Synovus Financial Corp (SNV) 2010 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the fourth-quarter earnings 2010 conference call.

At this time, all participants have been placed on a listen-only mode and we will open up the floor for your questions and comments after the presentation.

It is now my pleasure to turn the floor over to your host, Pat Reynolds.

Sir, the floor is yours.

Thank you, Holly, and thank all of you for joining us on the call today for the fourth-quarter results.

You can review the slides and also access the press release on our website, www.synovus.com.

Our presenters today will be Kessel Stelling, our President and Chief Executive Officer; Tommy Prescott, our Chief Financial Officer; and Kevin Howard, our Chief Credit Officer.

Before we begin, I need to remind you that our comments may include forward-looking statements.

These statements are subject to risks and uncertainties and the actual results could vary materially.

We list these factors that might cause results to differ materially in our press release and in our SEC filings, which are available on our website.

Further, we do not intend to update any forward-looking statements to reflect circumstances or events that occur after the date of the statements are made.

We disclaim any responsibility to do so.

During the call, we will discuss non-GAAP financial measures in talking about the Company's performance.

You can find a reconciliation of these measures to GAAP financial measures in the appendix of the presentation.

Finally, Synovus is not responsible for and does not edit or guarantee the accuracy of earnings teleconference transcripts provided by third parties.

The only authorized webcasts are located on our website.

And now I will turn it over to Kessel.

Good morning to all of you and thank you for joining our fourth-quarter earnings call.

In addition to the executives that Pat mentioned that will be presenting today, we also have our usual complement of team members who would be happy to respond to any questions that would come up today including D Copeland, our Chief Banking Officer, and Mark Holladay, our Chief Risk Officer, and other again of our executives.

So again let me welcome you to the call and talk first about the primary story of the quarter as we reported this morning, which is our aggressive asset dispositions, the most -- highest ever in terms of dollar amount of dispositions in one quarter, $573 million, which drove our nonperforming asset levels to the lowest levels in over two years.

That's a significant story for us.

We are particularly pleased that realization rates on those sales actually climbed, so volume was up.

Realization rate was up and again you see significant decline in our overall levels of NPAs and also importantly significant declines in the inflows of new nonperforming loan levels.

But let me first talk about our earnings, walk through several key points, and then we will turn it over to Tommy for more details on the financials.

Our fourth-quarter net loss available to common shareholders was $180 million compared to $196 million for the third quarter of 2010.

This is also a 36% improvement from the fourth quarter of 2009.

Fourth quarter 2010 net loss per common share of $0.23 compared to $0.25 the previous quarter.

For the year, the net loss available to common shareholders was $848 million, a 43% improvement from a year ago.

Credit trends, as some of which I have already about, continued to track in a positive direction and let we walk through some of those again and Kevin Howard will talk more later in the call.

But again, the story of the quarter was the disposition of $573 million of distressed assets.

Bankers across our footprint and a very coordinated effort in some cases and in large part due to the efficiencies of managing this consolidated model, our bankers were able to again dispose of $573 million at realization rates that trended up from the $0.39 last quarter to $0.46 this quarter.

We are very pleased with that volume.

We are very pleased with the disposition realization and we are very pleased with the overall effect on our NPA levels.

In addition, we transferred $127 million in loans to held for sale at year-end and took the appropriate marks to take those loans to liquidation value.

As I mentioned earlier, our NPAs overall, our NPL inflows, and our delinquencies all declines during the fourth quarter of 2010.

Charge-offs of $385 million included $225 million from loan sales and transfers to loans held for sale.

Credit costs during the quarter were $282 million compared to $301 million in the third quarter.

This is the sixth consecutive quarterly decline and again, the lowest level in two years.

I will now talk about our loan portfolio.

We normally don't talk about shrinkage as a positive and shrinkage isn't positive, but there has been a dramatic improvement in the behavior of that portfolio as shrinkage from net paydowns continued to moderate during the fourth quarter.

The decline in loans outstanding from net paydowns was approximately $80 million compared to $320 million in the third quarter of 2010.

Overall loans outstanding did decrease $995 million from the third quarter.

We are also pleased to see the continued improvement in deposit mix and the effect on that improvement on our overall net interest margin, which we will talk about.

But it was through a planned production in time deposits and targeted growth in lower-cost funding.

Our total core deposits decreased $339 million or 6.2% annualized versus the third quarter as we continued to shift our deposit mix out of CDs.

Our core CDs declined $571 million or 35.3% annualized versus the prior quarter.

Core deposits excluding time deposits increased 6.1% annualized versus the third quarter and DDAs grew $50 million grew 4.7% annualized versus the third quarter of 2010 and $126 million or 3% versus a year ago.

Again, as I just mentioned, that was one of the factors that led to an increase in our net interest margin of 4 basis points to 3.37.

About 10 basis points was attributable to the decline in our effective cost of funds.

We gave a little bit back on the overall earning asset yield in the securities portfolio and the loan portfolio, but we are very pleased that our margin did expand by 4 basis points during the fourth quarter.

I will also mention again our capital position remains strong.

Tommy will go through those ratios as far as his presentation, but I think it's significant to note again that with these asset dispositions, with this dramatic decline in NPA levels, our capital positions still remain strong by most any measure in the industry.

With that, Tommy, I will turn it over to you for a more detailed presentation of our financial results.

Thank you, Kessel, and good morning to all.

I will point you to slide 7, which illustrates the fourth-quarter financial results compared to the one quarter ago and also same quarter a year ago.

You can see the approximate $180 million net loss for the quarter, which represents a modest improvement over the third quarter and a very significant improvement over the same quarter a year ago.

Keep in mind that we did have elevated levels of disposition activity and held for sale activity that had an influence on the fourth-quarter credit costs numbers.

But what you will see here when you combine the movement in the provision line and the credit costs that are embedded in the non-interest expense categories is continued improvement that has occurred over these periods and we would expect that to continue to improve as credit moves forward.

Slide 8 is a picture of the loan book showing the trends all the way back to the fourth quarter of '09.

The loans ended the quarter of $21.6 billion.

As Kessel mentioned, down almost $1 billion but a significant amount of that activity was from the sales, the transfers to held for sale, charge-offs, and so forth.

And the core number, as mentioned earlier, was about $80 million compared to $320 million.

So we have seen a couple of quarters of continued improvement in the core loan movements and see that as a positive sign as we move into 2011.

Deposits are illustrated on page 9.

Total deposits down $736 million.

About $400 million of that is the continued bring down of the national money market brokered deposit accounts.

We are really using the period of time as funding needs are diminishing some as we've had the loan shrinkage to improve the quality of the deposit book.

If you look at inside the core deposit categories, we're down $339 million.

That is -- all of that is really in the category that we have been allowing to run off over the last five or six quarters in the time deposit category, with most of the categories that we're going after being the DDAs and money markets and now accounts continuing to have positive growth.

Core funding as a percentage of the loan book is illustrated on slide 10.

Once again, we continue to use this opportunity of the change in the balance sheet to improve the mix of funding and we move from the 88% of our loans being funded by core deposits a year ago to 99% at the end of 2010.

If you look back even further in history, that number has been as low as 80%, so we have seen good progress there and would expect to see some movement like that as we move into the future.

Kessel talked about the margin.

It's illustrated on page 11.

The reported margin 4.37 (sic -- see slide 11).

We had guided a flat margin for the quarter.

We had 4 basis points improvement.

We did a little better on the cost of funds decline than we thought.

Kessel mentioned the pressure that we had on the asset side from a securities standpoint primarily and a little bit on the loan side.

But the margin continued to move forward and we were glad to see that.

Slide 12 illustrates the trends in fee income right at $80 million for the quarter, down about $2 million with service charges being the major component of that.

NSF fees down $1.4 million, the impact of Reg E was $3.3 million for the quarter.

That compared to $1.9 million in the third quarter, which essentially had a half of a quarter Reg E impact in it.

So we are at $3.3 million; we are traveling slightly below the predicted annual run rate of $15 million impact on Reg E and continue to try to manage the impact of Reg E and the other things that are in front of us from a regulatory standpoint on fee income.

We had an improvement in brokerage revenue up $2 million and basically offset by the linked-quarter decline in the private equity investment gains.

Pretax pre-credit costs income is illustrated on slide 13 at $117 million, down a little bit from the third quarter, and that's the impact of a shrinkage in the balance sheet.

Effective net interest income $3.5 million, noninterest income down $1.9 million, noninterest expense up $1 million, is really the components of those changes.

Capital ratios illustrated on slide 14, as Kessel mentioned, they remain in good standing.

Some capital burn from the reported loss for the quarter, mitigated somewhat by the shrinkage of the balance sheet, but the capital ratios remain in good order.

I am going to stop right there and turn it over to Kevin Howard, our Chief Credit Officer.

Thank you, Tommy.

If you will go to slide 16, I will begin covering our credit quality trends for the quarter, starting with the provision charge at the upper left.

As you can see, despite the elevated and successful disposition activity, our provision was only up $13 million during the quarter.

High disposition costs were offset mainly by improved migration and the improvement in our mark-to-market expenses.

Charge-offs were up in the quarter by $148 million to $385 million.

60%, right at 60% of that number was tied to disposition and assets held for sale transfers.

Upper right corner, our allowance for loan losses declines during the quarter $133 million to 3.26%.

The primary reason for this reduction was attributed to loans with specific reserves that were charged off during the quarter.

These can be loans that are sold with reserves that we already had reserves on there, specific reserves, loans with reserves that were converted to assets held for sale, new nonperforming loans that came in within the quarter that had reserves attached that were moved to charge off during the quarter, and then there's some loans that have specific reserves that were already nonperforming before the quarter that were impaired during the quarter.

Usually that is more timing of when the nonperforming loans occurred.

And at the bottom right corner, the past due trends, a very healthy number, improved to just 0.82% and that is a three-year low in past dues.

On slide 17, the chart on the bottom left demonstrates our allowance for loan losses coverage to nonperforming loans actually moved up despite the reduction in reserves.

The chart in the bottom right is really just a historical view of our reserve build up through provision during this credit cycle and as well as you can follow the improvement in provision levels in recent quarters.

We do expect to see meaningful improvement in both provision and lower charge-offs in 2011 beginning in the (inaudible) quarter.

Slide 18 demonstrates our continued effort through asset dispositions to aggressively improve our balance sheet, as Kessel mentioned, we sold $573 million in assets this past quarter.

We had guided in previous quarters that we expected to sell about $500 million in assets in the second half of the year, so we are extremely pleased with our fourth-quarter results.

As we expected, we did see prices to unpaid book value improve as well.

Just a quick look at the mix, we sold about 50% of it was residential-related, 28% of it was land.

Investment property was 14% and 9% was in C&I and other categories.

Slide 19 shows our overall progress, as Kessel mentioned as well, on our nonperforming assets.

We did see a significant improvement both NPAs and reduction of inflows during the quarter.

Our NPAs are down 31% from our peak at the end of the first quarter and our inflows decreased 30% just from the third quarter to the fourth quarter.

The chart in the bottom below shows our total allowance and cumulative write-down on NPAs, which is right at 46 -- 47%, down from last quarter at 49.5%, while still a significant write-down number.

The slight drop was primarily due to the mix change.

The NPA/CRE mix shifted positively from 74% real estate related to just 68 -- at the end of the third quarter to just 68% at the end of this quarter.

And again, due to again a lot of our assets, 90% of our assets sold during the quarter were real estate related.

Slide 20 looks at our TDRs and what the mix is.

While our overall TDRs decreased during the past quarter, we did see an increase in our accruing TDR by $54 million.

72% of the TDRs do come from investment properties and C&I portfolio, which are generally attached to cash flow.

Most of these TDRs -- most of the TDRs are typically interest rates concessions, sometimes amortization relief as well.

Less than 1% of these accruing TDRs are past due.

Slide 21 is really another good example of how the overall credit quality within our potential problem loans has improved and that's loans that are defined as substandard accruing less 90-day past due loans and TDRs, and they were down 23% from the third quarter.

We will say two primary drivers to that was we have had better results in our C&I and investment real estate portfolio as well as we did have some dispositions in our potential problem loans.

So we were pleased to see that reduction in the quarter.

Slide 22, just a quick look at our investment real estate portfolio.

Both the total of nonperforming loans and inflows decreased significantly during the fourth quarter.

Total NPLs declined $162 million or 60% in the quarter and are now a healthy 2.1%.

We had significant declines in NPLs in our hotel and shopping center portfolio during the quarter.

Charge-offs were elevated in our shopping center portfolio due to dispositions and loans that were moved to assets held for sale.

With the exception of the smallest portfolio, the commercial development portfolio, all of our investment real estate categories are performing well.

Past dues are a low 0.45%.

Slide 23 represents our continued look at our residential C&D land portfolios.

Of course these three portfolios make up about half our NPLs, with Atlanta comprising about 39% of that number.

We did see improvement in Atlanta's inflows in these categories this quarter of -- they only had $16 million in inflows out of these categories.

That's down $26 million from the previous quarter.

Again, we had smaller balances there over time have led to certainly less inflows.

Overall the portfolio, our most troubled portfolio down 70% from what they once were; Atlanta down 80% from their peak.

Again, while we have not had much improvement there, this portfolio does represent a much smaller percentage of the portfolio from what it once -- our total portfolio from what it once did and that you can really attribute to a much lower inflow level, down 61% in these categories this quarter alone.

C&I portfolio, slide 24, continues to have [healthy trend] NPL inflows down $53 million versus last quarter.

Past dues continue to stay well below 1% and the NPL ratio was down this quarter to 2.28%.

As shown here, our C&I portfolio healthy and well diversified by industry type.

And our last slide, slide 25, is our consumer portfolio.

As we've mentioned in the past, this portfolio is almost 100% credit score and is almost exclusively in market lending.

The portfolio across the board improving in all the credit-related metrics during the quarter.

And that's all I have on credit and I will turn it back over to Kessel.

Thank you, Kevin.

As I move into my closing comments, I thought I would begin just with a brief review of our 2010 strategic highlights, as this is the not only fourth quarter but 2010 year-end review.

I just want to remind in some cases and reiterate in others a few just key events for our Company as we continue to move through this credit cycle.

We've talked about it a lot, but I will close the year with a statement about the public offering we did in the spring, late April, early May that resulted in net proceeds of $1.1 billion in new fresh capital to our Company.

We believed it was the right decision at the time and I believe the results have proved us out there.

As we have talked about before, we did consolidate all 30 of our separate bank charters into one, the final two happening in June.

So by the end of the second quarter, we completed this monumental task which resulted in simplified regulatory oversight, improved capital efficiency, enhanced risk management, and increased opportunities for efficiency, including such opportunities as you saw in the fourth quarter, where we had a more coordinated focused effort of our distressed asset dispositions, which again yielded historically high results.

We updated our three-year strategic plan in the fall, which outlined initiatives to increase revenue while decreasing costs and enhanced the customer experience by streamlining processes.

Again, I will talk a little bit more about that in just one second, but that was an effort led by external consultants but driven by our team.

We are very pleased with the early results of that updated plan.

We disposed of $1.2 billion in distressed assets, almost $600 million down from the first quarter and 30.5% from the peak in the first quarter of 2010.

As we look forward this year, credit will obviously still be the driver in improvement and in our ultimate return to profitability.

I just want to mention again briefly that we are pleased with the level of NPAs being down, the inflows being down dramatically, the potential problem loans being down fairly significantly, past-due loans down.

Again, all indicators of improvement in our overall portfolio and ultimately our return to profitability.

As credit improved, we announced earlier in the month efficiency and growth initiatives.

I want to touch on those again.

The initiatives are expected to generate approximately $75 million in expense savings in 2011 and $100 million by the end of 2012, primarily due to the reduction of 850 positions across our five-state footprint and the closing of 39 branches.

I will remind you that we have reduced our headcount by over 1000 prior to this.

You will see a chart which shows the 6,385 employees in the fourth quarter of 2009, expected to climb by an additional 1000 by the end of this year.

But the 6,385 is down actually about 1000 over our peak.

So this Company has continued to respond to the smaller size of our balance sheet, the opportunity to serve our customers and our markets in a more efficient manner.

I will mention as it relates to the 39 branches, we believe the vast majority of those customers can be served by branches within close proximity and by our investments in technology, where more and more of our customers in spite of what I think is excellent service choose not to come to our branches and choose to do their banking through alternative delivery systems.

Probably the most exciting thing we will talk about today is growth, because we are very optimistic and confident about our opportunities for growth across the five-state footprint.

We have taken major steps to accelerate particularly our commercial banking efforts to drive balance sheet and revenue growth.

Some of you may have seen an announcement earlier this week about additions to our large corporate banking team.

I think those are key for several reasons.

One, our commitment to C&I, and two, I think the fact that our Company continues to attract the best and brightest of talent in the industry says a lot about their view and our view on the go forward look of this Company.

I am delighted to announce that that team in the fourth quarter generated approximately $280 million in new commitments with over $80 million in new fundings.

In addition to the investment in people, as I mentioned, we are investing in tools, products, and services, all to improve our customer service delivery model and again, everything we do is designed to enhance that customer experience with our bank.

So before we take questions, I will just close with this.

We feel great about the markets in which we operate throughout the Southeast and we are pleased with the stabilization and improvement in most of those markets across our footprint.

We are also pleased with our customer behavior, as evidenced by the core deposit growth excluding time deposits.

We have a very loyal and fabulous customer base that has stuck with us and I think speaks to the model of our Company and the go forward look is even brighter.

And then last but not least, our employees, they have been through a lot over the last two to three weeks with some of the tough announcements, but the team is I believe more energized and motivated than ever about the opportunities that lie ahead, both for them personally and for our Company and for our shareholders.

So with that, operator, I will be happy to open the floor for questions.

(Operator Instructions) Ken Zerbe.

Ken Zerbe, Morgan Stanley.

Two questions for you.

First, obviously it's very clear that you guys are doing a great job of aggressively trying to get rid of your problem credits.

But when you take a look towards the first half of 2011, what is I guess sort of the near-term outlook for further dispositions?

With NPAs coming down, you don't have as much, but there's still a lot left, so any thoughts would be great.

Yes, and I will also, Ken, thank you and I will ask D to comment on that.

We had guided in the second half of the year 2010 about $500 million in asset dispositions, but we made clear that we are never plugging to a number and in any given quarter our bankers are in market with a lot of assets.

And what we close is largely dependent on the appetite of the buyers and the realization rates that we think we can achieve.

I don't think we're prepared today to give any go forward estimates of quarterly disposition.

Starting a lower base certainly helps.

Again, I think any quarter result would be tied to just the market and the mix of assets that we are prepared to sell that quarter.

All right, that may sense.

The other question I had in terms of capital, you know, you certainly still have a lot of the capital that you raised on your balance sheet.

But with your capital ratios coming down, I think your TCE is down about 90 basis points over the last six months to 6.7, if I'm not mistaken.

Is there a certain point where if you do continue the disposition strategy and you continue to realize losses, that you might start thinking about additional capital raise just to make sure your TCE doesn't continue to fall too much further?

Let me -- I'm going to do -- I pointed to Tommy.

Let me take a general stab at that and Tommy can comment on any specific ratios.

But of course, no one will ever say they have too much capital.

Certainly our regulatory partners, we feel confident in our capital levels.

We feel confident in our go forward model as it relates to earnings, any potential future capital burn, and any capital levels that would be impacted that way.

So you never rule out capital, but at this point we would not forecast the need based on our existing model and our look on credit and our go forward earnings rate that there would be any additional raise necessary to move through this cycle.

Of course we have other events to follow, including TARP repayment, which may come up on this call, that again we can't predict today what might be required and what we think might be prudent.

But today, our model would not suggest that.

Okay, thank you.

Adam Barkstrom.

Adam Barkstrom, Sterne, Agee.

Good morning, everybody.

I wanted to follow up on that asset disposition question, just looking at the realization rate this quarter, 46% versus 39% last quarter.

Was that more a factor -- is that a factor of prices firming up or more of a factor of I know you guys mentioned mix in your opening remarks, but I don't recall what the mix was last quarter.

So is that more a factor of prices firming or the mix sold this quarter?

Adam, this is D.

I would say it's probably a little bit of both.

The reality, though, is we still had a very high volume of lot sales.

I think as Kevin said, over half of the sales were still related to residential lot sales, which of course has been where our lowest realization rates were.

So we did not back off of that.

I would also say that in Kessel's comment earlier, we are always looking at really what we can do from a velocity and can see where the economics are, and we had folks that were willing to buy the assets at a price that was comfortable for us.

So I think it's really a little bit of both.

I'd just add to that, Adam, I think the market was efficient and I think our effort and our coordinated team effort was much more efficient as we bought more of the decisioning real-time into a more centralized environment.

And again, it's just another added benefit of the simplified management structure.

Let's don't worry about whether it involves a charter or not, the simplified management structure of our Company.

Okay, any more concrete sense you could give us of the pricing, the firming of the pricing in that element or --?

To me, you get to an individual asset by asset basis.

When you get there, so I think it's pretty hard to give real specifics on any one transaction, I guess.

We did -- I guess to give you a little bit of a feel, the breakdown may help a little bit on how we ended up selling it.

North of $300 million of those dispositions were really on one-off sales all around our footprint from our bankers being engaged in that which always helps us from a realization standpoint.

We had one large sale transaction I think that most everybody would be aware of and then a couple of other pool transactions.

And so really that's the mix of the way the assets were moved out of the Company.

Okay, and then just as a follow-up, Tommy, I guess looking at the excess liquidity position, can you give us some sense -- how do you think that's going to kind of play out in 2011?

And then sort of a bigger question for everyone, have you guys -- just thinking about two years down the road, three years down the road, whenever the period may be, but more normal environment, normalized earnings, are you guys thinking about that?

Are you talking about that internally?

Do you have any targets like ROE or ROE?

If you could share any of that with us, that would be helpful.

Adam, on the excess liquidity at the Fed, we actually brought it down a little bit in the fourth quarter compared to the third.

We would expect to see elevated level of moving that number down a little bit in the first quarter and really on out as you get into 2011.

We will continue to bring the brokered CDs down and we'll have to watch loan growth and just look at the total mix of the balance sheet to know how much.

But the direction will be to move it down some and to move it down in a more rapid pace than it has been occurring over the last couple of quarters.

As far as normalized profitability, we really hadn't put any fresh guidance out there in that area.

We expect to keep moving forward.

We think from a margin standpoint that there is some -- some longer-term pretty significant upside which would be incremental and very positive to it as we get through the credit cycle and as the weight of this excess liquidity comes off of it, that will be a meaningful mover.

The announced restructuring and the G&A savings will be very positive to that cause and will help us move forward.

And then obviously, the vision we have of credit costs returning to more normal levels will be the biggest driver of it, but no specific guidance on the metrics that you are asking about.

Okay, thank you.

Erika Penala.

BofA Merrill Lynch.

Good morning, gentlemen.

My first question is more on the long-term strategy.

Traditionally Synovus's deposit base has been a little bit more wholesale or rate driven in nature.

And while we are encouraged to see the signs of core deposit growth in the quarter, I think that everybody -- the industry is flush with excess liquidity.

I guess my question is have you rethought of changing the compensation structure or perhaps the team that you announced that will join you this week, in terms of really having a stickier, more core deposit base growing forward even in a rising rate environment?

Yes, Erika, that's definitely a benefit of that team and others and our incentive plans in fact are more weighted now than ever as it relates to core deposit generation of bankers across our footprint, not just in this C&I space but throughout our footprint.

One positive effect -- and it may be one of the few positive effects of the declining loan portfolio is we are able to fund more of our assets with core deposits.

So we have intentionally brought our time deposit and brokered deposit rates down and you would see that again reflected in the margin this quarter.

But longer term, we would love to see continued growth for core, especially the DDA side.

And again, we've spent a tremendous amount of time, I don't know that we'd want to get into it today, but developing and refining our incentive plans to do exactly what you are suggesting, which is incent bankers across our footprint to generate more core low-cost deposits based on I think the very valuable customer relationships we've built up over time and the relationships we have throughout our communities.

My second question is regarding the accruing TDRs and I apologize if you had mentioned this during the prepared remarks.

But in terms of the structure of -- in terms of the accruing TDRs in commercial real estate, construction or term, is it traditionally an A note/B note structure?

Is there more of a permanent TDR type of bent to that pool?

No, it's not a makeup much of A/B notes.

We probably did maybe $25 to $30 million of A/B type notes.

It's more those, there are concessions where we may have had a floor on a loan and the loan came up for maturity and we may have dropped the floor and gave them more market rate or below that floor anyway.

Then there's some loans in those TDRs that we've worked with some customers, some long-term customers who have a good, viable plan going forward.

They may have asked for some amortization relief and we could have granted that in a short term period and that would be also classified.

That's a heavy part of makeup of TDRs.

One thing also let me add to that, if you would, also remember that our portfolio is very short-term in nature, so these would not be TDRs that would be on long-term with long maturities.

They would be short-term maturities on the majority of these debts.

And what are the cumulative charge-offs associated with the TDRs?

How much have you charged off of the TDRs when you modified the structures?

I don't have that breakout with me, but I will tell you that we don't view our TDRs any more negative just because they have that status.

That is typically a customer that we are actually working with a little bit more.

Again, we think it's a stronger portfolio evidence that I think we only out of the $460 million of TDRs, less than $2 million was past dues.

I don't have that track actually of what charge-offs related to TDRs over the last couple of quarters.

I can try to find that information.

I don't think it is a -- it would be somewhat probably in line with other charge-offs related to problem loans.

Thank you, and my last question is a follow-up with regard to your plans to deploy the cash.

What would be sort of the minimum balance of cash that you would like to hold?

Really how much of this $3 billion can we expect for you to redeploy in over the next 12 months?

This is Tommy.

I will answer that question.

We don't have an absolute target.

It's fluid.

It's directional.

We are keeping an eye on what goes on from a loan demand standpoint and that will have some impact on it.

I guess traditionally the target would be to not have that account -- if you go back to three or four years ago, that wasn't something that was on the balance sheet of a bank.

As he look forward with Basel III and so forth, there will be elevated levels of liquidity that you have to keep.

So the best I can guide you on the excess liquidity balance is that it is at an elevated level.

It's at an elevated level, has been for five or more quarters.

We are bringing it down.

We will continue to bring it down.

We have to watch all the drivers of that to know exactly how far to bring it down.

But there's enough in 2011 we believe to have some positive influence on the margin and on the Company overall.

But as you look out for the long-term, you do have to keep Basel III in your sights and realize there will be in this industry and in our Company elevated levels of liquidity beyond historical norms.

Thank you for taking my question.

Jennifer Demba.

Thank you, SunTrust Robinson Humphrey.

Tommy, could you give us some thoughts on revenue impact from the Durbin amendment?

I'd be glad to do that.

Jennifer, the Durbin impact -- our total I guess for that category, the interchange income -- $25 million was in 2010 a nice reasonable run rate.

75% of it as it stands right now is at risk based on the phased in implementation of that.

That $19 million annual run rate would only be about $8 million in 2011.

We -- Jennifer, we are hoping that that rule continues to get looked at and that there will be enough revenue to properly support the services that go with that.

But we are not just basing our strategy on the hope that that changes because we certainly don't control that, but we are looking at other ways to increase fee income just like the rest of the industry.

We are watching all the fee structures, free checking, that type of thing, and doing our best to try to offset it.

But we hope the number that needs offsetting will ultimately be lower than I describe, but that's what it looks like for now.

Okay, can you talk about where you -- when you guys envision returning to profitability at this point, given your migration trends and other operating trends at this point?

Jennifer, I will take a stab -- not really a stab.

I will just try and stay consistent because that's really all I can do.

The trends are certainly positive and I won't comment on it again.

You can see them and I've talked about them.

We have said that we believed return -- we will return to profitability during 2011 and we really can't be more specific than that until I believe and we believe that the events that will lead to that and cause that are more certain.

But certainly the trend lines point in that direction.

Our models we update and validate and revalidate on a continuous basis and we still remain confident that we will return to profitability during 2011, but I really can't be more specific as to the quarter time period.

Okay, thanks a lot.

Christopher Marinac.

FIG Partners.

Wanted to drill back on the potential problem loan slide and just understand what is coming and going in that portfolio?

Can you give us a picture of I guess some inflows or outflows?

Or also what type of risk there is that those would maybe sequentially just bump on any given quarter as this year unfolds?

Chris, this is Kevin.

Again, we had one of the primary drivers -- I said two primary drivers was we did have improvement and some upgrade as loans in the investment real estate portfolio and some in the C&I, those were the two lead portfolios.

So that would take those out of the bucket.

And then we did have some dispositions within that portfolio as well.

We not only sold nonperforming loans, but we sold some mix of potential problem loans.

So that helped reduce that bucket.

And then the third would be loans that you may call on the watch list that would move into the potential problem loan bucket.

Less of that went in this quarter than previous quarters.

Those would be kind of the three main answers to that question.

Okay, so is extending this level of better kind of a realistic expectation for us?

It probably is, Chris.

This is Kessel.

That one can bump along, too.

Risk rating is not something we can control as credits migrate, and Kevin talked about this.

We did see a dramatic decline in the negative migration in the fourth quarter, still slightly negative but substantially down from prior quarters.

It could bump up or down a little bit in a given quarter, but directionally I think you can continue to see the trends we are talking about.

Okay.

Kevin, I know that Kevin had addressed this with an earlier question just about the general realization rate.

But can that realization rate at all apply to this potential pool in general or would you expect that the losses on these might be a little bit different?

Are you talking about -- assuming dispositions?

Correct.

Yes, I think the first point to make would be I don't know if I would say this would have a lower percentage of disposition within this pool than the NPA pool.

So as Kevin said, we did have positive migration and did have more positive migration in this.

I would also say that the disposition rates during the fourth quarter with this pool are actually higher than the nonperforming asset disposition rates, roughly probably 10 percentage points.

Okay.

So it was 10 percentage points better than the overall realization?

Right.

And I guess the important piece to that is not all of them -- I don't think as high a percentage of them would migrate through the disposition though.

All right, very well, D.

Thanks very much, guys.

Craig Siegenthaler.

Good morning, everyone, here at Credit Suisse.

Just to return to the 2011 guidance returning to profitability, I just want to be clear is that assuming after you pay TARP dividends?

Then to return to profitability, really the only way to get there is a 70% plus improvement in provisions.

Can you comment on if this assumption assumes a higher level of reserve releases than you are currently experiencing now?

Craig, let Tommy and I kind of tag team that.

We have said that the return to profitability would have to follow credit, so the slight net negative migration we hope turns to positive.

That's does -- doesn't release reserves.

It requires a -- it's a formulaic model.

So we have said that that reserve would come down as credit came down.

So certainly the return to profitability does suggests lower absolute reserve levels than we have today.

And I'm trying to follow the second or maybe the first part of your question and maybe Tommy can help me there.

Yes, the opportunity for profitability, the TARP cost is -- the P&L cost is $15 million a quarter and you can certainly model it at some point in '11 overcoming the credit cost and overcoming the TARP dividend and having bottom-line profitability at some point there in the quarter.

Right there in the year.

Got it, and then just a follow-up.

On the $573 million of problem asset dispositions, did this number include only loans that were in your balance sheet in the third quarter and left in the fourth quarter or does that number also include some loans transferred to held for sale?

And within the mix, what is the mix of that $573 million that was sold, that was not marked before, and the part that was marked, meaning OREO and held for sale?

So kind of two questions in there.

Yes, first of all would be -- it would assume the $573 million does assume loans that were on our balance sheet at the beginning of the third quarter.

That is the number.

It does not include any of the numbers, the $127 million that we disclosed in held for sale.

And then thirdly, I think the third piece of the question was what was the split in the sale?

It was roughly $190 million worth of potential problem assets with the remainder of that, the remainder of the $573 million, which would be $380 million, in nonperforming assets.

And those nonperforming assets were marked down to fair value, so they didn't require a charge-off and that loss went to the P&L, right?

That is correct and the realization rate on that was not significantly off of the overall $0.45 on the dollar.

Great, thanks for taking my questions.

Jack Micenko.

Good morning, SIG.

I'm looking at the REO expense and I'm wondering if you could help us in thinking about that into 2011.

Obviously the big asset disposition, that number came down -- the expense line came down pretty significantly, although REO ticked up in the quarter from three key levels and then with the headcount reduction.

How do we think about REO going forward -- the expense line?

ORE?

From an ORE expense standpoint, I think there would be two pieces.

There would be one -- I may let Kevin talk about on the write-down standpoint, and then maybe I will address what we would talk about from a disposition standpoint.

The ORE, well the ORE costs have been tracking around $40 million to $50 million up until this quarter, less than that in the $20 million -- I believe this quarter it was $20 million exactly I think this quarter.

Going forward I think it will bounce around a little bit probably in that range, $20 million, $30 million, $40 million.

It will be according to what the mix of sale will be.

Obviously sometimes we're selling more loans than ORE.

So I can't give you exact guidance there, expect probably to bounce around in that area in that probably $25 million to $50 million range going forward.

Okay, but it doesn't sound like that number is coming down sort of a similar percentage decrease at least in the near term?

Well, I think we're going to continue with the assets that we have to move them through the ORE channel, which would of had roughly -- which would of happened this quarter.

I think we will continue to do that.

Okay, great.

Then just a follow-up, NPL inflows by geography, it looks like Atlanta and then non-Atlanta Georgia both had some pretty material upticks at least from a percentage basis.

Anything there specifically going on or just sort of normal trends?

No, we did.

Obviously -- and we've got a -- I think slide 33 in the appendix, but for others, but we did see improvement -- it went up.

I think we're getting more again as we showed in that C&D chart more Atlanta getting their houses and their residential behind them.

It's a much smaller part of what they are doing.

So we did see improvement there.

It may bounce around a little bit, but we were encouraged that that number is at much lower levels.

Certainly you are right, the other major improvement was Georgia outside of Atlanta.

So a lot of that is no real great improvement in the real estate markets there, but just we have a lot less of it and more of it behind us.

Hopefully we are in the later innings of dealing with the residential piece in those states.

Georgia -- Florida has been stabilizing, getting a little bit better.

As you saw, South Carolina, our inflow rate was much lower, so we were pleased with that.

Great, thank you.

Mike Turner.

Good morning, compass point.

Just kind of wanted to follow up more on the provision and future credit expense.

Maybe trying to figure out how it will trend in the future.

What -- I look at your allowance to nonperforming loans.

It's almost 80% and your allowance to loans that do not have a specific credit is almost 200%.

How do you think about that in terms of -- is the best way absent loan sales and potential write-downs there, as a percentage of NPL inflows, a good way to kind of think about it going forward?

That's my first question, if you have any thoughts on that.

This is Kevin.

I will kind of maybe cover how we see credit going forward in 2011.

We obviously had -- there's four key credit drivers and they all improved during the quarter.

Three of those improved.

One of them was because of elevated dispositions, but our mark-to-market impairment on loans that were nonperforming before the quarter are still on the books.

That markdown has dramatically improved and we expect that to continue.

That's a key driver.

Obviously is Kessel mentioned, our migration improved significantly during the quarter.

You can certainly look at our potential problem loans and see that.

And so we expect that to continue to be at these lower levels and improving during 2011.

The third one is inflows.

We have a lot -- we are dealing with a lot less inflows than we were dealing with over the last two or three years and the cost of new inflows should be -- it's one of those drivers -- should be a lot less as our expectations our inflows into 2011 are going to be significantly less than 2010.

That's your three key credit drivers that will get us there.

The fourth one, disposition costs, I don't -- I expect after a quarter like this that you -- that it will sell less dispositions going forward.

Certainly if we have two quarters like this, we will be out of -- we will be out of nonperforming assets.

So we don't expect that to happen on the next two quarters but certainly two key reasons why we think disposition costs, we think the volume certainly won't be like this this last year.

We will still be selling a lot of assets.

But we are getting closer and closer to where we have marked assets down to what we are disposing them of.

That gap will probably not get right there even but we are making progress there.

So again, less dispositions at better prices and potentially that gap being closed.

Those are the fourth credit drivers why we believe we will see credit costs moving in the right direction in 2011.

I cannot remember the second part of the question, but --

No, that answers it.

Also another question just kind of on general loan growth expectations for the year, balance sheet due to attrition looks like it may shrink.

Do you see it bottoming or when and could you see growth at some point?

You know, I think our expectation is that we would see that it would bottom out during 2011.

I don't know that we would want to go to a specific time point during the year, but everything that we run based on what we are seeing, based on the projections we've made, it would bottom out during the year.

That would be a function of both growth in loans over the paydowns as well as a lower level -- the lower level that Kevin talked about on dispositions.

And did you give what your originations were for the quarter at all?

No, we did not.

Okay, all right, thank you.

Kevin Fitzsimmons.

Sandler O'Neill.

Good morning, guys.

Just a small question.

Most of them have been answered already, but I just was wondering on the tax expense why you all paid a tax this quarter?

I know you had a loss and you had the DTI already written down.

I'm just wondering what that was?

Kevin, this is Tommy.

The tax expense, you know, essentially we're at a zero cover rate but there's always a little bit of noise in turning up the state situations, a little bit of movement in state deferred tax assets.

The tax provisioning has got a lot of moving parts and pretty small numbers here, but going forward, you would expect the base proposition to be at zero until you reach profitability.

But you would still continue to have a very small amount of lumpiness in the tax provision.

Okay, all right.

Great, that's all I had.

Thanks.

If that's our last question, I will wrap it up with just a brief closing comment.

We are certainly happy 2010 is behind us and excited about the opportunities that really lie ahead in 2011 and years beyond.

We believe we without question enter 2011 with a stronger balance sheet than we did the previous year, with stronger capital levels, with lower problem levels, with an energized team.

And I just want to make sure I share that sentiment with all of you.

Again, I think the recent additions to our core team specializing in the C&I loan space coupled with the redeployment of our bankers across our footprint who have been spending most of their time dealing with problems as those problems come down, we get them back to the fun part of banking, which is taking care of customers and hopefully taking care of someone else's customers as we do see opportunities not just for organic growth but growth but certainly taking market share from competitors throughout our footprint.

So I want to thank you all for your time today.

Thank you for your interest and support of our Company, and I hope you all have a great day and a great weekend.

Thank you very much.

Thank you, ladies and gentlemen.

This does conclude today's conference call.

You may disconnect your phone lines at this time and have a wonderful day.

Thank you for your participation.