Trustmark Corp (TRMK) 2009 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Trustmark Corporation's third-quarter earnings conference call. At this time all participants are in a listen-only mode. Following the presentation this morning, there will be a question-and-answer session.

(Operator Instructions).

As a reminder, this call is being recorded. It is now my pleasure to introduce Joey Rein, Director of Investor Relations at Trustmark.

Good morning and thank you. I would like to remind everyone that a copy of our third-quarter earnings release and 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, management 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 would like to turn the call over to Richard Hickson, Chairman and CEO of Trustmark.

Thank you, Joey. Good morning. Thank you for joining us this morning.

I have with me this morning, Buddy Wood, our Chief Risk Officer, Barry Harvey and Bob Hardison, representing credit administration and Louis Greer, our CFO.

Gerry Host is not with us. He had a groundbreaking over at Jackson State University for a major real estate project for financing on campus.

I am delighted to go through our third-quarter financial highlights. Net income available to common shareholders totaled $22.4 million or $0.39 a share. Return on tangible common equity of 13%.

We have announced a quarterly cash dividend, which is the same as in the past few quarters, $0.23. We saw a diversified revenue growth, good growth across General Banking mortgage, insurance and Wealth Management. I'll discuss those in detail.

We had a robust net interest income of $91.3 million, expanding the margin out to 4.28%. Most pleasing to us, our pretax pre-provision earnings were right at $54 million, in line with our forecast and holding up and slightly increasing over the last few quarters. And we have continued disciplined non-interest expense management.

We're focused on revenue generation, credit quality and expense management. Covering capital, tangible common equity totaled a little over $700 million and reached 7.76%, an increase over last quarter. Total risk-based capital with our senior preferred was 16%, without the senior preferred of $215 million. We are at an estimated 12.8%.

Trustmark has undergone a significant amount of stress testing, both with our forecast over the next three years -- a mid stress level and what we would call a depression stress level. We have also stressed revenues and expenses, and in all categories, we remain above well-capitalized.

Relative to TARP repayment, we are still giving it very serious consideration and are looking at a point where we [note] the economy has moderated.

I'd like to talk about loans, both volume and type; and I think it would be best followed by you if you go to page 7, note 2 of our stat sheet. quarter-over-quarter averages, loans were down about $240 million. What we would call our commercial portfolio, of a little over $4 billion, was down about $95 million. 60 million of that was residential real estate and income-producing real estate. 50 million of that was normal C&I with line usage and some permanent real estate paid outs.

If you look at the line usage -- and we have a quarter-over-quarter report that does that -- it was principally larger companies, say in the poultry industry taking down their inventories.

Our consumer portfolio was down $75 million as we expected and at 10, our auto in that 75 was down $60 million and we saw a small amount of pay down and home-equity lines. Our mortgage company, 1 to 4, was down $70 million and that was principally volume differentials [in] originations between the second and third quarter. You will recall that we did about $600 million in the second quarter and a little over $300 million in the third.

Relative to loan types, I would like you to focus under note 2 at Secured by Nonfarm, Nonresidential Properties or what we would call commercial real estate. And that would be broken into two pieces. About $740 million would be income-producing commercial real estate and about $730 million would be what we call owner-occupied real estate.

I'm going to give you a flavor of the CRE portfolio. $400 million of that $740 million is in Mississippi. There are no skyscrapers. There is that very -- except for one Center in Madison County there has been very little new shopping center buildings. This is principally real estate that did not appreciate in value and we are very pleased with the cash flows that we see.

Florida CRE income-producing is $126 million. We make that available to you. We (inaudible) up having nothing above expectations there. Texas, $121 million and Tennessee, $89 million.

As we drill down further into that CRE, retail is $170 million, office is about the same size at about $170 million, multifamily at about $100 million. Now nursing homes and assisted living homes are considered income-producing CRE. And that is about a $120 million number for us with substantially 95% of it in Mississippi.

Our retail in Texas is $27 million. Our retail in Florida is $34 million. Our retail in Mississippi is $80 million. So we do not see any significant concern in our CRE.

Bob Hardison is underway with a project looking at all CRE over $1 million. Updated operating statements are in on the vast majority of it, the cash flows seen at a level that is satisfactory to us.

Looking up at the construction land development line, at the top, $872 million which is down $200 million from a year ago. $321 million of that is in Mississippi. We are down to $212 million in Florida. Texas about $275 million. It appears well in order. You can see our consumer loans moving down as we expected.

To talk about credit quality, you might be best to follow me to go to page 3 in the stat sheet. During the quarter, net charge-offs were $14.5 million. This was driven by two credits which totaled 52% of our total charge-offs. This was related to Sim Crude credit and the credit that we had mentioned before that we had put on non-accrual which was the condominium project in downtown Memphis. And we carry it as a Mississippi credit because that is where it was booked. And we follow a longtime successful real estate developer from Jackson there and as we mentioned, they encountered some construction problems.

So we think both of those credits were unique with the Sim Crude, having gone through quite a lot of discussion about their hedging and [River Bluffs] being a construction issue. We do not believe we have identified any other credits as unique as these two.

The provision was at $15.8 million, 38% of our provision, or $6 million, was for these two companies. Subsequent to quarter end, we had entered into an agreement to sell our Sim Crude note with no loss and actually a rather substantial recovery out of reserves once it is completed. We view that as very positive and will reduce our nonperforming assets a little over $7.5 million.

Relative to Florida unique, we had a negative provision of $3 million. Let me explain to you why. First there was a limited amount of new credit problems that surfaced during the quarter, resulted in limited risk rating downgrade.

This is logical since the majority of us updated financial statements are obtained through the second quarter and we make a number of risk rate changes were needed at that time.

Also approximately $1.8 million was recovered from the settlement of three active debts in excess of where the bank had marked the assets. Florida net charge-offs for the quarter were only $131,000.

Also we had the natural progression of credits moving into impaired ROE after obtaining updated values resulting in the release of reserves. The majority of this was with one residential real estate project in Destin with a small number of very high quality oceanfront lots, then through a number of appraisals.

We are very pleased that it was quiet in Florida. We spent a great deal of time with our special assets group at the lending officers. If I could characterize it in any way, we are seeing a breakup and a move through to ROE, with a number of properties that had been tied up in the courts and working with borrowers.

In looking at Texas, Texas required a provision of about $6.9 million. 43% of that was Sim Crude, which I've said we've subsequently sold. There were a few credit downgrades and increases in credit. The provision was driven by that one Sim Crude and then downgrades on a few residential credits.

We had one midsized Texas home builder, a good homebuilder, who ran into significant difficulties after the FDIC took the two larger S&Ls. They were not able to continue with construction or get draws on a number of houses. That has caused problems with this one credit. We anticipate likely it moving into foreclosure.

We do not have any unfinished houses of any significance. And we expect to move through that without any additional reserving or loss beyond what we have reserved.

In Mississippi, we provisioned $12 million of charge-offs, credit risk rate changes and increasing [credits op]. Of that $12 million approximately $2 million was providing for our 850 million home mortgage portfolio which still is in very good shape. Indirect auto required about $2 million in provisioning to match our charge-offs and increase our reserve marginally. And the Memphis condo project was $3 million.

We've looked very closely at everything else and it was small. Nothing large in there in the additional 5 million. Lower end product is selling. New subdivisions are opening, believe it or not, in Madison County and the lots in the $20,000 to $40,000 range are selling.

As far as nonperforming loans, they were up $5 million for the quarter at $138 million in line with our internal -- as a matter of fact, dead on top of our internal projections. New nonperforming loans continue to be primarily the result of downturn in residential real estate, our companies such as lumber mills, brick mills, companies that are directly tied to residential. Although Florida is flat year-over-year, they've trended down somewhat in the last two quarters.

Relative to our other real estate at $71.6 million, ROE increased about $16 million during the quarter. One well-situated piece of land in Houston for a little under $3 million. One apartment complex in Florida about 60 units for approximately $3 million. One residential development in Florida for about 80 lots for about $1.5 million.

I am giving you these numbers so you can see how well these are written down. And two pieces of land in Florida for a couple of million each that are through their third or fourth appraisal process with us. We are seeing some of this Florida property, that's five properties in Florida, that we have been anxious to get hold of so we can get about disposing of it.

Existing ROE balances. We have write-downs of $4.4 million. There was four credits represented about 60% of this writedown. We obtained appraisals on about 40 properties -- principally, the Florida real estate. If we pull out a couple one which was an easement problem and the other which we believe to be a fraud, the remainder of those properties averaged about a 21% writedown. Right in line with where we were with our impaired loans.

We took a look. We have about 30 properties overall in the $71 million that are over $500,000. The original loan balance was $82 million. The carrying balance is $47 million and that is down 42%.

Now, when you take a look at our [OREO] I want to stress $34 million out of $71 million is in Florida. And it has been severely written down. Mississippi has $21 million. Texas $8.5 million and Tennessee $8 million.

We have seen no real run-up in the value of Mississippi or Texas real estate. So we feel comfortable with those value levels today. We continue to appraise and value our ROE quarterly and that concludes my remarks on credit quality. Other questions that you might have we will attempt to cover.

On a net interest income, I'll talk for a moment about deposits. Our deposits were down about $277 million. $179 million of that was public money, which we considered seasonal. Our CDs were down and that is us pricing our CD rates belts and not picking up letting hot money move where there's no relationship.

Again, we feel good about where our net interest margin is and the 428 continues to move up. I would say a lot of that has to do with the fact that Gerry Host and his group have really been disciplined in putting minimum loan [forwards] under a very significant amount of our portfolio. And we move through that process now one time with renewals on all of our lines this year and we view that substantially complete.

On non-interest income, it was $43 million, excluding our $1 million security gain. Mortgage banking had another great quarter totaling $8.9 million, up significantly from the prior quarter.

The hedging was positive pretax $2 million compared to a negative $4 million last quarter. Buddy Wood is here to comment on that. We had another great quarter and gain on sale of mortgage loans of a little over $4 million. Most of the mortgage brokers [aren't] in the market. We are getting more business because of that and with the strength and diversity of our mortgage operation being able to sell service release or keep the servicing, we are able to take advantage of the marketplace.

We saw an increase in service charges. We also had a good month of insurance and Wealth Management. It is holding in very well. I will comment on Wealth Management.

As you know, in our mutual fund complex there are two money market funds with a little over $1 billion in them. The charges that we are passing through to customers in those funds is essentially zero. That is down well over $2 million on an annual basis. We expect those revenues to come back when interest rates start back up. It will be a positive for Wealth Management.

The security gain was about $30 million of longer duration mortgages that our investment department did not want to hang onto. I believe at quarter end, we had about a $60 million gain in our mortgage portfolio, still yielding very well, and we're very pleased with it. The cash flow is better than expected. We are not seeing that much prepayment.

We worked diligently on our expenses on the salary side. We are down about 75 FTE from a year ago. Non-interest expense, overall, was essentially flat. Salaries were flat to down, excluding the second-quarter benefit from freezing our corporations defined benefit plan.

Other expense totaled $17.5 million. $4.2 million was FDIC expense and higher real estate foreclosure at $3 million.

We are getting enough issues behind us. We are looking forward. We are managing credit and balance sheet risks. We are focusing on revenue generation. We have essentially finished the rollout of our new branch sales and service platform which was an Argo System, which is a fantastic improvement for our Company.

We have received a major positive reception from all of our branches. I'm told by the 15th of November, the remaining 20 or so that haven't been converted will. It has worked very well in our call center.

We continue the development of Houston. We are vigorously defending Mississippi. We are prudently managing our equity and, relative to TARP, if we do repay it will do it in a shareholder-friendly manner.

Appreciate you listening in today and we will be happy to try to answer your questions. Thank you.

(Operator Instructions). Kevin Fitzsimmons. Sandler O'Neill.

Richard, I was wondering given your comments that it seems like the movement into OREO kind of freed up in Florida, and you've been able to kind of break that logjam and move some things in there. And the fact that criticized loans in Florida were down, I think, 8% linked quarter.

Are we at a point where we -- are you at a point where you think non-accrual balances in Florida could actually decline next quarter, whereas the stuff you're getting out is outpacing the new stuff that is coming in? Thanks.

Sure. If you take a look at our Florida charts, there's not much that isn't classified in the construction side. Bob Hardison and Barry Harvey -- Barry oversees a lot of this analytical work and I'm going to let Barry take a shot at that and then Bob chime in with color since Bob is actually working these credits.

I would say that it is a possibility that we would begin to -- the increase in ROE would begin to outpace the increase in non-accruals. I think, as Richard indicated, we've -- a large percentage of the credits are already criticized classified and some of which are -- currently are accruing of course so there is some more potential for substandard credits to still become non-accrual.

But I think that the majority of the non-accruals that we are going to see, we felt at this point it's just a matter of the legal process continues to be extremely slow. While we are seeing some stuff moving at ROE, it is still at a snail's pace just from a portfolio standpoint. Bob?

Yes, this has always been difficult to try to predict [in Florida] because, as we said early on, when we started this about two years ago, we were seeing borrowers who were paying and keeping current and then one month they would come in and basically say they were throwing in the towel. So I think the basics are there to see some decline, but again we have to emphasize that it's still a little bit of a moving target.

And while we dealt, we think, with the majority of the larger credits down there, we still have a way to go. And we are still very diligently working the credits down there.

Great. Just one quick follow-up. Richard, is there any update or any subsequent event regarding that fraud lawsuit related to Stanford? Is there anything to report there?

No, nothing to report there and as we said before, there was a cash letter from Antigua to Republic and nothing suspicious at all about the cash letter. It was a regular cash letter and those likely were investor checks that went to the bank in Antigua in a normal clearing operation by us. We performed all regulatory duties on it and fiercely defending the fact that we weren't involved or would have known nothing about what Stanford is accused of, based on the small part of our handling collection of items.

Okay. Thank you.

Steven Alexopoulos. JPMorgan.

Good morning, everyone. Could we start -- I know that 90 days past due loans were flat. Can you talk to what you are seeing in the 30 to 89 bucket? Is that flat as well? Are you seeing any improvement there?

If you have to look at it by category, let me turn to that just a second. Direct, indirect small business, they are all up versus a year ago on the 30-day, but essentially nothing above the 3% level. Direct consumer to indirect is about a little over 3 and Portfolio is down very significantly. Maybe by 50%. Paying off about $20 million a month.

Barry, when -- Barry Harvey oversees our special asset area. Any comments you want to make on your feelings about any portfolio? There's nothing here that's jumping out at us.

A couple of things, Richard. One is on the -- in the indirect situation. The ratios are much less meaningful since we've exited that line of business and we have a shrinking denominator that is dropping off about 24 -- $23 million, $24 million a month.

So we focus there really on the dollars past due 30 days or more. And they've remained -- they are dropping, but not at a very fast pace. So obviously the ratio itself is going up.

One thing I would like to mention regarding the delinquencies as a whole, whether you are talking about the consumer, commercial, etc., is I think it's important to think about it from the standpoint of 40% of our delinquency numbers relate to Florida. And when you take those out in any one portfolio, when you start looking at the overall number and then on a portfolio basis, the numbers aren't alarming if you can separate out Florida and think about it from that standpoint. Because we really don't see a systemic issue relating to delinquencies outside of -- with our other part of our franchise.

And I think that more than you would expect to see probably even less than you might expect to see in the kind of economic environment we are once you carve out the Florida portfolio.

That's helpful. (Multiple Speakers). I want to talk about your deposits for a second because it seems if we X out the public money in CDs, core deposits still didn't see much of an increase in the non-interest-bearing period, and are actually still down quarter over quarter. And most banks are seeing very strong core deposit growth.

Could you talk to why those balances seem to be pretty flat on the core deposits X some of these items?

It could be that we had last fall a few major customers who decided to take very significant dollars out of money market funds and put them in their checking accounts, as they weren't earning any money, in order to be insured. We had a couple of those that were fairly large, one in about the $50 million range.

We are diligently managing our retail core costs. We feel fine with it.

Maybe just one final one. Can you just remind me what is the balance of the share national credits in terms of dollars beyond maybe the Sim Crude one? And did you see any meaningful downgrades from the [exam] results?

There were seven or eight loans that were either criticized or classified, total reserving cost to us, I believe it was approximately $1.5 million. Wasn't significant. We do not share our total exposure, but our total outstandings under shared credit, a couple of which we agent, would probably be around $250 million, $275 million.

Perfect. Thanks.

Jennifer Demba with SunTrust Robinson Humphrey.

Richard, just wanted your thoughts on potential acquisition opportunities over the next several months to a couple of years. A couple of your geographic peers have raised some proactive capital. Wanted to get your thoughts there.

With our core earnings where they are and our capital levels where they are, even post-TARP, we are in good shape. If you look at our total risk base, the amount of 100% risk-weighted assets we could add to our balance sheet and still be above 11.5, 12%. That 11.5% percent sort of astounded me. It might approach $1 billion or so.

So we figured out we have a lot of capital. There is no question we could raise capital if we wanted to. Our preference would be to weigh that very carefully and be as shareholder-friendly as we can.

We, like everyone else, are looking at most of these FDIC transactions. We haven't seen anything that interested us from a core basis. We will continue to look. We would look closely at anything end market and we would be very interested in expanding our Houston franchise.

We are not interested in taking on Atlanta. It is too far in the other direction.

We could look at other parts of East Texas. We are looking at everything that relates to northern Florida. We are not sure there will be that many opportunities for assisted transactions in the next few months.

We think that depending on commercial real estate and whether some of these companies can reestablish their core earnings that were principally real estate lenders would be the question out there. And we agree with you, Jennifer, it could be a year or two from now.

We are interested. But we aren't jumping up and down about it.

Great, thanks. I appreciate it.

Adam Barkstrom from Sterne Agee.

Good morning. Richard, I wonder if you could go through -- I didn't catch all of the details on the two credits that you highlighted that made up 52% of the net chargeoffs this quarter. If you wouldn't mind talking about those briefly again?

Yes. One was an energy-related credit out of Oklahoma, a large syndicated credit. It was an oil and gas transportation company. They were in all of the headlines a year and a half ago because of major losses in hedging, which most of the marketplace considered fraud.

That credit is scheduled for delivery our note within the next 30 days and we actually should pick up some reserves because of that.

The second one was a downtown Memphis share national credit which we were not the agent. Significant condominium project. It had construction problems. I believe, the foundation.

Therefore they were delayed and lost buyers. That credit has been addressed with the Share National Credit Exam and it is a small bank group. I think three or four banks and our total exposure left on our books is $7 million, which is reserved.

Great. Thanks. And as a follow-up, the subject of TDR has troubled that restructuring. Do you guys do that and if so, what level do you have?

Let me let Bob and Barry tackle that.

As it relates to trouble debt restructures, we really haven't had the opportunities to accumulate those type of credits for a few reasons. One is on the consumer side. We've been pretty diligent in our approach to any type of adjustments we've made to credits have been of a temporary nature and there's been also a situation where we've not had to lower rates or extend terms and make true modifications.

So we really haven't had the situation where we bumped up against the needs to generate or correct TDRs on the consumer side.

On the commercial side, as you know, the great great majority of our issues are down in Florida. And in many many cases, virtually all the cases, the borrower either can pay or can't pay and the adjusting of the rate or the extending of the terms really doesn't solve the situation.

So because of so much of what we have been collateral-dependent, then the ability to generate a lot of TDR just has not surfaced at this stage. And we have been really diligent not to modify or basically capitalize a loss just by leaving something on the books they really can't pay. We have kind of gone ahead and taken our medicine as it occurred. Bob.

Yes, I think that's an accurate explanation. We have -- the opportunities in Florida to do TDRs is just limited. Like Barry said either they can pay or they can't. And in most cases we will go ahead and write it down and it will go into the nonaccrual-impaired category.

If I can ask a follow-up. So then what you have in other real estate now, I mean do you have a sense of -- if I were to ask you what is the total markdown on average of that group of assets, what would -- what that mark would be?

42%. I had said earlier.

All right. Sorry if I missed that.

(multiple speakers) everything over $500,000 and that's the vast majority of it.

So everything over $500,000 is marked down 42%?

Yes. On average. And you know, you probably could look down and look at Florida and it might be more because some of those properties over $500,000 or 30 properties would be in Texas or Mississippi where there has been no writedown.

You know, some of the land loans have been written down 70%. Not unusual at all in the Panhandle. And we have seen lots where the developer might have had close to $300,000 a lot in them and we would've had 230 or 240 and we have appraisals in hand for 30. I mean essentially it is written down to nothing.

Michael Rose with Raymond James.

Good morning. Could you guys touch a little bit on your Texas portfolio and trends you are seeing there? I noticed the MPLs have kind of ticked up a little bit and out of the Texas banks. I think people are a little surprised at the rate of deterioration in this past quarter. So any color you could give there would be helpful.

Yes. I read the Sunday edition which was the quarterly update on the Houston economy. I would say cautiously optimistic. Residential sales by real estate agents is up three or four months in a row. You know I think the price of oil is back up. If it stays there a while they should have some effect on the rig count which is still about 1,000 in Texas. It's down principally in the Gulf.

Major issues we've seen is companies related to natural gas. We have been through this portfolio I can tell you very, very, very closely. I spent nearly half a day myself with the two credit deputies flying up here last week. And we went through essentially the entire portfolio and that was the week after Bob Hardison went down there and did it and our credit review people were down there last quarter and went through the whole portfolio.

We were really pleased with the process and quality of work that our Houston team is doing. You know, our Chief Credit Officer there -- a fellow named [Reid Cook] came with us a few years ago. Before that he spent his career with TNC and actually ran one of their large corporate workout units the last two years he was there.

And ironically he spent eight or 10 years in Australia, working out some problems for them. So he has a good sense of credit.

Our second credit officer is well-experienced. And our real estate people down there principally were sent from here and had a lot of experience with us.

Our energy group is a unique group. Two out of the three actually worked in the industry as CFOs or officers. So we are not getting off into a bunch of shopping centers way out on the outskirts or any production lending or any really sensitive energy lending. We haven't been there long enough. And we are assessing our strategies now.

And can you just remind us how big your total energy portfolio is?

Bob will cover that.

Yes, our total energy commitments are $125 million with $56 million outstanding and it's split about -- the outstanding split about 50-50 between services and midstream operations.

Great. That's helpful. Thanks a lot.

Andy Stapp. B. Riley & Co.

Good morning. What was driving the nice link quarter growth you had in deposit service charges?

Can you hear me?

Yes. Nothing in particular. Seasonal. I don't believe NSFs were up or anything.

So there's no pricing adjustment or --?

We always have tweaking of things, but I believe there's any new matrix or anything that went in. Gerry is not here, but I'm getting nods that there was -- Louis wants to comment on it.

Yes. Seasonally if you look at it from the nine months, nine compared to eight, they are basically flat. And I think that third quarter is the seasonal people getting back to school, etc. So I think that would be attributable to most of the increase on a linked quarter.

Okay.

Debit card was down somewhat.

All right. Thank you. The rest of my questions have been answered.

Jeff Davis. FTN Equity Capital Markets.

Good morning. Richard, not to put words in your mouth, but in effect is -- can we say that the Florida issues for Trustmark have peaked or bottomed -- however we want to style it, which direction. And as it relates to Northern Florida generally ex-whatever Trustmark may have is that market has bottomed too or still trying to find a bottom?

We have a non-lending professional who is a real estate professional that handles ORE for us. We are seeing buyers bottomfeeding, interested in any lit property of any significance and a number of lookers.

We obviously have not met on many properties yet, but we are close. I think it is just going to depend on how the appraiser's view time to liquidate properties when they are doing new appraisals next spring.

A number of properties are moving. A number of vertical properties have been for us. We are selling a number of individual lots. And we are looking closely at two or three significant properties.

I hope it has bottomed because they say number appraisals I've looked at on beachfront lots say they are down 44% over 48 months. I think the size of people's exposure will not feel as much damage.

But anything can happen there. My thought would be broadly is that you need to get well at home in Atlanta or St. Louis or wherever before you think about it. But let me take you to one thing that I think potentially helped over a period of time.

And that is, you know, the Saint Joe Company in Southwest Airlines made an announcement last week that the new Panama City airport, which I had visited -- looks to me like it is ready to go -- will probably be ready to go prior to me. And they have announced four or five flights a day on Southwest out of there. (technical difficulties) assume would be Houston, Orlando, National, Baltimore, Washington.

So it will be a lot easier to go to the beach.

Okay.

I don't think anyone knows the answer to your question.

Yes. Well or maybe just a couple of years of bottoming, but maybe the worst is over.

Okay. Second question is from an asset liability standpoint, if you said it, I completely missed it. Is any inclination to start term out, the short-term borrowings? You've got a great margin and I guess it would involve giving a little bit of that up, but --?

We watch those things closely. We have at least one management alcove a month, but Buddy Wood is looking closely at it.

We haven't felt the need to do that yet because we've paid down so much debt in the last six or eight months. The number, once you pull out downstream bit funds, is not a significant number at all.

Buddy, what is it about -- total wholesale is about $600 million?

It's about $600 million. If I could just add one thing. We were actually in position where we had too much liability sensitivity. And we were monitoring that and when we started to add the investment portfolio, we also came in with some of the TARP money around the same time which has a long-term liability structure to it.

We've talked about the strategy in the event that we were to make any changes. We are only operating at about a 1 to 1.5% net interest income under a 2% shock. So we -- although we go through six or seven different margin analyses, we find that even if we were to repay $200 plus million for the long-term preferreds, we would look at approximately half of that going into some other term funding and also maintain not anything more than about 2% volatility under worst-case adverse conditions which would be maybe $7 million. And that is if we didn't take any of the types of actions you have seen this take in the past as interest rates change.

So we monitor it very closely. We are very pleased with the core deposit structure and the fact that we -- during this very difficult variety of changes in the market -- have not had to chase a high premium depositor and still maintain a very strong core deposit base.

Yes, okay. That's fine. You've done a great job over the years. Thank you.

Brian Klock. KBW.

Obviously with all the detail in the release and most of my questions have been answered already, maybe Buddy, you can answer this question too. Is there any more -- there was a pretty significant repricing down in the interest-bearing deposits in the quarter.

Is there anything else that is coming up, any other deposits, time deposits where you are citing that we may see a continued improvement in the pricing on deposits in the fourth quarter?

It's slowing. We have a certain amount of longer term higher cost deposits that continue to roll off. But it's not real material.

The ability to maintain a competitive interest rate on our deposits without having to pay what we have seen some people stretching to, gives us confidence that we can still be very confident -- our customers can be very confident that we can remain competitive without pulling the rates down so rapidly which has been our tradition and the reason why they have stayed with us through this. But we still have some rules and there will be some gradual move down.

It is obviously much less expensive to be in borrowed funds. We use them where we can. But we are not going to sacrifice our core deposit base in any kind of rapid or overly demonstrative manner.

Okay. And, Richard, maybe just one last question for you. The good detail you gave us, the loan portfolio mixes and the ebb and the flow in each geography and type. And you guys continued to do a good job working down the construction exposure in Florida and even in Mississippi.

When you look across the geographies, Mississippi had the largest linked quarter dollar decline in loan balances. Texas was down about $30 million, $31 million.

I guess from the general comments you made, what do you think we actually may see a turnaround so that we might start to see loan growth again? And do you think that it might be out of Mississippi first? Or you think Texas might start to kick back in before the other regions? Or what do you think about when can we get cost of loan growth again?

I think you need to first separate the indirect auto. Because that, over the next couple of years, will go to zero from around $450 million today.

If you take a look at our CRE exposure, we are now below our non-TARP Tier 1 capital, relative to the interagency agreements on construction. With our other CRE and it's just above 700, we are picking and choosing some very good CRE income-producing projects.

We saw a very good fully leased warehouse in Houston a couple of weeks ago. So there will be more of an opportunity. And if we do any CRE, it will likely be in Houston.

When -- we have -- we are fortunate to be in business as long as we have and being in the state capital. If there is a good-sized commercial company in Mississippi, they either have all or a good part of their relationship with us.

And when they see -- and a number of these companies are headquartered in Mississippi and do business all over the country are, for example, a poultry company or an egg company or a Caterpillar dealer. They are doing business outside of the state. And once it moderates and begins to turn up, we will see Mississippi lines of credit usage which are particularly low.

And you know, we have been taking a good whack at our loan portfolio with charge-offs and moving ORE and as that slows. So I'm not seeing any growth in loan portfolios, nor am I hearing other banks talk about growth in their loan portfolios until America decides to get up and start moving forward again.

We have the ability to increase it in Houston. And we are going through a planning and thought process as to what we will do there in the next year or two. I'm not optimistic about loan growth.

Sure. Appreciate the color. Thanks for taking my questions.

Al Savastano. Fox-Pitt Kelton.

Just -- questions for you. First on TARP. Richard, are you changing your tune a little bit and it sounds like you might, you are willing to repay that sooner rather than later?

We are giving it a lot of thoughtful discussion within our Company.

And have you talked about the regulators in terms of what the process is?

We are very aware of the process.

Okay so you wouldn't expect to have an issue. Nothing being implied there, but some of the larger banks are saying that they don't know what the process is. And so I'm just trying to make sure that you wouldn't expect an issue if you were to repay TARP?

We understand the process for repaying TARP.

Got it. Perfect. And then the second part on an unrelated topic, you mentioned you are doing this commercial real estate review this quarter. Can you give us a little more details of what you plan to do and when you expect to have that review complete?

Bob Hardison will talk.

Yes. We have -- a couple of months ago we started a project in the commercial real estate. Primarily, the income-producing property loans and we selected all of those over $1 million and we are collecting updated, operating statements and statements on primary guarantors on those credits.

It will be about -- represents somewhere between 75 and 80% of the portfolio. We have gotten those statements in. Preliminary analysis looks pretty good. We've not uncovered any loans that we didn't already have appropriately risk-rated.

There are a couple that we are going to look at, do some more work on, but we've not finished a complete analysis. But all the data is in.

And you expect to finish that up in the fourth quarter?

Yes. We will finish it up in the next couple of weeks.

Perfect. Thank you.

And with no more questions in the queue I'd like to turn the conference back over to Richard Hickson for any additional or closing remarks.

Just thank you for joining us today. We're very pleased with the direction we saw this quarter go on core, pretax, pre-positioned earnings. Let's see if we can do this again in the fourth quarter. Thank you.

That does conclude today's presentation. We thank you for your participation.