Zions Bancorporation, National Association (ZION) Q1 2012 Earnings Report, Transcript and Summary

James R. Abbott - Senior Vice President of Investor Relations & External Communications Harris H. Simmons - Chairman, Chief Executive Officer, President, Member of Executive Committee and Chairman of Zions First National Bank Doyle L. Arnold - Vice Chairman, Chief Financial Officer and Executive Vice Presiden Kenneth E. Peterson - Chief Credit Officer and Executive Vice President Unknown Executive - David E. Blackford - Executive Vice President, Chairman of California Bank & Trust, Chief Executive Officer of California Bank & Trust and President of California Bank & Trust

Paul J. Miller - FBR Capital Markets & Co., Research Division Jeffrey Lengler - Goldman Sachs Group Inc., Research Division Ken A. Zerbe - Morgan Stanley, Research Division Leanne Erika Penala - BofA Merrill Lynch, Research Division David Rochester - Deutsche Bank AG, Research Division R. Scott Siefers Craig Siegenthaler - Crédit Suisse AG, Research Division John G. Pancari - Evercore Partners Inc., Research Division Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division Joe Morford - RBC Capital Markets, LLC, Research Division Kenneth M. Usdin - Jefferies & Company, Inc., Research Division Michael Turner - Compass Point Research & Trading, LLC

Welcome to the Zions Bancorporation First Quarter 2012 Earnings Call. This call is being recorded. I will now turn the time over to James Abbott.

Good evening, and we welcome you to this conference call to discuss our first quarter 2012 results. I would like to remind you that during this call, we will be making forward-looking statements and that actual results may differ materially. We encourage you to review the disclaimer in the press release dealing with forward-looking information, which applies equally to statements made in this call. We will be referring to several schedules in the press release during this call. If you do not yet have a copy of the press release, it is available on our website at zionsbancorporation.com. We will limit the length of this call to 1 hour, which will include time for you to ask questions. [Operator Instructions] Now, we'll turn the time over to Harris Simmons, our Chairman and Chief Executive Officer. Harris?

Thank you very much, James, and we want to welcome all of you to this earnings call this evening. We are, obviously, particularly pleased by the progress we are able to make in the first quarter with regard to our capital plan, as I suspect most of you know, the reduction in our overall cost of capital and the simplification of our capital structure over the next 3 to 5 years should be one of the primary drivers of improvement in our profitability and return on equity. With redemption of $700 million of TARP at the end of March and with the targeted redemption of the remainder of TARP in the second half of this year, we will move meaningfully closer to what we believe to be the long-term earnings power of the company. Looking to the fundamentals, overall, we are quite pleased with the progress on asset quality this quarter, although there's some noise in the classified loan trends, which is mentioned in the release and which we will address a bit later in the call. But net charge-offs declined 43% from the fourth quarter level to an annualized 60 basis points of loans, which is a level that we haven't seen since the first quarter of 2008. We also saw some further decline in nonaccrual loans, which declined 4% sequentially. Nonaccrual loans are down more than 60% from the peak, but at 2.4% of loans we know that we still have some further work to do to get them down to a more normalized level consistent with our history. The softest spot for us in the first quarter was loan growth compared to the fourth quarter, which is something we also highlighted as a first quarter challenge at our last earnings call. As noted in the press release,…

Thanks, Harris, and good afternoon, good evening everyone. I hope you guys on the East Coast are weathering the weather satisfactorily. As noted in the release, we posted net income applicable to common shareholders of $25.5 million or $0.14 per diluted common share. We've also presented the earnings as we usually do in a way that excludes the noncash sub debt amortization impact and the FDIC loan discount accretion. And we think that adjusted for those items is useful to longer-term oriented investors, as we do not expect those income and expense items to be with us into perpetuity. And additionally, in the first quarter, we had one other item which we'll call out and that's the $20 million accelerated discount amortization related to the value attributed to the warrants in our TARP preferred that was then triggered by the redemption of $700 million of that TARP in late March. So that flows through as additional preferred dividends and that explains the jump of $20 million in preferred dividends this quarter. Excluding those items, the earnings were $0.33 a share. While there was some other modest fee income noise in the quarter, those items largely cancel out. Turning now to revenue drivers, which includes a discussion on loans and margin. On Page 12 of the release is a table of loan balances by type. Before we get the details, much of the balance -- decline in balances is due to a decline in production compared to the fourth quarter 2011. Production here includes both new origination, as well as draws on existing lines of credit. While production was down from the fourth quarter, it was very basically identical to the first quarter of last year. And on most -- on the most cyclical loan type, such as C&I, the linked…

[Operator Instructions] Our first caller in queue is Paul Miller with FBR Capital Markets. Paul J. Miller - FBR Capital Markets & Co., Research Division: A quick question is that across the different geographies, we're hearing places like Phoenix and Vegas are starting to have some good asset price recoveries, a lot of investors coming into the market. Are you seeing different performances from the different geographies you guys are in, especially California versus Phoenix and Texas and Vegas?

I'll see if Harris or Ken wants to -- Harris, do you want to comment on that?

I guess we are generally seeing continued improvement across the board. We saw -- we did see in the Nevada market some pretty good improvement during the quarter in terms of just credit quality. What we're not seeing is -- I mean, loan demand remains really weak in those markets, but we are seeing, even in some of these really tough markets, that things are getting better. We're seeing in the Arizona market, for example, better movement in the housing market. If anybody can qualify for a conforming loan, so in the reasonably priced kind of segment of the market, things are actually moving along. It's still weak in the upper end, but there are some very real signs of improvement in some of these tough markets. Paul J. Miller - FBR Capital Markets & Co., Research Division: And then on price competitiveness, are you seeing different levels of price competitiveness in some of the bigger banks or is it pretty much it's very competitive out West across the board?

Well, I think, I mean you're seeing it pretty competitive across the board. We're -- I don't know, just anecdotally, I'm hearing less about a couple of players that were really aggressive 6 or 9 months ago, but it's still -- everybody's looking for the good deals and everybody is strapped for the quality earning assets, and so it's pretty competitive. And that's -- as we've said, starting to see it maybe a little bit in structure. So until we see some growth, I think we're going to continue to see a lot of price competition.

Our next question in queue is from Ryan Nash with Goldman Sachs.

This is actually Jeff Lengler filling in for Ryan Nash. Just on the available for security T-yields [ph], it looks like they're up about 60 basis points linked quarter, but the balances are down, is that somewhat related to TARP repayment, or is there anything else going on there?

We actually sold some U.S. Treasury securities in the fourth quarter and which ultimately rolled into cash and now has been used to pay off the $700 million to TARP. So what you're seeing is that effect going on.

I think you're seeing a subtraction of very low yielding securities from the securities mix, not a purchase of something that has an interesting yield at a longer duration.

Okay, that makes sense. And then just secondly, on the classified loan reclass, was this an internal decision or was it driven by something on the outside? And was there any impact on the allowance or the P&L for the quarter?

There was OCC, their control of the currency asked us to make the change, to go down to a smaller loan size, where we analyzed individual financials and more aggressively go after those financials. And no, it basically had no impact on our assessment of risk, and therefore, of the loan loss reserve.

Your next question is from Ken Zerbe with Morgan Stanley.

Doyle, just to start off on the last question on the provision expense, if the change in the grading of loans for classified didn't add to the provision expense, is there anything to read into the very low provision expense number this quarter, but still a little bit higher than we were expecting? Because your comments suggest the provision could be lower or negative going forward. So just trying to reconcile the 2.

I'm tempted to turn the mic over to the gentleman who is here with us who runs our quantitative models and runs this whole process, but -- he, basically, runs the company now for bad debts. No, it's just -- I mean, we looked at that and we knew that question was going to come up because it is counterintuitive. But basically, all the trends are favorable and you shouldn't read much of anything into it. If I did turn the forum over to him, he would give you an erudite explanation of first derivatives and second derivative, rates of change that you'd -- eyes would glaze over, so I would just say don't worry about it, if you can do that.

I think I can probably do that. So can you, just a quick -- a quick follow-up question that was just on TARP, your comments in the release say second half of 2012, I think previously, we heard, sort of broadly, end of 2012. Are you trying to indicate that you could repay a little bit sooner?

I hadn't even realized we made that statement. I think -- let me just say, I think the reality is probably are something along the following [indiscernible]. I think -- well, there's proposed regulations out there now that will require all of the top 30-ish banks to do another stress test, self-defined, at mid-year based on their balance sheets, more current. Probably the underlying reality is that there've been no rules published. I'm not sure what, if any, rules will guide that, but my current expectation is that we will do something along those lines and we probably then won't -- we will wait until we know the results and maybe have showed them to the Fed before -- and you put all this together and it kind of says late third or sometime in the fourth quarter, so it wasn't intended to be a change in guidance. Reality is it's going to be maybe in the last third of the year, I would suspect.

Our next question is from Erika Penala with BOA Merrill Lynch.

Doyle, I appreciate the color that you gave on NII, but I was just wondering if you could help us size the impact of the resets? Because it sounds like that's what's driving your guidance for lower NIM quarter-over-quarter. So I guess how much of your loan portfolio will reset in 2012? And what's the delta in terms of the yield to throwing off that versus where it's repricing to?

I'm not sure. I'll let James answer. James is raising his hand. He wants to answer your question. So we're going to give it to him.

In terms of floors, we broke it out a little bit in the Analyst Day presentation so you can see it by year that way. We broke it into 2012, 2013, 2014, in fact, so you can see it broken down there. But it is closer to the 3, 3.5 basis points per quarter when you add floors and resets together in the next 1 or 2 quarters. I think it's the next 2 quarters and it's what -- and then it starts to tail off. And as you get into 2013, it's about 2 basis points a quarter on the combined basis for those 2 different effects.

Got it.

And that, I believe, is consistent with guidance we've given over the last couple of months.

Okay. And in terms of the provision, I appreciate that there's a very mechanical process in terms of how it's going to be drawn down this year. But I guess as we're looking to a more normal run rate of earnings for Zion, what does the model say in terms of where the reserve can eventually bottom to? What's, sort of, was appropriate for the new risk profile of this company or pro forma risk profile for this company?

Yes, really, to fully answer that question, you almost have to also tell me what rules you think the FASB is going to enact, and they are evolving, kind of even as we speak, from a incurred loss model much more strongly in the direction of an expected loss model, including probability weighted different economic scenarios, one of which could be a severe stress scenario. So until all that shakes out, I don't know where we'll settle out. At some point, what you ought to look at is really the -- what's a normalized through the cycle run rate of losses versus -- because what that's going to determine, on average, is what the provision is. And I don't know, I -- we have dramatically reduced our exposure to the loan category that caused a hugely disproportionate share of our charge-offs through this last cycle, namely land and development lending. So with that said, I don't know, maybe 50 basis points a year and then you tell me how many years of reserve we need -- we'll need to have under a FASB regime.

I think it's also -- it's a function of how the economy is performing, obviously, and that's something that -- -- beyond our control, so.

But I think whatever that normalized rate of provision is and level of reserve is, we're probably still a year or 2 away from it. There is just too many other moving parts. But I think the general trend right now based on what we see is that the reserve will continue to come down and the provision will, for at least the next 2 or 3 quarters, will be in the neighborhood of 0, slightly positive to slightly negative.

The next question is from Dave Rochester from Deutsche Bank.

Just on the pipeline, just real quick, you talk about loans stabilizing in March. Can you talk about which sub banks are the bright spots in terms of the growth trends? And was it mainly C&I that you saw the strength or was it also in another areas?

Term CRE and C&I and some of the term CRE was completion of commercial construction projects that are underwriting criteria for conversion into term loans. And in terms of geography, I think, probably Amegy was the strongest, again, and Vectra was pretty strong and California. Those were the 3 positive highlights. And Utah, on a net basis, was probably the weakest because that's where that National Real Estate loan portfolio that we are shrinking, intentionally, is housed.

Okay, thanks for the color there. And just real quick on Amegy, what was most of the growth there? Was that primarily larger, with large corporate middle-market syndicated type credits or maybe some color there?

It was C&I. Ken or Harris, do you have more color than that on whether it was syndicated loans or...?

I would just chime in on the syndicated credit side, our syndicated credit portfolio book on a net basis, so loans purchased minus loans sold, shrank by about $250 million linked quarter. So...

Syndicated book actually ran off.

We had broad-based C&I and some 20% in the energy sector at Amegy.

Your next question in queue is from Scott Siefers with Sandler O'Neill.

So I was wondering if maybe you could talk about kind of the capital structure going forward. I mean, obviously, that's going to be a big part of the story in the next few years. But now that you're part of the annual, or I guess even semiannual, stress test, how do you see that playing out? What kind of flexibility do you guys think you'll have to improve and simplify the capital structure? Or will it be kind of once a year, we'll get the outlook for what you plan to do for the following 12 months? How do you see that playing out based on what you've seen so far?

Well, there are few, if any, precedents for modifications to approve capital plans on an interim basis out there. I guess Citi, it sounds like either is planning to reapply. They were turned down, we were accepted. I think what I would guide you toward what we disclosed in our Investor Day back in February as current and still valid thinking on a long-term capital structure, namely that we would have 9% to 10% Tier 1 common even in paranormal times. With the current risk profile, we would have a couple of percentage points of preferred, which would, as a percent of risk-based cap -- risk-based assets, excuse me -- that would actually net to less dollars of preferred than we have outstanding today. And then some sub debt, maybe a small layer of sub debt and a couple of percent layer of senior debt. Now, it's going to take 2 to 3 years, as I indicated then, to get there, given call dates and other things like that. So I'm not sure if there's any more I could tell you, but I'll give you a chance to ask your follow-up on that regard, if you want.

No, I think that's broadly what I was looking for. I was just kind of looking for a feel based on having gone through the sort of first iteration. So that's helpful.

I think, I will add that, of course, we've tried to look with keen interest at the CCAR banks, the larger banks, published results. And what the Fed found versus what they thought was their result, and of course, it's no secret that the Fed came up with a lot larger haircuts than the companies did, generally. The biggest difference seems to be in first and second mortgages and cards, which are a more modest part of our portfolio but nonetheless, it looks like the Fed has some fairly harsh models out there.

The next question is from Craig Siegenthaler with Crédit Suisse. Craig Siegenthaler - Crédit Suisse AG, Research Division: First, just wondering if you can update us on your strategy for the growth of the available for sale securities portfolio here, especially given that the portfolio was pretty stable this quarter?

I mean there's just not much out there to purchase that looks attractive from a duration and risk standpoint.

Here's the criteria. If you could find some of these securities, I'd be happy to talk to you. They need to be floating right because we don't want to give away the assets sensitivity. They need to have a low risk weighting because we don't want to reduce our capital ratios as -- so it means they probably need to be government or agency guaranteed, and I'd like to have them amortizing and I'd like to have them paid off in short of 15 years. And then I'd like to have the spread over LIBOR. So if you could actually come up with something like that, I'd be happy to discuss it with you. Craig Siegenthaler - Crédit Suisse AG, Research Division: Is there anything in that bucket?

Not much. Craig Siegenthaler - Crédit Suisse AG, Research Division: So I'm guessing we should sort of see this portfolio continue to decline, but maybe at a slower pace than we saw at the fourth quarter.

Yes. It will be slower. I mean, again, what made -- what caused it to drop in the fourth quarter, and of course, the averages are subject, or just what was described, is we had $700 million of treasury bills, which we actually cashed in, in the fourth quarter and that's the cash that we used to then pay down TARP or part of the cash we used to pay down TARP in the first quarter.

And we have no more treasury bills, if that helps you. Craig Siegenthaler - Crédit Suisse AG, Research Division: Is it basically all MBS? And also muni at this point, if I were to look at the composition?

We're own very, very little MBS. I think it's less than $200 million. Basically, the portfolio is made up of munis, about $800 million of munis. It's got some MBS, but then there are a lot of SBA pools, we have about $1.2 billion of SBA pools which are floating-rate amortizing and pretty much it.

[indiscernible] Of the CDOs, those CDOs, we still -- I mean we've given you a chart on the CDOs, that'll get you to the numbers. [indiscernible] the SBAs, the mortgage-backed securities and the CDOs, you'll get to the number.

And the CDO portfolio is not growing.

That's right. It's shrinking through prepayments and OTTI, if you hadn't noticed.

And the occasional sale.

The next question in queue is from John Pancari with Evercore Partners.

Can you give us some more color around the -- your outlook for credit-related expenses going forward? I mean it came down nicely this quarter. I just wanted to get an idea of how much more room you have there to see some improvement?

I think there's still quite a bit of room between where it is and where it will be in a really normal world, but it was quite a step down this quarter. You shouldn't expect that kind of a step down in the next quarter, I don't think. There was less OREO resolutions this quarter. There was a lot of OREO resolution in the fourth quarter, so there's a little quarter-to-quarter noise there. The general trend should, though, should be stable to continuing to decline from here.

Okay. All right. And then secondly on your moderate loan growth outlook, I just want to see if we can get some additional color there or maybe if you can quantify your outlook there in terms of growth, particularly following a quarter like this, where we saw the runoff outpace the production? And then separately, can you just elaborate a little bit more on the timing of your remaining runoff? I know you gave us a little bit of color there on construction and the National Real Estate, but let me get an idea of the timing of when we really see that end.

I've got to be candid. I mean it's really hard to square the circle about loan growth. The banks continue to report that their pipelines are pretty strong. Commitments are increasing, but draws on commitments were, as I think we said earlier in this call, commercial line utilization is at its lowest point since I've been paying attention to it for 4 or 5 years now. And that's either a sign -- that's a sign of 1 of 2 things, either people are scared to death and they're paying down their lines or we have had growth in lines and new originations. So maybe they're taking out new lines and loading their pistol to fire away because they think things are getting better and it's hard to know right now. Generally, though, the pipelines remain strong. So the pace of conversion into drawn loans is somewhat frustratingly slow. On the decline in those 2 runoff portfolios, well, it's really 3, the smallest one is the FDIC-assisted loans, which are going down, kind of $60 million a quarter or so, and that will be slowly kind of accreting, slowing down as we get further and further into the pile. The National Real Estate decline of a few hundred million will occur kind of throughout the year, but should -- our general sense is that by the end of this year that portfolio should begin to approach a steady-state, I believe. And then the rate of decline in the C&D portfolio already seems to have shallowed quite a bit over the last couple of months. And you've probably read some of the reports that we -- that have been in the public about some revival in housing and we're seeing it more commercial maybe. But I think there's reason to hope, that reason to think that the C&D decline may be largely behind us, maybe reaching a steady-state within the -- or bottom at least, within the next quarter or 2.

I would just add. Was that Harris trying to...

No, that was me trying to say something else.

Okay, go ahead. What's your follow-up?

No, I was about to say thanks for the color, but I believe you're elaborating?

Well, I was just going to say, John, that the commercial commitments were up 3% linked quarter, which is part of the reason why the line utilization rate fell. But it's just unclear when those draws will occur, if ever. So some of them are liquidity backup lines of credit, some of them are commercial -- or rather construction lines of credit, which we do expect to find [indiscernible] draw, right, when constructions starts, right?

That syndicated decline that you mentioned, the $250 million syndicated decline, was that partly related to the national CRE book?

No, no, that would be mostly out of Amegy and totally unrelated to the National Real Estate Group, which is owner-occupied kind of -- much smaller loan. The typical loan size there is around $1 million. Of course, the syndicated book would be multiples of that.

Our next question is from Steven Alexopoulos with JPMorgan. Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division: Just 2 quick questions. First, why has the additional accretion on the acquired loans come off so much over the past 2 quarters? Is that $13 million, the new run rate we should think about?

Well, on a net basis, I mean we look at it from a net basis, where you've got your revenue minus your expenses. And they are very closely related, I believe, that ratio is about 75% or so. So of the revenue that we achieve on that, which as you point out is declining, 75% of it goes out the back door in the form of FDIC indemnification asset expense, which is in the other noninterest expense line item. So just from an overall materiality perspective, it's not impacting the numbers that much. But it's, as a function of -- what they do is they reevaluate the loans every quarter and make it -- in California, Nevada, most of it is California and they make a decision as to how much upside there is left based on performance of the quarter. And also the magnitude, the dollar amounts, dollar amounts are shrinking. Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division: And just to follow up on your earlier comments of not finding attractive options for the securities portfolio. I just look at the portion of liquidity in the money market investments has moved up to 70% from 50%, a year ago quarter. I'm just wondering, at some point, do you just acknowledge that this liquidity is going to be around for a while? And even though yields aren't great, 26 basis points is on the low side and at least maybe a portion of the money market investments should be invested in something?

Yes, December 31 of this year.

What he is referring to is the expiration of the TAG program. The unlimited guarantee of DDA accounts. Most of the growth in our cash can be directly related -- linked to growth in DDA accounts, 90% of that is commercial DDA and we -- there's -- and we, probably all together it's about a $5 billion increase in commercial DDA balances, and we do remain cautious that toward year end, some of those balances may leave. But yes, I don't want to make light of the fact, it is quite a pile of cash and we do continue to look for opportunities that would meet most of David's criteria at least, and not miss on any of the truly really critical, and it is difficult. But yes, we do look for non-loan ways to deploy that cash, Steve. It's just darn hard when the Fed is basically trying to force you to go 10 years, invest in equities and do -- there's not much out there that doesn't present huge duration risk, but we're doing a little.

You can be assured that we've had many lengthy discussions in the asset liability management committee on this subject. And 25 basis points isn't very high, but if you want to go out the yield curve, you can go to 2 years on treasuries and get the same things.

We had 26 basis points as of this morning.

That's a problem and we acknowledge it and we're trying our best to come up with something that makes sense.

The next question in queue is from Joe Morford with RBC Capital Markets.

Deposit costs are down 5% linked quarter mostly in the CD portfolio, which is still around 80 basis points. Just curious how you feel about your ability to continue to move those costs lower?

Deposit costs?

Yes.

Joe, one of the things that from a CD perspective, we've still got a fair amount of room. The CD production this quarter was around 25 basis points for the new stuff. So we've got a fair amount of room to go on that front, that whole portfolios resets down, it takes about a year.

Okay. And then other, was just wondering if you could quantify the seasonal impact of uptick in expenses this quarter, payroll taxes, et cetera, that should come out in the second quarter?

Linked quarter was about $5 million. So that was one of the pieces there, there were some benefits and other expenses in there that account for the difference and some of the actual jump expenses was due to a slower production volume, so less of the expenses associated with that production were deferred.

And do remember, Joe, we called out last quarter, that there was a $6 million or $7 million onetime expense, employee-related, benefit-related expense accrual that hit in the fourth quarter and should not have been -- should not be in your run rate.

The next question is from Ken Usdin with Jefferies & Company. Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: I wanted to ask about the other service charges line. It looks like it was down 15% or so year-over-year and there were some comments in the press release about -- would it being down a little bit on lower customer activity. But can you just talk us through just what the drivers of that are and how closely that follows production and client behavior?

Other services [indiscernible], it's Durbin. So Durbin, the year-over-year number comparison is Durbin. The linked quarter decline is actually to the point that I was making earlier about the slower production, and that was most of it.

So its lower fees on new loans is what's he's describing there.

Our loan fees were down $1 million linked quarter, debit card fees were down $1.5 million. That's a seasonal consumer behavior as people spend, use their debit card a little bit less in the first quarter than they do in the fourth quarter. Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: Okay. So the commercial part wasn't that much of that decline, so it's not so much tied to the softer commercial loan side?

Right. Well and then swap fees. Swap fees was another thing that as customers take out commercial lines of credit, they will swap them, we will extend variable rate credit, generally, and they -- a lot of times they'll turn around and swap it, drop the interest rate risk exposure. That was about $2 million drop linked quarter. Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: Okay, got it. My second question is, just coming back on expenses, overall. Clearly, a lot of helpers now coming out of the credit-related side. What else is there to do or can you do just to adjust for the revenue environment. I know you talk about just being as tight as you can, but do you have any plans on trying to take out any incremental costs or are there -- is there any low-hanging fruit just to continue to make sure you're aligned to the operating environment?

Harris, do you want...

Yes, I might. Yes, just a couple of comments. I mean I think we've worked a lot of low-hanging fruit. We've made a lot of headcount reductions over the past -- really, in the 3 years. At the same time, we've had to add, I mean, the whole the Dodd-Frank environment that we're in has required us to add a lot of people. We're up, by my kind of rough count, depending on what you include in the numbers, but if you look at risk management staffing, generally, including credit policy and administration and compliance and information security and risk management staff, review new products and do model control and internal control testing and all of that. We're up about 75% over the last 4 years. So that's where we've seen -- that's why the numbers just aren't coming down in a much more pronounced way. It's because we've essentially been offsetting other cuts with required adds. But we're working in a lot of different areas. We've seen in the last couple of years, just one example, electricity consumption in our company is down about 10% over the last couple of years. We've been able to reduce our occupancy costs and so we're working a lot of different areas. We're working right now on a major project to centralize all of our mortgage processing, back-office operations across the franchise. Something that hadn't been done before. That's a project where we're working on a longer-term project will provide us with a much more efficient set of application system that will work together, and we think lead to a lot of savings in both back and the front office. So there are variety of things that we're focused on, but there's also some new costs out there in complying with the new world we're in. All the people doing stress testing, part of that 75% increase I'm talking about. So it's just the work that will continue to go on, but I don't see anything that's going to move the needle in a major way in a short period of time.

Our final question, then, will come from Mike Turner with Compass Point. Michael Turner - Compass Point Research & Trading, LLC: Just 2 quick ones, what's your pro forma preferred stock expense in the second quarter?

That was in our 8-K and I don't have it in front of me. But if you go back and pull up the 8-K, I believe, we put it in there, did we not? Michael Turner - Compass Point Research & Trading, LLC: I mean on a consolidated basis?

On a consolidated basis, I think it's $34 million, is the number that comes to my mind. Michael Turner - Compass Point Research & Trading, LLC: Okay. And then just to clarify a little bit on that -- on the guidance, I guess or I'll call it guidance. I mean, you -- NII, exclusive of amortization and accelerated in regular amortization and FDIC, you still expect to be slightly down next quarter, is that -- did I understand that right?

Probably slightly down in the second quarter.[indiscernible] revise quickly.

Operator, I believe we're at the time limit.

Ladies and gentlemen, thank you for joining today's call. This does conclude today's program and you may now disconnect.