset progression goes, as well?

Does it continue to also decline?

How do you mix-shift different categories of the asset side as loans do start to grow from a period-end perspective?

Yes, Ken, this is David.

We -- you should expect to see some modest reduction in earning assets throughout the year, but that, from a margin standpoint, gets taken care of because of what you mentioned, the change in mix of our balance sheet, whether it be from the liability side or the asset side.

Things like on the asset side, we talked about our loan growth, we talked about our 15-year mortgages.

We've talked at previous conferences about changing our investment portfolio and taking on more credit assets than we have, because we have very solid liquidity, and so you'll see us take a little more risk there.

Then we have elements of liability management that we continue to work down on the right side of the balance sheet.

So specifically, your earning asset question is a modest reduction.

If we bring that all together, it presumes that net interest income dollars would likely be down this year, right, just on flat margin against a modestly smaller balance sheet?

I think what you'd need to do is compare that, and then also look at kind of the trends in terms of the 10-year for last year compared to where you think it might go this year.

We started pretty high in the 10-year -- last year in the first quarter, I think we topped out -- I don't know, what, $230 million-ish -- and we're behind that right this minute.

There are a lot of factors that go into where you think revenue may come out.

But those are -- that's the main one you need to look at, as well as earning assets and liability management.

Great, and then one just follow-up on the mortgage question.

Can you just talk to us about the dynamic between how much mortgages actually you think about intending to keep as a proportion of that total loan growth you're expecting, and then what the offsetting impact would be on the mortgaged banking line by not getting the gain on sale?

Thanks guys.

Let me kind of frame it up in terms of what last year might have looked like.

Had we had this change, it would have meant about $1.2 billion in terms of volume.

Call the spread on the gain in the $325 million to $350 million range, so you can do some quick math to see what gains are relative to retaining that on the balance sheet.

Today, 15-year mortgages are in, call it, 2.75% offset with if you didn't sell and taking the proceeds and investing them in mortgaged backeds, which going on today with a like product are close to 1.5%.

Those are the kind of things you think about.

You can probably use what I just gave you and construct the difference between spread income versus gain on sale.

Helpful.

Thanks a lot, David.

Your next question comes from Josh Levin of Citigroup.

As you think about top-line growth, where specifically do you see the greatest opportunities for top-line growth in 2013?

I think that obviously you have to look at continuing to maintain NII at a strong level because of the reduction in expense that goes into that line item.

I think you have to look at a continued solid mortgage performance.

It was very strong this past year.

It should be strong going in and through 2013.

If you remember back to 2012 at this point, I don't think many people projected that mortgage would stay as strong as it did, and we are looking at -- we think mortgage will continue to be very strong for us.

Growing our customer households is a priority for us, which picks up additional NIR there.

Production and growth in our credit card book, which we saw in the fourth quarter.

As you recall, we brought that conversion in the latter part of the third quarter, so now we can control the customer experience.

We grew accounts, which helps us from a credit interchange.

There's no one magic bullet.

It is getting back to basics and growing every one of our businesses that we think can generate both NII and NIR for us.

Josh, I think when you look at the income statement, you try and figure out where can we really grow.

I would agree with David.

I don't think there's one category that's going to dominate that.

Clearly, last year our loan production increased some 14% year-over-year on new production, new to Regions, and we were encouraged by that.

I think what we saw was sort of some slow-down sort of in the late third, early fourth quarter, sort of across our businesses, but then saw strong pick-up in December.

I would tell you December from an activity standpoint was probably one of the strongest months we've seen in a couple years.

December was a very good month for us, and an encouraging month.

I think when you look at where our opportunities are, clearly for us to grow top line revenue we've got to grow loans.

We believe this can be a transition for our Company in '13, to get back to more of a growth strategy.

We've got a lot of momentum in the field across our franchise, and so I think if you look at where our revenue streams have been, I think NII has got to improve for us to deliver on that.

NIR has predominantly been driven by two things, really, our sort of transition to -- from sort of a free checking environment to a fee eligible environment.

We think we've gotten through that transition now and are back in position to grow checking accounts at our Company.

We also think from a mortgage standpoint -- we did $8 billion in production last year.

We saw it sort of seasonally slow down in the fourth quarter, between the holiday effect that you have in that fourth quarter.

Pipelines are back pretty strong.

Is it going to be as strong as '12?

I don't know, but it looks pretty strong to us at this point.

Let's -- a few more quarters, we'll know.

Okay.

As you said, 2012 was a transformational year for Regions.

Given where you are now, and you're past this inflection point, where do you see yourselves in the M&A landscape?

Well, I think at this juncture we're still focused on growing organically in our franchise.

I think M&A activity's obviously opportunistic in nature.

We're paying close attention to everything that's going on in the markets, but quite frankly, our focus right now in this Company is trying to make sure that we're delivering on organic growth, sort of earns us the right to participate in whatever happens from an M&A standpoint.

Thank you very much.

Your next question comes from the line of Paul Miller of FBR.

Thank you very much.

I think I missed it.

Going back to the mortgage follow-up on some of the mortgage questions.

Of the $2.1 billion of production, how much did you keep and how much was 15-year product?

Yes, I think from a -- most of that was actually sold --

Okay.

Into the market.

I can't remember the specific percentage.

What you were talking about was that going forward, keeping 15-year product would be about $1.5 billion?

Yes.

Probably been retaining -- of the $8 billion, we've been retaining roughly about, a little less than 20% of that.

It's the only thing we've been retaining in large part was the non-agency eligible, and also some of the adjustable rate product that we had in there.

We've been releasing the fixed-rate mortgages.

We transitioned in the fourth quarter to holding the 15-year, fixed-rate product into our portfolio; but quite frankly, very little of that actually hit in the fourth quarter.

That transition takes about 90 days, and so you'll see more of that occurring in the first quarter.

In the first quarter.

Then you said you launched a new HELOC product.

Is this -- and this is going to be for portfolio product?

Can you add some more color to that?

Yes, we had historically been an equity line offering, and in the third quarter of this year we put together a fixed-rate, fully amortizing equity line -- equity loan product that we rolled out to all of our consumer channels, and production in the fourth quarter was up some 23% over third quarter.

We are encouraged by the results of that.

We like that product in that it is fully amortizing, and it's fully funded on the day of origination.

If you look at sort of how it stacks up from a Basel III standpoint, it's a very capital-friendly Basel III product.

Is this mainly second liens, or can be first and second liens?

It's both, but it's predominantly first lien.

Okay.

Barb, you may have the exact numbers?

I don't have the exact numbers of bringing in production, but what we do have going on in HELOC right now, all in, is 52% of it is first lien of the entire portfolio.

Okay guys, thank you very much.

Thank you.

Your next question comes from the line of Ryan Nash of Goldman Sachs.

Hi, thanks.

Just as a follow-up on some of the questions Paul was asking, in terms of HARP, it seems like you guys may have added capacity.

You noted that take-up rates have been almost 20% so far.

Can you give us your expectations of how high you think take-up rates for HARP could go as we look out through the rest of the 2013?

If you look at our portfolio, we're servicing about $40 billion in mortgages.

That's large for us, but in terms of the overall market we're a fairly small player.

But $40 billion in servicing, and if you look at -- when we run the analysis, we've only refinanced, we believe, approximately 20% of the customers in that customer base into the HARP II program.

If you look at our production, out of the $8 billion in mortgage production we did last year, $1.6 billion was HARP-II-related.

Of that $1.6 billion, only 50% of that was mortgages that we service.

It varied from month to month, quarter to quarter, but I would say irrespective of which time periods you looked at, it ranged from 23% to 24% of production, to as low as 18%, 19% of production.

But I think sort of keeping it in that 20% of production range is sort of where we still think that sort of falls out over the next few months, unless there's a shift in customer behavior that we have not yet seen.

But there are an awful lot of people still eligible for that program.

We're reaching out to those customers, making sure they understand the program, and making sure they understand the benefits of that program, and then trying to help them through that program.

I think it's a win-win for the customer and for our bank, so we're working hard on that.

Okay, and just on expenses, when you think about the Regions 360 initiative, how much incremental dollar spend are you putting into this as we look out over 2013, and how do you anticipate us seeing the benefits of this coming through?

When we think about the overall expense base, you alluded to credit-related costs continuing to come down.

Should we expect to see credit-related costs coming down, but core operating expenses actually increasing from the current run rate?

Well, let me -- your first part was Regions 360.

Regions 360 is an approach to doing business the way we want it done with our customers, which is to help them through all their needs, through all their financial needs.

Now, Grayson had mentioned earlier about making investments in people that generate revenue for us.

Don't take 360 as being a new initiative where we have to hire a bunch of people.

It's getting our people to do what we want them to do to execute on behalf of our customer; and we think you'll see that in terms of more pull-through, in terms of getting a deeper relationship with our customer.

As an example today, 50% of our deposit customers have one product type with us that we need to expand that.

Regions 360 will certainly help us do that.

It's bringing the full bank to our customers that we expect.

From an all-in expense point, again, we think our adjusted expenses for '13 will be down from '12.

No one area really drives that.

It's just got constant focus on every single line item.

But if you wanted to look at the biggest movers, you have to look at our largest expense categories that we currently have, which are salaries and benefits, and occupancy expense.

We do have things like credit-related that will come down some, as non-performers continue to attrite.

I mentioned credit card servicing earlier, and then the REIT-related savings that we have.

We've talked about, we've got -- inside the Company, we've got to generate positive operating leverage.

In order to do that, we have to look at both expenses and revenues, and clearly have to be disciplined on expenses; but where there's opportunities to invest in people or technology or products that we believe has an opportunity to generate revenues and to generate positive operating leverage, we're going to take advantage of that.

But to your earlier question, you've really got to be pretty disciplined in that balanced approach to make sure that your investments are smart, and -- but we recognize we've still got to manage expenses, but you've still got to have a franchise that has the ability to grow, also.

Makes sense.

David, congrats on the Crimson Tide victory.

Thank you.

Roll Tide.

Your next question comes from the line of Chris Mutascio of Stifel Nicolaus.

Just a follow-up.

I know we're kind of beating a dead horse on expenses, but David, could you determine what the overall environmental costs were in the expense line of fourth quarter, and what a normalized run rate of them might be as we go forward?

Well, let me kind of give it to you for a year or so.

If you kind of look at our run rate, we still think we have $200 million in terms of environmental expense, some of which we will always have.

Those aren't going away.

We do think there's, over time, maybe up to half of that number, perhaps a little less than that.

I would not look to that as being a huge driver of any expense savings that we get '12 to '13.

Yes, it will be a piece of it; but I think as I mentioned earlier that you really have to look at all the categories, because we have an intense focus on every dollar that we spend, and that will just be one of the areas where we have some savings in '13.

That's good color.

If I could follow up with two quick questions, more logistical.

The preferred dividend this quarter -- if I did my math right on the most recent preferred offering -- is that dividend going to be closer to $8 million per quarter than the $4 million that was reported this quarter?

That's correct.

Finally, on -- you're going to save about $28 million annually on the termination of the third-party investment in the sub.

Is there any lost revenue to that termination?

No.

Okay, great.

Thank you very much.

Your next question comes from the line of Marty Mosby of Guggenheim.

Good morning.

Well, first, I have to, David and Grayson, applaud you on the 15-year mortgage decision.

I did want to know a little bit of background of how you were thinking through that, because we've talked about it so much in the past, looking for some term assets, but kind of what's changed your thinking at this point?

Marty, as we mentioned all year, we could make arguments on both sides of that trade.

We thought at the time that the gains were more important to us as we continued to accrete capital and put ourselves in a position that we're in capital-wise.

Obviously, with a low rate environment, you're taking -- you're having to analyze that marginal dollar -- where do I put it to get the best return, risk-adjusted return, I can get?

Over the year, as we got -- as we became very comfortable with our capital position -- and, again, after looking at the market's thoughts on how it treated gain on sale versus a lack of loan growth, that also has to enter into the picture.

When you kind of bring those two things together, we felt that it was time for us to switch the thought, and put the -- give up that incremental liquidity, if you will, for mortgage-backed securities, and put it into [the one-fours] to go on the balance sheet.

It's -- it was a close call either way, but we think this shift for us will be net-net positive.

Is it a pure substitution for securities, or will you dip into that $3.5 billion of short-term assets, which are only earning 22 basis points?

Will there be any real re-design or shifting of the asset sensitivity, or are we still waiting on that?

Well, you'll continue to see us work down, so I guess at year end, now that you see our balance sheet -- what, $3.5 billion -- earning a 0.25 point, that number shifts around quite a bit.

You shouldn't see us on average throughout the year to have that much.

Most of that is incremental to the proceeds -- if we sold the loans and took the proceeds, we'd go into a similar mortgage-backed security -- so you're trading out 2.75 for 1.5.

We already have our repositioning of our investment portfolio, as I previously mentioned, to take more credit-related assets; but I think you should think about it in the context of a mortgage-backed versus the mortgage itself.

Looking at credit card balances, they've been dropping pretty consistently, and now we're bringing this on-board, we finished the transition.

Do you think that those balances can start to turn around as you go forward now?

Yes, we saw some stabilization towards the end of the year.

We actually saw a little net growth, but still at the end of the day you probably -- Marty, you'd probably still call that flat.

But I think we have some pretty strong plans now that we have that portfolio in-house.

We've seen improvement in sales out of our branches, and we've got marketing programs for 2013 that we believe will deliver growth in that portfolio.

We'll have to demonstrate that to you, but we're encouraged by the early signs we're seeing.

Lastly, I just want to hit on what's happening with the HARP.

What is causing only 20% penetration of those refinances as you've gone through this year?

What's the critical thing that -- they've had a year to go and re-fi.

What's really been holding the customers back from coming in and being able to get those loans, and what will change that as we move forward?

That's it.

Thanks.

Well, Marty, I would tell you it's a great question.

It's a question we ask ourselves often.

When you look at the programs, the rates, the rate and terms have been very attractive.

If you're one of these customers who are eligible for this program -- anecdotally what we hear back from customers is some customers still are -- are still not as knowledgeable about the program as we would like for them to be.

We're trying to increase our level of customer communication and customer education about it.

We also know that a number of customers who may be transitioning from the home they're in, maybe to another home, will not participate if they're going to refinance.

If you look at all the anecdotal comments you hear from customers, it causes us to believe that there's still a potential upside of more volume.

I do think the underwriting process for a mortgage is a very rigorous process right now.

Unless it provides a tremendous amount of benefit, people are probably somewhat reluctant.

But we think once we explain the benefits of refinancing and what it can do for these families from a cash flow standpoint, we've been very successful in underwriting a number of these.

We continue to build capacity to do this, and as I think others around the country are, as well.

Do you think just that this last year has been kind of a passive -- because of the capacity issue -- just taking what they came into the door, now what you're going to do is take on more of an active educational process, proactively, by going out to the customer and encouraging them to come in that way?

That would certainly be true for us.

Okay, thanks.

Your next question comes from the line of Gerard Cassidy of RBC.

Can you guys share with us, if you assume your SIFI buffer is going to be 25 basis points, maybe it's slightly higher -- let's assume for a moment for the purpose of this question it is 25 basis points -- and you're required to carry Tier 1 common at 7.25%, what level above that are you going to be comfortable in carrying in terms of your capital?

Well, Gerard, I'm not so sure that the SIFI buffer is the ultimate driver there.

I think there are other things that would need -- that we need to think through, and that is -- one of the biggest one is OCI, and how that's going to be treated.

You still have buffers related to operational risk, and other elements that you want to consider in the whole capital plan.

We've kind of mentioned over time that we thought capital kind of settles out in that 8% to 8.5% Tier 1 common range.

I'll tell you, though, it's still up for debate.

We have a lot of discussion that's going on, even as we speak relative to things like OCI, the [send bucket] for deferred tax assets and mortgage servicing rights, and the like.

But as we kind of cut through all that, we still see as of right now somewhere in that 8% and 8.5% range as being probably where it settles out.

We reserve the right to be wrong on that, but that's our best guess now.

Okay.

When you look at your securities and cash as a percentage of total assets today, it's about 27%.

Where do you see that ratio needing to go to get to peak profitability for you guys, and how long do you think it will take to get there?

You've asked the question of the day.

That is something we constantly look at.

Obviously, we would love to take a percentage of our securities book and deploy that in loans if we can get properly priced, properly structured loan growth.

I think historically, if you look at percentages of earning assets for securities book, you generally have been in that 15% to 18% range.

We understand and acknowledge we're way above that.

I think most people are carrying more securities than they would like to today.

If we can get some uncertainties taken care of in the economy, whether it be the cliff, the debt, the uncertainties in Asia and Europe and get some confidence in the market place, we could see some loan demands, which we have liquidity to shift into that really quickly.

I think working that down to that range I just mentioned is what he we want to do over time.

It will take us a while.

It's hard to tell you how quick we can get that deployed.

But it is the reason that we have started to take more credit risk in the investment portfolio, which is historically and predominantly established to cover liquidity.

We believe at a 78% loan deposit ratio, we have plenty of liquidity, and we don't have a lot of long-term debt, but we think that we can take some extra credit risk in that investment portfolio to give us a somewhat of a proxy for credit that we put on the loan book.

That being said, we're in the relationship business.

We're in the business to make loans to people and businesses, and that's what we want to continue to work on.

Recognizing that is the primary focus here is growing the loan book of course, would you consider paying down some of that high-cost, long-term debt that you have on the books, and then just reducing that securities portfolio?

You would almost shrink your balance sheet to increase the profitability of the Company.

Well, we talked earlier about liability management.

You saw us do some of that this past year.

We have about $750 million worth of debt maturing all-in this year.

I think $250 million of that is at the holding Company, and $500 million's in the bank.

We've already had that considered in our liquidity planning which we start two years out.

But we're looking for opportunities to reduce our all-in funding costs, in particular, our long-term debt cost, which today is about right at 5% after considering swaps.

You clearly are hitting on something that we look at all the time in terms of how we might take that out.

My final question is on the securities portfolio.

What's the duration, the average duration of the portfolio, and then, what is the duration of the securities that you put on in the fourth quarter into that portfolio?

Yes, if I look at the overall portfolio, it changes, as obviously pre-payment speeds keep moving around, but today we're probably 2.75 years, roughly.

If you look at what we've put on in the fourth quarter, that's probably, I don't know, three years maybe.

Thank you.

Your next question comes from the line of Jennifer Demba of SunTrust Robinson Humphrey.

Good afternoon.

Question on your corporate banking effort.

I'm just wondering if you could, Grayson, just discuss kind of the progress you've made in the last couple of quarters, and the growth you're expecting from that effort over the next one or two years?

On corporate banking business.

Jennifer, when you look at our commercial line of business, really most of our growth over the last year has really come from the upper end of what we would call middle market, and what is generally referred to as corporate banking.

Our corporate banking efforts are not that large in that the way we sort of have our business dissected is in our small business -- our business and community banking approach -- we go up to about $20 million in sales; in our commercial middle market, C&I, we'll go anywhere from that $20 million up to as much as $2 billion in sales.

We're really focused on that core middle-market space.

That being said, most of the growth over the last year has come in the upper end of that, with smaller companies, smaller businesses, really behaving more like a consumer, still [no] more de-leveraging and carrying larger amounts of cash reserves.

We are seeing a little bit broader demand than we'd seen before.

From a strategy standpoint, we tried to pick certain industries that we're specializing in, like asset-based lending, health care, transportation, energy, and also franchise restaurant, and we tried to focus on those industries.

We recruited some really strong bankers in those industries, and we've used those bankers even though they may be located in one market or another.

We've used them franchise-wide, across all of our markets, and have generated what I think is some pretty good, strong growth in our commercial book of business.

Where we've seen the decline really has been in owner-occupied real estate -- has continued to decline throughout the year; but that's not surprising, because most of that product is in the lower half of the middle-market space, and in the business and community banking space.

The other side is investor commercial real estate.

That portfolio had so many stressed loans in it, a lot of that -- the stressed loans have had to be resolved in the course of business, one way or the other, and so you've seen that de-risking activity.

But as I mentioned earlier in the call, our production has increased on that segment, and when you look at the overall commercial business, I would again say we probably had the best December we've seen in a long time.

Going into January, we feel pretty encouraged by it.

Will it hold up through the year?

Again, the economy being what it is, we're continuing to see incremental improvement in the economy, and we hope that there's more certainty around a lot of fiscal issues, and our customers get back to investing in their businesses.

I think we'll benefit from that, if that occurs.

Thank you for the color.

Your next question comes from the line of Matt Burnell of Wells Fargo Securities.

Most of my questions have been asked and answered, but just one quick question, I guess, to hit on the mortgage subject again.

Just curious as to with the new recommendations for QRM mortgages coming out recently, how did that affect your outlook for mortgage production, or did it affect at all your desire to keep -- to put the 15-year mortgages on your balance sheet?

Just curious as to how you're thinking about that new item for the industry?

We've had our mortgage team going through all of those rules and guidelines, and a lot of the rules will have little to no impact on us.

We think that there will be some adjustments to our business model that we're doing today, but they're relatively small.

Our mortgage team at this juncture is not predicting a big impact of those rule changes on our business; but our mortgage business has been fairly simple for a long time, and we're not doing a lot of the things that would have impacted that business very strongly.

I think that the end of the day, the guidance was good, glad we got the guidance.

We'll adhere to it, and we think we'll adjust our business model and move forward without a lot of barriers.

Fair enough.

For my follow, I'd like to -- I'm not going to let Barb get away totally scot-free.

Thank you very much.

I'm just, Barb, just curious in terms of you saw very nice decline in non-performing loan additions this quarter.

How are you thinking about that trend into 2013 within your guidance of continued improvement in overall asset quality metrics?

Yes, even at the $350 million level I would say that we're in that normal range, the high end of the normal band.

Okay.

I do see that continuing to trend down, though, and I would say the place for you to look is in our criticized and classified.

Clearly as those numbers come down, movement in NPL will follow.

Okay.

Thanks very much.

Your next question comes from the line of Kevin Fitzsimmons of Sandler O'Neill.

Good morning, guys.

My questions have actually all been asked and answered.

Thanks.

Thank you, Kevin.

Operator, do we have any more questions?

Your final question comes from the line of John Pancari of Evercore Partners.

Good morning, just a couple quick questions on loans.

In terms of the loan demand, can you -- I'm sorry if you already mentioned it, but would you discuss what you saw in terms of line utilization during the quarter, where you see that trending?

Line utilization's relatively flat.

It was down ever so slightly.

We really haven't seen much movement in that line utilization in the last few months, in that 43% utilization range, approximately.

We've obviously in our commitments increased substantially, but line utilization really hasn't moved much at all.

Okay.

In terms of borrower confidence, we've heard some of the other Southeast-based banks indicate that they're seeing a pretty good pick-up in confidence post the election, and the near-term resolution of the cliff for now.

Are you seeing some improved activity amid your borrower base?

I think overall, we'd say that confidence is incrementally better, but it's a little mixed.

I would use the word mixed.

I think clearly our larger customers are more confident than our smaller customers are today.

I do think that -- I'm not sure how many cliffs we have, but getting past what we did recently really helped the overall confidence level.

I think if we continue to make positive progress on the fiscal side that corporations will become more confident.

Because I would tell you, business -- the people in business -- they want a more confident environment.

I think they're poised, ready for a better economy to start executing on their plans.

But right now, I would say it's better, but not -- the movement has been incremental, not a big, huge swing.

Okay.

That's helpful.

Lastly, in terms of your loan book, can you discuss where you're seeing the new money yields come in on your new loan originations by type?

Just want to get an idea of what the competitive pressure that you're seeing there in your pricing?

Yes, I'll make a few comments, then I'll ask Barb to speak on it as well.

But clearly, competition for lending opportunities has increased, and so I would characterize the kind of spreads we're seeing on transactions today still historically better than what we've seen in the past, but not as high as they were a few quarters ago.

I think pricing is starting to tighten a little bit, but still at levels that we would say are better than what we've historically seen.

Probably the most tightening has been on the commercial real estate portfolio, where those spreads have really gotten wide, right after we really got into the crisis.

Those, while they're still relatively high, they're tighter than they were.

Barb, if you want of to add to that?

Yes, if we look at middle-market spreads in general, going back even as far back as 2004, and where we are today, they're generally pretty flat.

They went up clearly during the course of the recession -- back in 2010 they were up; as Grayson said, they've come back, they've tightened.

Again, all-in, if you look at some of our individual businesses, things like business and community banking clearly has a much better yield than some of the others and our business banking spreads, again, they were up significantly in '09 and '10.

They've come back in -- again, back to '06 levels, generally, as we look at fourth quarter.

Okay, that's helpful.

Thank you.

This concludes the allotted time for today's question-and-answer session.

I will now turn the call back over to Mr. Hall for any closing remarks.

Listen, I appreciate everyone's time.

A lot of good questions and hopefully you got the answers you need.

As I said the first of the call, we appreciate your time and respect your time.

With that, we'll stand adjourned.

Thank you.

This concludes today's conference call.

You may now disconnect.