Trustmark Corp (TRMK) 2009 Q1 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Trustmark Corporation First Quarter Earnings Conference call. (Operator Instructions) It is now my pleasure to introduce Joey Rein, Director of Investor Relations at Trustmark. Please go ahead, sir.

Good morning and thank you, Operator. I would like to remind everyone that a copy of our first quarter earnings release along with supporting financial information is available on the Investor Relations section of our website at trustmark.com by clicking on the News Releases tab.

During the course of our call this morning we may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We would like to caution you that these forward-looking statements may differ materially from actual results due to a number of risks and uncertainties which are outlined in our earnings release and our other filings with the Securities and Exchange Commission.

At this time I'd like to introduce Richard Hickson, our Chairman and CEO.

Good morning. We'd like to thank you for joining us this morning.

Our Board meeting falling on the last Tuesday of this month has us, I guess, about last in reporting the earnings. I'll say it's been a long month because we've been very anxious to get these good earnings out to you.

We reported net income available to common shareholders of $23.4 million, a return on tangible common equity of around 14.5%, a return on assets of 1.10% and we declared our cash dividend payable of $0.23 a share unchanged.

Earnings during the quarter continue to reflect our core operating strength - expanded net interest income, growth and noninterest income, prudent expense management and enhanced capital strength. Bottom line, Trustmark has a very strong capital position, a solid balance sheet and financial flexibility.

Let me take you to page three in our stat sheet which addresses credit quality. Nonaccrual loans increased $20 million to $134 million or 1.94% of total loans.

Taking a look at it by state, Florida was up $8.7 million; no large credits migrated to nonaccrual. There were a number of small credits. There were three over $1 million. One was a home in [Water Color] which was written down and subsequently sold and closed after quarter end. Another was a couple of residential lots. The other was a piece of land about $4.5 million, excuse me, $3.7 million. It was subsequently written down during the quarter $1.5 million.

In Mississippi, the change in nonaccruals was principally small home mortgage credit, no credit over $0.5 million. In Tennessee there was no change. There was one loan, a residential related. In Texas we were up $6 million. That is one real estate developer, old customer of the Bank, had financial problems outside of our projects. There are three different pieces of real estate in that. All three well located, one in office, one in office condominium and one a smaller piece of land due north and due west out in the Sugar Land area. Those have been reserved for. We are expecting to see them move into foreclosure and be liquidated within one or two quarters.

Other real estate increased $3 million, nothing significant. About 18 of that is in Florida and I believe Florida's ORE actually went down a couple of million dollars. We sold about $3 million worth of real estate, all smaller houses and lots in Florida during the last quarter. Only other change in foreclosed was $2.7 million land loan on the Gulf Coast in Biloxi. In our Mississippi portfolio in valuable land we are not anticipating anything of significance there so total nonperformings increased $24 million, up to 2.5% of total loans and other real estate.

Net charge-offs were actually down linked quarter about $1.2 million to $11.4 million of .66% of loans. Of the $11.4 million, $6.9 million was in Florida. Taking a look at it, principally it was the two credits that moved through to nonaccrual that moved fairly quickly; nothing else of significance there, a few smaller lot loan write-downs. Our indirect auto portfolio charge-offs were $2.4 million so if you take Florida at $7 million and indirect auto at $2.4 million anything else in our $7 billion loan portfolio was absolutely minimal.

Our provision came in at $16.9 million exceeding charge-offs by $5.5 million. In Florida we did our best to identify issues during the quarter and we reserved $3.8 million more than our charge-offs. Our loan loss now is a little more than $100 million at $100.4 million.

When you look at our commercial and real estate commercial portfolios, we are at a 1.95% on the commercial portfolio and a .73% on the consumer portfolio and 1.51% of total loans.

When I look at the consumer portfolio, as you know that's significant with us, we began moving our auto portfolio down, oh, probably in October of '07 and it decreases about $20 million a month to 25. It is now a quarter in with about $550 million from a high of right at $900 million. Our indirect consumer had a 30 day past due at the end of March of 1.91%, actually down from 2.52% at the end of the year. We're noticing what we think is a moderating of that as we look at the month of April also.

Our direct consumer portfolio which would include HELOCs such as that, past dues over 30 days were flat at 1.53%. Losses .66% annualized there. So we are not seeing any significant migration in our consumer or our home mortgage portfolio that's giving us any sense of immediate concern.

If I could take you to page nine of our stats sheet, that covers the state of Florida and I will go through it for you. I will use a lot of linked quarter numbers. It just seemed too crowded to begin putting linked quarters in this. If it proves significant to you we'll do that.

If you take a look at our total Florida portfolio it's down around $87 million over the year. Actually our construction and land development portfolio is down $95 million over the year. We have reworked our Florida critic quality, criticized and classified sheet for you so you can see migration more clearly. You will see that criticized loans in Florida were $181 million. That's up only $5 million for the quarter, linked quarter. However, construction and development loans criticized were down a linked $10.5 million.

You will see that the way we have the nomenclature, criticized loans includes all of our special mention loans and classified loans including impaired loans. You will see that there is $32 million in construction-related special mention loans. One of that is -- I would say a little over half of that is made up of one loan where it is performing, we have global cash flows and the last appraisal we have is about five or six times value so I do not see any loss. If there is migration in this credit, I don't see it as a significant impact. But at this time I'm not expecting much migration on this credit. It has some income producing properties, some lots and some raw land in it.

If we take a look, we have $47 million of substandard or classified loans that are accruing. If I take a look at those, only $30 million of that is in construction and land development. The lot loans are some of the most beautiful beach front lots and we have seen sales of lots around it that would cover this easily in the last six months.

Taking a look at the unimproved land, that particular one has a fairly strong buyer. It is -- owner. It is accruing. If I take a look at the other construction that's accruing, it is some land development and lots with three or four fairly strong owners. It could migrate but I don't see any loss in it.

On our nonimpaired, nonaccrual loans, the $10 million lot loan is a relationship. It is a golf course lot loan. It has been written down probably well over 50% or 60% at quarter end. We think we have that one fairly well covered.

If I move over to our impaired loans, they are up $1 million for the quarter and actually construction is down $1 million. I went through a process at quarter end. I took the largest 20 nonaccrual relationships or loans in the state of Florida. Good news is that covered everything over $1 million. Number 20 was $1.003 million. When we take those 20 relationships which totaled the original amount, was $86 million. That was the original amount of the loan less any payments of principal by the customer during the accrual part of the loan.

Then we took our total write-downs which were $24 million and what was additionally reserved against those credits, $6 million, that totaled $30 million and left $56 million. So after the customer has made their last payment to us we have written down our reserved 35% against the paid down amount, not the original amount. We're feeling in pretty good shape on that.

As you know, the second quarter is when we do most of our reappraisal of Florida. So when you look at what we are reappraising, you can see that we're dealing with $49 million in impaired loans and not much in nonimpaired nonaccrual. And you can apply whatever rate you want - 10%, 20%, 30%, whatever. Those numbers aren't going to be a big blow to us, we feel, in the second quarter principally because the amounts of the loans can move down.

If we look overall at Florida you can see now that we have a 3.7% loan loss reserve against the total portfolio, we have right at a 6% reserve against our nonimpaired construction loans and you can see -- well, excuse me, that's a 7.5% reserve against our construction loans and you can see we're well reserved all the way through.

We haven't seen the end of Florida. What we're seeing now are smaller loans popping up. Our Florida special assets team, there are five of them, they are all very experienced. We're working through these. We're seeing some migration of properties out. We had a couple of significant payoffs during the quarter and we're encouraged that we'll see a lot more happen hopefully in the second quarter.

Let me leave Florida, if I may, and take you into our overall credit quality. Our charge-offs were 66 basis points on an annual basis, down from 73 in the fourth quarter. Taking a look, our loan loss reserve at 1.51% totally, nonperforming loans at 75% of the reserve. Remember those impaired loans have been written down and the nonaccruals at the level I've already told you. So that concludes my comments and I'm happy to take any questions on credit quality when we finish.

Our capital strength was enhanced as you can see. Tangible common equity, home grown, up $62 million from a year ago. Tangible common equity increased 25 basis points to 7.2%. Total risk-based capital was at 15.28%, significantly above well capitalized.

Without the $215 million Senior Preferred securities with treasury, our total risk-based capital would have been 12.14%, up significantly above well capitalized and our common dividend payout ratio for the quarter was 56%.

Taking a look at our balance sheet, end of period loans decreased about $82 million. $71 million of the $82 million was in our indirect auto portfolio. Our Home Mortgage Company's production was very significant in the quarter, approximately $650 million, up 114% on linked quarter. Therefore, our home mortgage lending portfolio increased around $77 million in the quarter. Construction, land and development loans were down about $29 million all of this auto and construction as planned. We're making a lot of new commercial loans but regular C&I loans hung relatively flat.

End of period deposits increased around $333 million or 5% linked quarter. Noninterest bearing makes up 21% of our total deposits. Linked quarter, that was up about 2.4% right at $33 million. The remainder was split between CDs and public money, CDs up around $130 million.

We had a -- we wanted to see what we could do in Texas so we raised our CD rates minimally and after about three weeks we had to call a halt to it. So our branches are well placed between these megabanks and we have a lot of megabanks ex-employees in our branches now and they know the marketplace and we feel that if we need at some point to grow our CDs, we can do it in that 17 branch district fairly easily.

Public Money was up about $170 million. We're not sure what we will see from the stimulus. We are taking the least expensive funds as you can tell because our total funding went down around 37 basis points where our total earning assets, I believe, were down 34. So the net interest margin was about $91 million, stable at 4.18%, average earning assets were up about $350 million, principally investment securities. We are just quality Fannie Mae, Freddie Mac securities, no real change there. We have more or less reached a peak level of where we will hold our investment portfolio.

Noninterest income totaled $43 million. Our mortgage company, like everyone else's, had a great quarter. One of the advantages for us, we've always been a business -- we did a great job during Katrina with our mortgage company. We just have a very good reputation and there are only about four players in the national market and they aren't really focused on our markets as much. Therefore, we're in a really good position, I think, with our mortgage business.

If you take a look at page ten in our press release, you will see that income broken out. You will see consistency in servicing fees. There was a little over a $2 million hedge effectiveness with this steep yield curve. That is likely to continue unless we have some very severe volatility. Gain on sales was about $4 million and because our pricing was so good our FASB 133 was up about $3.5 million. Our mortgage company says they expect to hang on to the vast majority of that 133.

Taking a look at insurance, insurance was up a little bit, about 10%. That's seasonal. We've had good claim experience, therefore had a little bit more contingency.

Service charges is not a lot of fun in the banking industry today. The consumers are watching their accounts more. They are not overdrawing as much. Our service charges decreased seasonally $1.5 million or about 10%. We think it's going to be a tough battle on service charges but we're very dominant in this Mississippi market with a tremendous ability to open checking accounts and we'll continue to do so.

Wealth to management was down about $1 million. It's the level of assets. It's the decrease in the amount of money that we're managing from decreases in the equity portfolios of everyone. We're bringing in a lot of new business. We brought in a lot of new business last year. We're not expecting a big drop-off here.

Noninterest expenses increased $2.9 million due to higher FDIC, loan expenses and the seasonal employee benefit that comes the end of the first quarter. Salaries and benefits were up $1.5 million. Salaries themselves were absolutely flat, linked quarter. Mortgage production incentives were up $627,000 and seasonal payroll taxes up around $800,000.

Our efficiency ratio hung in there at 55%. The FDIC expense increased $1.2 million to $2.7 million due to the higher premiums. When you look at Trustmark and you look at our direction, we'll continue to manage credit risk and balance sheet risk. We'll continue to let our indirect auto run off. We are continuing a heavy business development program. We are looking for new loans. We are making new commercial loans. We are still lending for vertical construction. We are not making land loans or lot loans. We continue to work to development and put the assets in our Houston franchise. We are very vigorously defending our legacy Mississippi markets. We're preserving and growing our tangible equity. We are selectively reflecting on any failed bank deposits that might come our way. To date we see nothing that particularly interests us.

I would be happy to have my colleagues Jerry Host, Chief Operating Officer is here, Louis Greer our Chief Financial Officer, and our Credit Team to answer any questions that you might have.

Thank you. (Operator Instructions) Kevin Fitzsimmons, Sandler O'Neill & Partners.

Thanks for having me. Couple questions, first, I know you talked a little bit about Texas and on credit you spent a lot of time on Florida but with Texas, I know it's a smaller part of the Company but it looked like the provision came in below net charge-offs while nonperformers increased linked quarters. So I was wondering if you could just address that, what is happening in Texas related to credit and probably your outlook in terms of how energy is going to affect that market. Thanks.

Yes. We'll be happy to. That was one loan for us and the other piece of ORE down there is supposed to close next month. So when we look at it we just have had a decrease, I guess, in the level of criticized down there. Jerry Host just spent three days down there and we did a complete study of all of our residential lots, land, homes under construction, commercial, retail, whatever, and we don't seem to be in any situation appears to be deteriorating on the real estate side. I'm going to let Jerry talk about his visits down there and then Bob Hardison will comment on our exposure to the energy industry.

We are not the one to be an expert on what's going to happen to Houston relative to energy. I lived down there a long time and I don't think $50 oil is going to make a real significant impact. As you know, they are expecting to lose about 50,000 jobs in Houston next year, or this year from what we're seeing.

Jerry, do you want to talk about your trip to Houston?

I will. Thank you, Richard. I guess in a nutshell after visiting with both our lending officers and with a number of customers that are primarily in the residential development and building business the consensus was that Texas has not experienced the same downturn in value that we've seen in so many other areas of the country, number one.

Number two, because they saw this coming, this downturn specifically in California and Florida coming, they reacted more quickly. They slowed the acquisition of land, development slowed, and if you look at some of the metro study work that is done in the Houston market specifically you will see that the number of homes coming on line versus the sales has remained fairly consistent. So they've been able to bring the supply of houses in line with the demand. A number of lots this last quarter was somewhere in the 70,000 range, probably 50,000 lots is what they will need to meet the demand over this next year's timeframe.

So unlike other areas of the country and unlike Florida, it appears as though Texas has done, and specifically Houston, has done an excellent job in managing through this housing issue.

It appears to me that loan that went on nonaccrual, Kevin, was likely reserved for in the fourth quarter.

Okay.

And that particular loan, given how it was one credit and given our collateral values under the FAS 114 impairment rule did not require efficient reserve.

Beyond the --

Beyond what we had so we did not have to reserve additionally for that loan when it went on nonaccrual.

Thank you. Just one quick follow-up. Richard, could you just tell us -- give us an update how you are feeling about TARP in terms of your -- do you expect to hold on to that for awhile? Or are you more inclined to pull out all the stops to try and repay that sooner rather than later? Thank you.

Well, it's very clear to anyone looking at us that Trustmark has sufficient capital if it elected to repay TARP. We took the TARP, what, five months ago? And we said we took it for term insurance. We will very thoughtfully reflect on what we will do with TARP and then we will make that decision if and when we are absolutely certain we see no need for it and are very thoughtful in how we approach the subject. Thank you.

Thanks.

Andy Stapp, B. Riley & Company.

Good morning. Nice quarter.

Thank you very much, Andy.

You touched on this somewhat but just wondering if you could comment what you're seeing in Florida. Is it -- are you seeing signs of the beginning of a bottom or any kinds of stabilization?

Well, remember if we look at the geography of Florida it's just a long way from Naples to Panama City. And that market is more of an Alabama, Georgia market. It's a drive-to market; only 10% of the people that go to the Panhandle fly. By the way, that new airport is on schedule and I think if it goes to 20% flying in after these airlines begin coming in it will be too crowded for me down there.

It is very busy down there. It was busier this winter than I've ever seen it with snowbirds from Ontario and Michigan. It is crowded down there now, a very good spring break. We are seeing strategic buyers, when the price is right; vertical is moving. We're seeing some lots sell. We don't yet know how much the deterioration was really over the winter in pricing. We moved 12 or 15 pieces of ORE, all of it residential related, and we lost no money from where we had it written down.

It's not over with whether it hit a bottom this winter. We won't know for quite awhile. It's going to be quite awhile on the lots and land that are off the beach.

Bob Hardison, do you want to add anything?

Just one comment and I don't really know if it's particularly positive or negative but it's more of an observation. When we first -- when Florida first happened and it was such a dramatic fall-off and such a dramatic shock down there in values and so forth, we had a lot of credits that immediately went from a pass grade to a substandard grade or impairment and so forth. And more of the trend we're seeing now is that credits are moving through a migration of our credit scale in an, I won't say an orderly fashion, but a fashion we're more accustomed to seeing in other markets where they will be moving from a grade to grade and if it continues, of course, it will go to a substandard or impaired category. So it's a little more of an organized migration it seems like to -- on some of the weaker credits. And, again, I don't know if that's -- it seems to be -- it helps us in any event to get a better handle on where we see things where they are and where they are going so just an observation.

That's helpful.

And I would remind you that the sun's out down there now and we're going to march through that market assessing the value this quarter. And we don't quite know what it will be. Whatever it is, I think we pointed out that we can shoulder it just fine. We hope it's significantly less than last year.

Right. And do you have much in the way of loans to auto dealers?

No.

Oh, it's probably $25 million scattered floor plans and there are a few dealer commercial buildings but it's not significant.

But there are a couple of real good Ford dealers in there and we really appreciate their relationship.

Thanks.

Texas dealers too. I don't want to leave any of them out.

And are you seeing any signs of mounting stress in CRE and C&I loans?

Our CRE loans if broken out as income producing is not very large. And we are seeing the same stress with anybody related to home building or supporting the home building industry. But as far as income producing real estate, Bob, anything that you can --?

We really have just seen isolated instances of where a project may lose tenants or leases mature and the rents are lower but it's more isolated and more of the kinds of things you might expect to see when we're in a significant economic downturn in our portfolio. But, again, our income property portfolio is not large relative to our size so it's more just in isolated cases at this point.

We're actually looking for good income producing commercial real estate loans that are seasoned and good quality for us.

Has there been much change in cap rates for the income producing CRE?

We are not in enough credits like that. Bob, do you want to comment on that whether we have any first-hand knowledge on that?

Yes. We see on -- when we're getting reappraised -- appraisals and other things across the market that cap rates are moving up. Not dramatically but they are up probably 100 basis points, 150 in some markets. So they are moving up which, of course, will affect values and so forth.

And do you have your 30 to 89 delinquencies at quarter end?

What would you like?

30 to 89 day delinquencies.

Well, I told you everything over 30 and that would include that.

Okay. I missed that. I can get that in the transcript.

Yes. And, Bob, we had -- we had a little growth in loans over 90 days. Weren't there two loans there?

Well, primarily one loan that -- it was in Florida but that customer has since made payments and brought that loan within the contract term and so it was just an odd situation, unusual circumstances, but that loan has been corrected.

Let me let Barry Harvey who is in charge of all of our retail credit administration talk on that migration of past dues. Is there anything there on that sheet of paper, Barry, that you prepared?

Sure. We've been pretty consistent in terms of delinquencies on our various retail portfolios where we're trending up a little bit for us on the mortgage portfolio but well below industry norms.

On the -- in our indirect auto portfolio we're very pleased with a recent downturn in delinquencies that we've experienced over the last four months. Our charge-offs are beginning to follow suit and we're very hopeful that that trend will continue as the portfolio continues to shrink over the coming years.

Within our other portfolios, whether it be small business, credit cards, direct loans made through our branch network, we're not experiencing any systemic changes in what we're seeing in terms of delinquencies or charge-offs. It's just business as usual, isolated instances one quarter to the next but no major changes.

And lastly maybe you could talk about what you're seeing for the margin going forward?

I don't think it's going to change much. I'll let Louis Greer talk about that, our Chief Financial Officer, over the next few quarters. Louis, do you want to go ahead?

Yes, Rich, I'll be glad to. I think if you look at our margin disclosure on page ten that you can see we have some compression in our earning assets offset by a reduction of our total cost of deposits in funds that, you know, moving forward we possibly see a slight compression but nothing of any significance in this second, third or fourth quarter (inaudible) as we look at our forecast.

Thank you very much.

(Operator Instructions) Brian Klock, KBW.

Richard, a lot of detail has already been covered and, again, I appreciate all the granularity that you guys put in the release. Do you have the assets under management number at the end of the first quarter?

I'm going to ask Jonathan Rogers our Wealth Management CFO to give a comment.

Approximately $5 billion including -- that includes discretionary and nondiscretionary items.

Great. Thank you.

It's a little bit under three discretionary.

Thank you. With the strong mortgage production in the first quarter do you have the details about what was purchased versus refi?

Jerry Host will know that.

We shifted -- it was an almost shift from 75% new money, 25% refi to just the opposite, 75% refi to 25% new origination and more than doubled the production.

And I guess --

What was interesting out of that $600-and-something million, $100 million was 15 year [AM]. And that's good quality paper for us to hang on to part of it.

Thank you. With -- and Richard, I guess, do you have an idea where that pipeline since quarter end for the first three weeks of April, do you still have a good amount of origination volumes coming through?

Our origination volume is continues to be strong. We would anticipate at some point some flowing in that volume but at least for the next couple months we feel like we'll stay on track with what we saw in the first quarter.

Thanks, Jerry. And, Richard, you talked about it being difficult from the revenue side, the service charges on deposits. The customer activity, you know, I guess the limits -- less overdraft activity. What are we -- what are you thinking about as far as the service charge revenue line here? Is first quarter a better runrate versus what we've seen? Obviously we've got seasonal factors in there. Or what's your expectations there for that line item?

These are the kinds of questions it is great to have a strong, involved, Chief Operating Officer so I'll toss that one to Jerry. He talks on it quite a bit.

Thank you, Richard. And that certainly is a line item we've spent a lot of time looking at options. What we've seen relative to the service charge revenue is, I think, a function of what's happened over the last several years. The consumer has become more conscious as both overdraft charges and service charges related to their checking account so there's been a migration to free checking. With this recession that we're in we have also seen -- yes, we have also seen the consumer being far more discretionary than they ever have before relative to overdrafts.

We've seen consumer spending drop. When that drops, that affects our service charge income as it relates to overdraft revenue, as it relates to service charge income on our debit card product. We are not out of line with what we're seeing, though, in the rest of the country and as we talked to consultants that work with banks on service charge revenue we've seen consumer drop, in some other locations, somewhere in the 15%. We're down about 8% so I would expect that we could see this line item follow a similar trend to what we've seen so far this first quarter. Some it is a function of what happens with the economy. If we continue to see a continued decline in the economy this number could drop. If we flatten out I think we'll see it stabilize somewhat.

And, Jerry, do you happen to have, I guess, how much is consumer service charges versus commercial in the first quarter and fourth quarter or just, generally, what that makeup is?

On the commercial side most of that is being paid through compensation balances so the majority of the revenue comes from consumers.

Great. And, Richard, one last question. On page nine of your stats sheet you talked about the Florida credit quality and went through a lot of granularity there. I just noticed that the criticized loans in the non-construction Florida portfolio so that the commercial and commercial real estate and consumer was $46.4 million criticized loans at the end of the first quarter, that's up from about $31 million at the end of the fourth quarter. So is there anything in there that's concerning or that's issues related to the housing market, like you said, even though they may be commercial credit?

Bob, do you know what commercial credit you criticized? A couple of shopping centers in Ft. Walton and something else? Not anything that would jump out that the value is going to come down.

We are -- our officers there are really working these loans individually that are not criticized and sorting through that portfolio and they are encouraged to recognize a problem early, Brian.

Great. Thanks. Appreciate you taking my questions.

Brian, if I could clarify my answer earlier, this is Jonathan Rogers.

Okay.

You had asked about assets under management under the Wealth Management and the approximately $5 million included managed -- $5 billion included managed assets and assets held in trust relationships that are not necessarily managed but there also needs to be an inclusion of about $1.9 billion that's in custody related (inaudible).

Okay.

For a total of $6.8 billion that I think is a better answer to your question of what we have under care there and under fee based.

And I guess just comparing that to -- so trust assets under management administration you disclosed in the 10-K at the end of the year was $6.8 billion. So does that include the --?

Same thing. And the managed assets Jonathan went out and checked are $3.3 billion so that's not down as much as I thought.

Appreciate that, guys.

Albert Savastano, Fox-Pitt Kelton.

Appreciate your comments on the Florida book. I was just wondering if I got them right in terms -- I think you said that you don't expect a significant loss on the nonimpaired. But did you mention the rest of the criticized loans in terms of expectations there? And if you didn't, just if you can clarify your comments, please?

Well, similar real estate will devalue similar amounts. I think it depends on who owns the property and what they are in process of doing with it and their cash flow and global to service it if it is a stalled project. So I don't think we have any particular answer there. We will do many, many appraisals and when we've finished it, partially in the second quarter and in the third quarter we'll give you the results by property type against the original or last year's appraisal (inaudible).

Thank you very much.

Kevin Fitzsimmons, Sandler O'Neill & Partners.

Just a quick follow-up. Just wanted to clarify. Louis, when you talked about the margin, if I heard you right I think you said probably just slight compression. Last quarter I think you guys said that the margin would probably compress over the balance of the year down toward where the margin was at year-end '07 which, I think, was like in a 3.93 or 3.94 type of level. And so I just wanted to clarify if it's any change in expectations from that.

And then secondly, I just wanted to -- I think you mentioned, Richard, about the other mortgage-related revenue line item jumping up this quarter and I think you said that was related to pricing and 133 issues and that you thought you could hold that. And I just wanted to clarify that that you think that's a sustainable kind of level or whether that will likely bounce down.

I think it will work it's way down after the second quarter. That particular line will move up in the gain sale on loans but if -- we're going to beat the budget for the year because we think, regardless, we'll make the budget the remainder of the year. So we don't think this will essentially go away. It will just move around there.

I think on the margin, a couple things. I said I thought it would go back to 4. We've been very successful in Jerry Host and his people putting [floors] in new loans and loans that come up for renewal. That's helped the margin. We have not seen the prepayments in the mortgage-backed security portfolio that Mitch [Blatsky's] models might predict. It's been more in line with our original expectation to date.

Our net interest margin nominal number is going to depend on what we can do as far as getting out and finding a place to grow. We're going to live with this auto book running off. But, frankly, it isn't adding much profitability when we look at the amortization of the dealer reserves and other things of exiting the business.

So it definitely should hold up above 4 and it's going to depend on Mitch and Buddy Wood spotting their days and finding some good investments to buy. And a lot is going to depend on Jerry repricing his loan portfolio when lines are coming up for renewal this spring.

Great. Thanks for the clarification.

This concludes today's question and answer session. I would like to turn the conference back over to our speakers for any additional or closing remarks.

Well, it was good to have you with us today. We hope we'll see many of you at the Gulf South Conference in New Orleans. We look forward to that. I believe that's the end of next week and thank you very much for joining us and we're available, Joey Rein and Louis, if you have any additional questions. We're always happy to chat with you. Thank you very much.

This concludes today's conference call. Thank you for your participation.