Synovus Financial Corp (SNV) 2009 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Synovus sponsored first quarter earnings 2009 conference call.

At this time, all listeners are in a listen-only mode and the floor will be opened for you questions and comments following the presentation.

Now I would like to turn the floor over to your host, Mr.

Richard Anthony.

Sir, the floor is yours.

Thank you, very much, and I want to welcome each of you to our first quarter conference call.

We're in the middle of earnings season, and we here in the executive group like you have been paying close attention to the announcements that have been coming from banks, I guess we would all agree there have been mixed results.

The main story, the core of the story for almost everyone is credit.

We'll certainly spend appropriate time on credit in our call, but first, I want to recite to you several positives that we feel are noteworthy in the Synovus story.

On the deposit front, I'll have some details later, but we have had continued good momentum and success in that area in liquidity and deposit gathering.

We have an improving story with our margin.

We'll share some information with you on that.

We continue to work hard on our expense base.

We're seeing traction there.

We're seeing good results, and throughout our footprint, even though a lot of attention is focused on Atlanta, and perhaps parts of Florida, many of our markets remain solid and as a result, many of our banks continue to be good contributors to Synovus's performance.

Before I move in to the quarterly performance, I want to mention a downgrade that has announced actually in just the last 30 minutes from Moody's.

I'm sure most of you have seen that on your screens.

Synovus was downgraded multiple notches.

We were aware of this possibility.

We have planned from a capital and liquidity standpoint for it.

Moody's in their assumptions has taken a harsh view, particularly with real estate-related loan portfolios, but I wanted to share that with you in case you had not seen the news, but more importantly want you to know that this was not a huge shock, and that we have prepared from a balance sheet standpoint.

As you saw in our earnings announcement, the net income or net loss for the quarter before the preferred dividend was $137 million on a per-share basis.

This converts to $0.46.

If you take that back to the fourth quarter of 2008, excluding our goodwill writedown, the comparable number was $195 million.

Of course, the key driver as I said earlier had to do with the credit cost.

Our provision itself was $290 million in the quarter, compared to $364 million in the fourth quarter of 2008.

Residential construction and development continues to be the largest component of credit costs, with the Atlanta market being the primary area of concern.

40% of the provision that we incurred in the first quarter relates to the Atlanta area markets.

We continue to build our reserve during the quarter.

It increased from 2.14% to 2.32%.

If you go back a year, it was 1.46% at the end of the first quarter of 2008.

Non-performers increased significantly to $1.75 billion, which is 6.25% of the portfolio.

The factors to consider here have to do with the continued migration related to the housing recession that we all are painfully familiar with.

We did add a large resort hotel relationship, which is in the form of a restructured loan that is being finalized over the next several weeks.

This added almost 100 basis points to the non-performing asset ratio.

The exits in the first quarter from our MPA list were not at the level that we expect them to be over the next two to three quarters.

A few things to consider there, the seasonality factor entered in to some of our tactics in that the peak selling season was just around the corner.

We were holding back a bit there.

We have been viewing, as you would expect, with a lot of interest, the legacy loan program coming from the government, public/private partnerships that are being put together.

We believe that some new avenues for disposition will be opened up as a result of this program, and we want to see more from that, but the information that we want to see is not yet totally available, so we'll continue to follow progress there.

We had some bulk sales that we entertained.

We held back on a few of those because the pricing did not suit us, but we will have a greater level of exits from this portfolio over the next two quarters, as I said earlier.

We organized a little differently, and I guess in a stronger fashion in this special assets area in recent weeks.

Dee Copeland, one of our executives, has taken on some supervisory responsibilities there for special assets as we have centralized much of the activities in Synovus here at the corporate level.

The tactics, and -- are obvious, but if you wonder exactly what we will do to sell these assets I'm making reference to -- the auctions will continue, the note sales are going to be increasingly important for us to work this MPA list down.

At the local level, the short sale activity is picking up.

It will continue to be used more aggressively by our banks in their local markets, and we will always have a bias toward disposition at the local level to buyers who are familiar with the communities, with the markets, with the properties as opposed to bulk selling, bulk selling to those who are coming in from outside trying to pick up something at a highly reduced price.

I'll shift in to deposit activity now.

I said earlier, it was a positive story.

Core deposits are up $1.5 billion over last year or 6.9%, and on a linked-quarter basis, 7.5% or $410 million.

The mix of our deposit base continues to be better, as it improves and moves into the lower cost transaction account categories as we have become even more disciplined on the CD pricing, and our certificates of deposit percentage of core deposits is declining some.

Certainly it did in the first quarter.

We have this unique advantage that no one else has with our shared deposits, both CDs and money markets, meaning that through our charters, we can pool in our 30 charters insurance coverage, giving a single customer up to $7.5 million of protection on a single account.

This more disciplined pricing that I'm referring to is showing up in the margin.

I'll speak a little about that.

If you go quarter-to-quarter you'll see that our margin declined from 3.20%, 3.20% to 3.05%.

There is more to the story.

Six basis points of the decline was credit related and 9 basis points reflected the rate reductions that took place in the fourth quarter.

But if you look within the quarter, you would see that from January to March, we had improvement from 2.96% in the margin in January to 3.16% in March.

On the asset side or on the loan side, we have worked diligently in our banks and throughout the Company on loan pricing, pricing better for risk, inserting floors in pricing, and so in addition to funding costs, improving our asset yields or our loan yields are improving as well.

So we are optimistic as we look forward, that we will continue to see some improvement in the net interest margin.

Expenses are an equally important topic for Synovus.

They have continued to trend downward as we push hard on all of our expense channels.

Project Optimus continues to move through the implementation phase.

We continue to be confident that the targets that we communicated to the public, which totaled $75 million in pre-tax benefit will be attained at least on a run rate basis, as we get on in to the latter stages of this year and next year.

We have taken some of those ideas out even further, and taken thoughts that merged in Project Optimus to work on additional possibilities for efficiency throughout the Company.

Our year-over-year fundamental expense category is down $14.1 million from the first quarter of 2008, which is a 6.9% reduction.

Our headcount in the Company, if you go back to the first quarter of 2008 is down 611.

Now, we're excluding some categories if you are trying to reconcile this with the information that we have provided, so I'll point out that we have excluded credit costs.

We have excluded the FDIC insurance premium charges.

We have excluded restructuring charges and some costs or expenses that we have incurred through the Visa litigation.

Other G&A is down $5.4 million.

This is a component of the numbers that I gave above, but we are looking in addition to headcount, all of these discretionary areas, reflecting belt tightening.

Fee income held it's own.

We had some negative movement, as you would expect in the businesses that are tied to the equity markets with our money management, with our trusts, capital markets, and brokerage activities, but it was offset by strength and extremely good performance in mortgage banking, where they have had a great early part of the year, and our corporate analysis service charges as we have been successful in growing corporate business relationships, have been strong within the banking operations.

If you look ahead, we believe that our pre-tax, precredit cost income trends should increase as we move out through the remainder of the year, and this is a result of the positive direction of the margin, and expenses, and stable fees.

I'll remind you that, despite the Moody's downgrade, our tangible capital ratio continues to be extremely solid, 7.8% at the end of the quarter.

Our tier one ratio is over 11%, 11.05%, and we, as you could expect are doing our own projections and stress testing, which indicate to us that we will have adequate capital even with the burn rate that we are incurring in the construction and development portfolios, which incidentally are declining and represent certainly less exposure today than we had six months or 12 months ago.

The immediate future, I would say we'll have a tough second quarter.

Some of that will be driven by more aggressive asset disposition, which involves taking some losses on these assets that I'm referring to.

This will, of course, drive a continued higher and elevated level of provisioning.

We do expect to see some moderation late in the year in 2009, and we are eagerly anticipating that.

Those are the high-level remarks that I wanted to make, and Fred Green is here with me.

He will now share a few other thoughts and go a little bit more in depth into the subject of credit.

When he concludes, he'll turn it back to me, and I'll open the floor for questions.

Fred?

Thank you, Richard.

As Richard mentioned, credit continues to dominate our performance, and in the first quarter, as he also said, our problems remain concentrated in the residential construction and development category, and our Atlanta portfolio continues to be our biggest challenge as well.

As you would expect, we have had some deterioration in other areas of the portfolio, and in other markets, but there's nothing systemic about the deterioration.

A little more color around the most visible credit metric we have, which is our non-performing loan increase of $519 million this quarter.

As Richard also said, the increase was impacted by one large relationship, and also some disruption in our disposal plans.

Seasonality did play a role in reducing the disposition of our residential inventories, and again, the government's introduction of the legacy loan program caused come of our anticipated note sales to be delayed until this quarter and beyond.

We expect more sales activity in housing as a result of the seasonal impact now behind us, and we also expect our note sales, as I said, to increase.

By portfolio type, as to the one large customer that we mentioned that impacted our NPLs, we are in the process of restructuring their debt, but felt it was appropriate to code it as an NPL.

Are we comfortable with the restructuring?

We think it will allow for an orderly reduction in their debt.

But during the core, it did cause our hotel portfolio, NPLs to increase by around $220 million.

We also had an increase in our shopping center NPLs of around $40 million, and again, this was primarily attributable to one other customer that had multiple projects throughout our footprint.

And as I mentioned earlier, the residential C&D portfolio continues to be stressed.

NPLs in this category increased by $117 million this quarter.

We -- I would like to point out, we do have a very low threshold for impairing our MPAs.

That threshold is $1 million.

83% of our MPAs have been impaired or impaired -- gone through impairment testing with an average of 25% markdown on that portfolio.

Let me shift to some other components, our consumer portfolio of $4.3 billion continues to perform well.

The NPL ratio in this category was up slightly for the quarter to 1.4%.

Our CNI portfolio of $11.2 billion is also performing well, the NPL ratio in this category was 1.81%, up slightly from 1.57% last quarter.

In summary, our residential construction and development primarily in Atlanta continue to be our biggest challenge.

Seasonal slowdown reduced our disposition experience, and we expect to pick up in sales activity going forward.

The legacy loan program we think might be beneficial going forward, but its introduction late in the quarter also disrupted some of our planned note sales.

And finally, the restructuring of the debt of our largest borrower will be very beneficial to us and to them as we go forward.

And Richard, I'll turn it back over to you.

Thank you Fred.

I'd like to now invite questions from the audience.

Thank you very much.

Ladies and gentlemen, the floor is now open for questions.

(Operator instructions).

And we'll take the first question from Nancy Bush.

Ma'am, your line is live.

Good afternoon, guys.

Nancy.

Couple of questions here.

The auctions -- sales, et cetera, et cetera, you guys had anticipated, I think, if you would refresh me to be about $125 million a quarter, is that correct?

That was initially the expectation?

That is correct.

Are you still expecting that, and now that we have had to put that off a couple of quarters, is there going to be sort of a catchup, or if you could just update those expectations?

I'm going to ask Dee to speak to that, but Nancy, you are right in recalling that number.

And we did not meet that number.

I believe the number, Dee, would have been more in the $70 million-some-odd dollars range.

But in answer to your question going forward is yes, there will be a catchup definitely.

Now I'm going to ask Dee to put some color around that.

For the first quarter, we had total sales of assets of $126 million which wasn't too far off of the $125 million we had given.

The number Richard quoted was the net proceeds of that on book value.

We do think we will increase from that level in the second quarter.

We are pulling together assets to look at those and increase the levels in the quarter.

But I would say, Dee, would be well above $125 million --

That is our expectation, yes.

Could you just update us as well on what kind of -- how much on the dollar you have been getting on these things, and if you could expand between developments and land and that sort of things.

Sure, we -- I guess if you take the total for the first quarter, we were just north of $0.60 on the book value.

I'm going to make sure we qualify this now.

Are we talking on the legal balance or on the writtendown balance.

Let's make sure we qualify that.

That is 60% on the written-down balance is what we received in the first quarter.

Our current book value.

Okay.

Okay.

And then maybe to segregate between some of those, we did do some in auctions, we did some ORE sales, note sales, and short sales to maybe look at it that way.

In auction level and in ORE sales we were in the 60% to 65% range.

The short sales that we did were in the 80% range, and the note sales were in the 50% range.

Are you finding on the short sales that that process is getting easier, because having encountered that in Atlanta myself and trying to buy a house, it was initially quite combursome

I think it may be getting easier, but there is a lot more volume out there right now, which is hurting from a pricing sense.

If I could just ask a follow-up question, on the restructured resort credit, how long will that remain -- does that have to remain six months in restructuring?

How does it get back to accrual.

We believe, and Fred, you can correct me or add to it, I believe we'll have to have a one-year period of performance before it could return.

That's right, Richard, they are -- we have covenants in the loan that would require paydown operating performance and interest paid, and we feel like it would be appropriate at the end of one year to review how they are doing and, again, would anticipate moving it back to accrual status at that point.

Okay.

Thank you.

Thank you.

Thank you very much, we'll take the next question from Adam Barkstrom.

Your line is live.

Hey, gentlemen, good afternoon.

Richard and Fred, I wonder -- Just to follow up on the credit, you talked about the restructuring.

Any color you could give as to sort of the measures you have taken, or how you went about doing that, and what gives you, I guess confidence that we might see that credit back on accrual within a year.

Adam, I'll jump in.

This is Fred.

Again, we're not going to talk about credit by name, but the credit that I mentioned in particular, the plans are to sell certain non-operating assets.

There would be a lot of activity associated with that sale right now that should allow the debt to come down at the prescribed amount.

Operations within the resort have continued to improve as they have made various shifts.

I'll mention that we are the lead bank in a group of banks on this particular one, and have worked with our bank partners to create a structure that we think is beneficial to us, and allows the Company to execute on their plan as well.

Okay.

Thank you.

I apologize, I didn't mean to put words in your mouth with naming the credit.

I apologize.

Hey, any sense you could give us with your current CRE portfolio?

It -- any sense of -- could you quantify the principal balance that has interest reserves left on it in that portfolio?

Let me start by -- to get to your question, let's Dee and Kevin I think have a quick way of saying this, but we -- our CRE portfolio is diversified in to four or five components.

That would be our retail shopping centers, our multi-family, our hotel/motel portfolio, and office exposure.

Office building is less.

I think we have pretty equally disbursed among those, what, close to $1 billion or close to that, Dee?

That's correct.

I will say, we're taking each of those components and unlike our traditional loan review which has been more at the bank or market level, we're taking these categories or exposures and following them throughout the bank and operations regardless of the charter, so we're getting our arms around this exposure.

We started with the retail shopping center piece.

And Mark -- loan review reports up to you.

Do you want to give a quick description of our findings there with the shopping center piece, and then explain where we go from here in breaking.

I think we're going in to the land component here before long.

Well, I'll just say we have reviewed the hotel and shopping center categories, and with finding -- we are pleased with our findings at this point in that portfolio, and are looking at the land and commercial development components this quarter, and will be able to assess that portfolio as well, but we're not seeing dramatic deterioration at this point in those portfolios.

Let me comment as well --

And we don't have interest reserves in any of these categories.

I'm confident of that.

Specific interest -- of course we reserve as loans are graded, along the way -- this is Kevin -- and Mark, also we did a pretty extensive hotel review, and we really don't have in the entire commercial investment portfolio any concentrations by geography, tenant mix and shopping centers as well as the hotel, any particular brand of hotel.

So we continue to go thoroughly through that portfolio.

We did have a couple of one offs has Fred mentioned earlier.

We don't see a lot of variation there.

Certainly we're aware of what the product is.

Let me just jump in on that comment on the interest reserve.

I think Kevin was referring to the loan loss reserve, when he said we would do it based on loan rate.

We have very little if any interest reserve on any of our loans, Adam, so it would represent less than 1%.

You mean for the entire portfolio or just the CRE piece?

Really, the entire portfolio.

We have not had a practice of setting aside large interest reserves on our loans over time that -- the category that might have had it early on, or might have had it the most would have been in the construction area, but all of those have matured, and there's no more interest reserve there.

All right.

Just so I'm clear.

You are saying if we were to quantify the interest reserve number for the entire portfolio, it would be less than 1% of the entire portfolio.

Is that -- am I hearing you clearly?

You are.

Okay.

And if I could one more follow-up and then I'll jump off.

Richard, last quarter, in particular last quarter, we talked a lot about -- and maybe you talked about it in your opening remarks and I missed it, but the establishment of a problem asset subsidiary, and I was just kind of wondering if you could give us more color on where that is, et cetera.

I will Adam.

I did not say anything about the Broadway Asset Management subsidiary that we created.

We did move $500 million in assets.

We had some writedowns following that.

But we took those levels of assets out of our banks, and of course that, given the multiple charters that we have, really provided a better regulatory view, and really, freed up the management teams in those banks to concentrate more on the customer-related activities rather than the problems, as we have shifted more responsibility for our problem assets into the corporate staff.

Now that doesn't mean everything has been shifted because there is tremendous value that comes from the local officers that managed these accounts in the past and continue to be involved.

I would say that as far as selling assets out of this BAM unit in the quarter, not much activity there.

We did take some further writedowns as we have gotten updated appraisals.

Today, the balance -- the book balance in BAM is $347 million, so you can see that most of that decline, as I indicated, has occurred through markdowns or writedowns, but it has achieved the purpose of providing a place to warehouse, particularly some of these lot loans we'll continue to write them down, butt disposing of subdivisions in Atlanta right now is poor timing, and they will be warehoused in this unit.

So we have created this vehicle, I think, to help the individual banks.

It should be really no different to an outsider who views our Company on a consolidated basis.

Dee, did you want to add anything to the Broadway Asset Management topic?

No, I was think that was most.

Unless there are specifics.

Okay.

Any question on that Adam?

No, I think you covered it.

Thank you.

All right.

Thank you.

Thank you very much.

We will take the next question from Steven Alexopoulos.

Your line a live.

Hi, guys.

I had a few more questions on this $220 million or so restructured hotel loan?

Yes.

Is that the entire loan relationship that you have for that borrower?

That would represent 90% plus of it.

What you guys estimate for the value of the collateral on that loan?

The collateral far exceeds the debt.

You would not need a specific reserve, though?

No.

It has got a reserve, as all of our loans would have, but as it relates to impairment testing, obviously we have gone through that and have not taken any writedowns on it because of the appraised value.

Okay.

Richard, could you just review for us quick why you hold such a large credit on the balance sheet?

I guess it's little over 8% of tangible equity.

It is a large credit, and we started -- well, first of all there -- I would say in the latter stages of the renovation that took place in this credit, there were some advances that we made that went beyond the original expectations as plans changed, as cost overruns were incurred and needs became apparent.

So the original concept would not have been to this level.

This is a much higher exposure than we think is appropriate for our Company going forward.

We have a large borrower policy limit that will be well below this, but this is where we are at this point in time.

But I tend to agree with the, I think, the tone of your question, in that our size needs to have tighter limits on large borrower concentrations, and we are clearly moving in that direction.

Okay.

Maybe just follow-up shift direction for a second.

What is the outlook on the Atlanta [Renzi] construction that is still performing it looks like about 75%, and what reserves do you have for Atlanta Renzi construction at this point?

Kevin?

We have around -- in the portfolio that is probably had the most run rate of new NPLs there about $600 million in the residential development, and 1 to 4 construction left that is performing.

Probably about a year ago, that was about $1.3 billion, so you can see it's come down quite a bit.

And that's what -- we're appropriately reserved like we do the other -- probably 15%, 20%, hopefully, reserved.

But what we do in your methodology as I think you would know is our internal risk grades, they start at one, but when you get in beyond fours and fives, the watch list type of credit would be 6, and then the performing criticized credits would be what we call a seven, so in order to give you an accurate disclosure on the reserve, we would have to pull up the percentage of those credits that are in 6s and 7s, but a 6 would be reserved in 6.5% --

I think it's around 7%.

And a 7 -- a grade 7 is reserved at 25%, 26%.

So you can see that it steps up based upon the migration that occurs in the portfolio.

We went through a very targeted and I think stringent look at the portfolio in December, and a lot of the portfolio migrated into 6s and 7s, but I'm unable to tell you, nor do I think we would want to disclose exactly what the current mix is, but we are being aggressive and pushing those loans if they are weak into 6s and 7s.

Okay.

Thanks, guys.

Thank you.

Thank you.

We'll take the next question from Christopher Marinac.

Your line is live.

Thanks.

Good afternoon, guys.

Just wanted to follow up on the Broadway Asset one more time.

So Richard when you mentioned that the book balance is $347 million, that would imply there is another 1$00 million mark on that this quarter.

I'm just going back to what the 10-K had said.

With the $50 million when you transferred at year end.

Can we reconcile that, Dee?

When we originally pulled it in to Broadway Asset Management, there was a $50 million mark on that number.

There was a reduction of $73 million during the quarter.

Of that $41 million -- excuse me, $42 million was writedown, $31 million was sales.

Okay.

And then is there a difference between the -- between your legal balance and the $347 million, just from a -- nomenclature?

Yes, Chris, the legal balance would be what the customer would owe us.

Our book balance is what it's marked down to.

Would you say, perhaps the legal balance would be about $450 million -- 440, 450

The original balance when it came in was $470 million, so it would be just a hair north of that.

About 40% mark with --what is legal balance versus what is book balance on there.

Right.

Are you clear on that, Chris?

I think so.

40% mark down from from the $470 million down to the $347 million.

That's great.

Thank you guys.

Appreciate it.

Thank you, Chris.

Thank you very much.

We'll take the next question from Ken Zerbe.

Your line is live.

Great.

Thanks.

Just in terms of or related to the hotel MPA can you tell us how many more large credits you have, or $100 million have not get gone non-performs.

There are 4 under $100 million that are all performing.

Are those in CRE?

CRI?

I didn't hear the question.

In what category are those in-- are those construction-related or CRE-related bonds?

There are four he mentioned, and they are below $150 million at this time.

They -- three of those are real estate related and one is CNI.

Okay.

Investment property -- in the real estate category.

And multiple projects.

Okay.

The other question I had, what -- can you just remind us what areas of your business are most affected by the recent Moody's downgrade to junk?

As far as managing our balance sheet and -- I'm going to ask Tommy with Jody Lowry's help to go over the contingency planning that has been in place for this.

Yes, we have assumed in this environment and watching what is happening to others, and even seeing the Moody's pre-release about five weeks ago, that us and 22 other regional banks were under review.

That there would be this type of activity.

The final outcome was harsher than expected, and certainly harsher than our own modeling, but we assume we would have a multiple notch downgrade, and have positioned accordingly and we have positioned ourselves to -- to have the buildup in our Federal Reserve account, and we have a significant amount of unencumbered securities and that type of thing if -- were it needed, but from a technical standpoint, what really happens is the bed funds lines would likely contract, and then also, you have to provide some collateral with the derivatives positions that have fairly small amount, and those are the main factors that on the balance sheet that -- the way we think about it, and -- we're planning as if we will have -- we have been planning as if this would occur.

Last Fall, Tommy, we -- we moved out of any Fed funds borrowings, I believe.

Yes.

We quit using our lines several months ago.

Yes, the lines are not used today, and we -- we believe that there is chance that the -- or likelihood, even that some of the comparable rate demand notes that are out there will end up on our balance sheet.

I think we have almost $800 million that are out there, and can be put back to us, and seems to have some rating sensitivity in many cases, and we have been planning as if that would happen.

All right.

So restricts your funding to some extent.

Does it have any impact on the deposit side, with, say, municipal entity?

The municipal deposits are either FDIC backed or they have pledged collateral behind them, and so there should be no direct action there, and also a great hedge that we have that is unique to our Company, as Richard mentioned earlier, is the shared deposit program, and when people -- as we saw in the Fall when the industry was under stress, we had great growth in that category, but it's a very unique vehicle that allows us to gain and keep deposits with the broader FDIC coverage.

Okay.

Great.

All right.

Thank you much.

Thank you.

Thank you.

The next question we'll take from Kevin St.

Pierre.

Your line is live.

Good afternoon.

I was wondering if you could tell me -- I noticed absent from your credit quality disclosures is the level of FAS 114 non-performing loans, the impaired non-performers.

Number one, I would like to ask you what those are, and number two, why the disclosure change?

I'm not following you on the disclosure change.

Well, as I look at the fourth quarter, you have a note on non-performing loans.

That tells us that it included $618 million as of December 31st of impaired loans for which there is no reserve.

Yes, I'll answer that question.

Our impaired loans are -- are about $1.2 million -- billion, I'm sorry.

That makes up about 84%, and I think Richard said 83%, but it's about 84% of our non-performing loans, and $785 million of those impaired loans have no reserve against them.

I'm not sure why that's not in the report, but those are the facts.

So the $785 million would compare to the $618 million at December 31st.

That's correct.

Okay.

And I think Fred mentioned average 25% mark.

Is that an average 25% mark on the $785 million or would it be a larger percentage of the $785 million.

It's the $1.2 billion, $1.3 billion amount.

So 25% mark on that $1.2 billion.

That is correct.

Great.

Thank you very much.

Thank you.

Thank you.

We'll take the next question from Jennifer Demba, your line is live.

Thank you.

Good afternoon.

Hey, Jennifer.

Richard can you give us some more color around your comments that you think provision could back off in the second half of the year?

Well, Jennifer, if you look, I think Kevin was talking about the 50% decline in the performing C&D portfolio in Atlanta, which is where a high percentage of the pressure is coming from, and as we get on through -- I mean, this thing is coming down at a fairly rapid pace, either through migration into MPA and impairment testing, or in the case of sales -- and I would say that the answer to your question too centers around our anticipated ramped up, and more aggressive activity levels in the second and third quarters.

We really will be moving out of MPAs a much larger number in dollars than we have been experiencing.

So we will be working hard to stay ahead rather than falling behind, and then, just looking at economic forecasts, and views on housing, I'm not Pollyanna about this, but I do think, if you look at some of the statistical data that inventory levels are working their way down -- slowly, but coming down.

Prices, we think by the end of the year have a good chance of bottoming out, and I'm counting on some fundamental improvement in the marketplace by the end of the year.

It just sort of coincides with the bottoming out of the economy overall.

Okay.

That's helpful.

And I was wondering if Kevin could give us any numbers he may have on the watch list.

And how that is looking first quarter versus fourth quarter.

We don't usually, Jennifer, disclose that watch list, those watch lists.

Okay.

Thank you.

Thank you, Jennifer.

Thank you.

We'll take the next question from Bob Patten.

Your line is live.

Hey, guys.

Hey, Bob.

What is left?

I guess let's talk about the NIM, obviously you said it started to accelerate in the last couple of months, up to 316, so would you assume continued acceleration beginning of the quarter, and going forward.

Tommy, would you comment?

Yes, Bob, I would be glad to.

So we took on the remaining pain from the severe rate cuts that occurred late fourth quarter, and of course 82 basis point average prime rate reduction in first quarter compared to fourth quarter, was something in our balance sheet that takes a little while to absorb, but low-water mark was 296 in January.

The high-water mark in the quarter was 316.

Great improvement during the quarter.

Our guys are doing a good job on the front line of pricing loans and prudently pricing deposits, getting, floors in loans and pricing appropriate.

So the incremental business and the repricing is incremental to the margin, and we do see continued improvement there, it won't -- it's not going to go up 20 basis points every two months like I was, but it will -- we believe continue to escalate.

Okay.

And then on the FDIC special assessment in the second quarter, have you guys played around the number 6 to 10 basis points, what it is going to be?

It just -- the simple math on the thing, would put it in the high 20s.

Yes.

And also in terms of -- the question on legal book versus book balance.

Last cycle there were a lot of recoveries that came back coming out of the cycle as banks pursued borrowers for deficiency judgments and so forth.

Do you see that fouling this cycle or will they be -- once you are -- you get that legal balance, that legal balance is done?

Well, we certainly have a long list of potential deficiency judgments that we can pursue, Bob, but realistically, even though we will have recoveries, and they will probably be noticeable in re -- as a proportion of the credit that's flowing through our books right now, it's not going to be substantial because these borrowers are depleting their liquidity, and it's really just not much to fall back on.

Yes.

And then one last question.

In terms of the large hotel credit, obviously if your portion is 220 or thereabouts, the other two banks probably have commensurate proportions.

I don't think we have their permission to disclose that.

Okay.

When you look at the credit and you look at the collateral value, it's in excess of the total credit?

Not just the novices?

That's correct, the total credit, and we continue to update our appraisals.

The last round we had was, I think early December.

And there are some updates that are going on even now.

All right.

Thanks, guys.

Thank you, Bob.

Thank you very much.

We'll take the next question from Paul Miller.

Your line is live.

Thank you very much, and I'm new to covering this Company, but my big question is on your allowance to loan losses is right around $640 million where you charge offs are in the $250 million range which is roughly only about two to three times charge-offs.

I was just wondering, why -- compared to other companies this appears to be somewhat low.

We like to see four to five quarters worth.

Can you just address that a little bit for us?

A lot of it has to do with the low scope of our impairment process as Fred talked about earlier.

$1 million relationship, or above, when it hits non-performing gets immediately impaired and charged off, so a lot of the banks have higher scopes on their impairment charge and retain reserves against those loans.

We don't -- we take our hits and then each quarter, we reevaluate those loans with updated market data or appraisals, and then take further hits against those if the market declines.

So basically you are taking hits right when it goes in to a non-performing asset, you are charging a portion of it off.

Yes, we are charging it down below the appraised amount.

The current appraised amount.

Okay.

And the other issue I ask a lot of banks, is if you give any guidance on the unemployment rate?

Do you guys have any view in to that, and do you think where we are going to be a year from now relative on the macro side?

I don't think we have an official view.

We've been of course following the assumptions that are there and the stress testing that we all read about.

Kevin has some information here that -- Kevin, would this will relevant?

We certainly are following, like Richard said, the unemployment rate.

We realize it has crept up in a lot of the states we're in, and I mean, it's certainly a factor in watching our consumer portfolio and any kind of shopping center portfolio, the shopping center portfolio, watching those, and trying to get ahead of that.

We haven't felt as much pain in the consumer portfolio as others.

I think I --

We're certainly watching it.

I would say that our internal projections and stress testing today would assume, certainly an over 10% unemployment rate as the peak.

Thank you very much.

That's the first time I have heard a bank say over 10%.

I think you are probably one of the most honest guys to come out and say that, but thank you very much.

Thank you.

We'll take the next question from [Steve Covington], your line is live.

Good afternoon, guys.

I guess just to follow up on the hotel credit.

Is all of that credit in the hotel category of the non-performing loan table?

Or is that spread out throughout various categories?

Steve, we mentioned earlier that 90% of it in is in that category.

90% in that category.

Okay.

And then you mentioned that you couldn't disclose how big the other parties to the credit are.

Did you say how many there are.

Are there three total, did you say?

A total of three including us.

Great.

Does the downgrade this afternoon impact -- I know you talked it impacts your funding of the balance sheet, but does it impact any of the investment banking or the fiduciary business?

No.

In the CNI portfolio, could you just give some general color, you saw a little pick up in the non-performing loans CNI area, could you talk about what you are seeing in the CNI portfolio?

Yes.

I mentioned, Steve, that we did see an uptick in the MPA ratio in CNI, and it was fairly well concentrated in a couple of individual credits, and I'll ask Kevin just to comment by category where those are.

Yes.

As you saw in the press release, our NPLs were up $25 million, that's a 181 MPA ration, up from 157.

It was -- there was one large realty company in South Carolina that was $18 million of that, and then there was a construction company in Alabama that was $6 million of that, and that's pretty much the color behind the increase there.

As far as the new non-performing loans.

Okay.

Thanks.

Thank you .

Thank you very much, ladies and gentlemen.

And the last question we have today will be coming from [Gary Tenor].

Your line is live.

Thanks, good afternoon, guys.

Good afternoon.

Just a couple of questions, I wonder if you could break out in the one to four family property category between the Atlanta and west coast of Florida as well as the relative MPLs for both of those geographies?

Hang on one second.

We'll pull that out.

Okay.

And if I could ask a question while you are looking for that, perhaps.

Richard regarding the hotel credit, did you say at the out set that it added 100 basis points to the total MPAs.

It added nearly that.

Nearly 100 basis points.

Okay.

Just wanted to make sure I didn't miss hearing anything.

Maybe 90.

90 basis points.

90 basis points.

Okay.

That helps.

Thank you.

I'll give you -- as we mentioned before on the residential portfolio, in the West -- West Florida area, we had -- it represents $300 million in West Florida, and we'll try to give it to you by state here in just a minute.

Florida and Atlanta.

Yes, let me -- let me give you that again.

The one to four, the residential portfolio, residential development portfolio, which is just under $2 billion, $1.9 billion, is broken out in to -- in Florida, $264 million, about, $100 million like I said, about half of that is the West Coast of Florida, and $1 billion is in Georgia, and about 6 -- excuse me, about $400 million of that is in the residential development category.

And I mentioned there was a little over $600 million, that included residential -- in Atlanta that included 1 to 4 construction and residential development performing loans in Atlanta, so I broke out the residential part of that in that answer.

All right.

Thank you.

Thanks.

Are there any more questions?

There appears to be no further questions.

Do you have any closing comments you would like to finish with?

Just a couple.

I want to thank everybody for listening.

I thank you for your questions.

We appreciate your interest and challenges overcome from our being here to answer what is on your mind.

It's just quickly close by talking about a planning exercise that we have gone through over the last month or two, and pretty it's obvious what our short-term priorities need to be, and we talked about them on the call, but it has to do with this asset disposition strategy.

It also has to do with execution on expenses, and now the pricing on the balance sheet sort of moves up in to that category, particularly since we're seeing some benefits come from that.

Long term, keep in mind, first of all the capital position, the 780 tangible common ratio, the markets that we are in, I continue to believe firmly are well-positioned markets that are going to serve us well as we come out of this downturn.

Our strategy regarding the diversification in to middle market companies within our footprint, I think is a sound one, involves relationships.

It gets us away from the dependency that we have had for a number of years on commercial real estate categories, and our commitment still to the community-bank model which is backed up with the big regional bank specialized services.

We call that community banking powerfully connected.

So thanks a lot, we'll continue to communicate with you.

Have a good afternoon.

Thank you very much, ladies and gentlemen.

This concludes today's presentation.

You may disconnect your lines, and have a wonderful day.