Zions Bancorporation, National Association (ZION) Q2 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 President

Jennifer H. Demba - SunTrust Robinson Humphrey, Inc., Research Division Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division John G. Pancari - Evercore Partners Inc., Research Division Paul J. Miller - FBR Capital Markets & Co., Research Division Ryan M. Nash - Goldman Sachs Group Inc., Research Division Kenneth M. Usdin - Jefferies & Company, Inc., Research Division Ken A. Zerbe - Morgan Stanley, Research Division Brian Klock - Keefe, Bruyette, & Woods, Inc., Research Division Arjun Sharma David Rochester - Deutsche Bank AG, Research Division Joe Morford - RBC Capital Markets, LLC, Research Division Stephen Scinicariello - UBS Investment Bank, Research Division Todd L. Hagerman - Sterne Agee & Leach Inc., Research Division Marty Mosby - Guggenheim Securities, LLC, Research Division

Good day, ladies and gentlemen, and thank you for standing by, and welcome to the Zions Bancorporation's Second Quarter Earnings Call. This call is being recorded. And now I'll turn the time over to James Abbott. Sir, the floor is yours.

Thank you, Hewey. Good evening. We welcome you to this conference call to discuss our second quarter 2012 earnings. Our primary participants today will be Harris Simmons, Chairman and Chief Executive Officer; and Doyle Arnold, Vice Chairman and Chief Financial Officer. 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 this press release -- in the press release dealing with forward-looking information, which applies equally to statements made during this call. A copy of the earnings release is available 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] I will now turn the time over to Harris Simmons.

Good afternoon, good evening to all of you. Thank you for joining us today to review our second quarter earnings. We were encouraged with a variety of elements of the quarter's results with the exception of the effects of the current interest rate environment on all banks, while things continue to improve. We're pleased with the significant progress with regard to credit quality, virtually all of the major indicators of credit quality continue to improve and did so in a meaningful fashion this quarter. We're also able to generate a healthy degree of loan growth, and we can see that continuing in the early innings of the third quarter. And our current expectation is for that growth to continue into the foreseeable future. Finally, noninterest expense, as related operations were generally stable. We had a slight increase from the prior quarters, which is ascribable to the provision for unfunded loan commitments, which in turn, is primarily due to an increase in loan commitments by about $400 million during the quarter. And I think that help sets the stage for some further improvement in loan growth and will help to stabilize revenue and eventually to help us increase revenue. Offsetting some of the positive news was a decline in net interest income, which was largely expected due to pressures on new loan yields, compared to maturing reprising loan yields. Additionally, the decline in loans late in the first quarter adversely affected net interest income in the second quarter. Our guidance has been, for net interest income, to be stable to slightly lower over the course of the year and in the course of the coming year. One of the drivers of growing net interest income will be an improvement in small business lending, which is a-- recently a significant part of…

Thank you, Harris. Good afternoon, everyone. Good evening to those of you on -- in the Eastern Time zone. As noted in the release, we posted net income applicable to common shareholders of $55.2 million or $0.30 per diluted common share for the quarter. As we've done in past quarters, we've also presented to you the earnings in a way that excludes the noncash sub debt amortization costs and the FDIC loan discount accretion. We believe this information is useful to longer-term-oriented investors as we don't expect those income and expense items to be with us in the perpetuity. And on that basis, the earnings available to common were $0.40 per share. A little more on credit quality. As Harris mentioned, we made strong progress, in the quarter by significantly reducing problem credits, and we expect continued improvement in the second half of the year. As shown on Page 12 of the release, that's one of the tables, page number there in the other upper left corner. Compared to the first quarter, classified loans declined more than 9% as did the nonperforming lending-related assets. Our TDRs declined by more than 8%, and delinquent accruing loans declined by 14%. The rate -- the ratio of nonperforming lending-related assets fell to 2.5%. That's quite a declined from 4.1% just a year ago. Within the loan categories, as shown on Page 14, it's noteworthy that construction nonaccrual loans have fallen to only $115 million, about half the level of just 6 months ago, and down by 2/3 from a year ago. This is the category that drove about half the company's cumulative credit losses during the last few years, but we're now experiencing a bit of a reversal of fortune there. Problem credits are down, and we're experiencing actual strength in construction origination…

[Operator Instructions] Our first questioner in queue is Jennifer Demba with SunTrust Robinson.

Just curious with the challenge in growing net interest income over the next several quarters, what the primary levers you see to grow earnings are, exclusive of provisioning going forward.

Well, I think the preferred dividend that I mentioned is probably the biggest single change that will occur over the next couple of quarters. Aside from that, it's going to just be continued basic blocking and tackling and striving for loan growth. There are no magic levers to pull. We have to be disciplined about deposit pricing, aggressive about contacting customers and potential customers, but also disciplined after loans, but also disciplined about pricing those loans. I don't think there any silver bullets out there.

You sensed that you guys are being relatively more disciplined in terms of loan pricing than some of the competitors you're going up against for the last several months.

I would say we've tried to be disciplined, but it's darn hard. And you have to -- at some point, you have to meet the competition for good quality loans for customers you have or being calling on for a long period of time. So I think we're doing what we have to do to retain market share and very selectively grow. We're trying not to discount loans just for the sake of achieving a lot of loan growth.

Our next questioner in queue is from Steven Alaba (sic) [Steven Alexopoulos] with JPMorgan. Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division: I wanted to start, regarding the pro forma Tier 1 Doyle gave, the 7.75% under the new rules. When you look at the rules and think about what you could do between now and when the rule's get adopted, I know they might change. How much worth of room do you think you have to improve Tier 1, right? You might be able to little change where you do a commitment, et cetera. Just wondering if you could band what that might look like.

Well, the phase-in period is relatively long, and the biggest single impact is one we've talked about, it's nothing new. It's been in the kind of the proposal, the Basel committee itself without, and that's the AOCI. As it -- and that's, by far, the biggest single impact in the change from Basel I rules to Basel III rules for us. And as we discussed, all the trends in -- that we're seeing in the CDO portfolio would suggest that the AOCI mark should moderate over the next few quarters and through the years during the phase-in period. So there's a lot that can happen between where we are now and the full phase-in rule with regard to that number. Similarly, the deferred tax asset that requires future profitability towards realization, which is much, much smaller than the AOCI mark rule gets smaller as basically as NOL carryforwards are used up. And as we remain profitable, that too should happen. With regard to, I guess, the other thing -- the next bigger ones and one of the newer ones is the change in the risk weightings on basically nonperforming loans. And as those continue to come down, the impact of that number should come down. The 2 that probably are subject to a little more management discretion are kind of what we do in the way with residential mortgages and with unfunded commitments. You certainly don't want to stop making commitments but it -- one might look at the pricing of those commitments that are under a year. And with regard to residential mortgage, we have some unique -- I wouldn't say they're unique, but we have some products here that we think are very conservatively underwritten that get caught up in the full amortization rules that get them into a higher risk weight bucket. We need to look at those products, and how we price of them or design them to see if with some tweaks, they're still good products that have less risk-weighted impact. But we haven't started to do that yet. It's too [indiscernible]. Is that helpful? Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division: Yes, that's actually really helpful. Maybe just a quick follow-up. Looking at the core loan yields down around 10 basis points quarter-over-quarter, given the competitive environment, is this the quarterly pressure we should be thinking about? And maybe can you talk about where your loans were added in the portfolio in the quarter?

Yes. I mean that's probably reasonably reflective of what we're seeing out there. The -- and we've talked about the kind of the ongoing pressures of -- it's harder to get floors that margins over -- or spreads over indices have been under some pressure. That's -- it's probably realistic to think that, that loan yield will -- that, that's a new benchmark, but that further decline should layer because those can take -- those pressures continue to impact each quarter's new production or resets as in order. Now, I went to quite a lot of detail in the prepared remarks about where the loan growth came from and by loan type and by geography. Was there a specific area that you wanted to focus on? Or if it was a more general question, maybe you can follow up with James afterwards, so I don't repeat all of that. Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division: No, I was just thinking, Doyle, on the blended basis is where you're adding new loans into the portfolio today.

One thing I have noticed, I mentioned the fact that smaller business loans -- I mean, we're just not seeing a growth there, than what we're seeing in some of the larger deals. The larger deals tend to have skimmed the pricing. So I think to the extent that we see a pick-up on the smaller end of the market that, that should incrementally help us grow.

And I would just add, Steve, as well on that topic is with -- on the C&I , which is about half of our production volume, the large loans priced about 75 to 100 basis points thinner than the small business loans. So you're getting some difference in quality, maybe a borrower has got a more diversified business model, but pricing is fewer on the pricing side.

Next question in queue is John Pancari with Evercore Partners.

In terms of your margin outlook, I know you implied some incremental pressure here, I guess along the lines of the loan yield color you just commented on, is it fair to assume that, to help quantify that margin pressure that we should assume that it could be close to what you saw this quarter for the next couple of quarters?

On the loan yields?

The impact on the overall margin.

Well, the floor, the kind of the minimum that we see is about 5 basis points, and that's just due to the rate resets and the expiration of floors. So it's not going to be less than that for the next several quarters. And probably what we saw this quarter is about the upper bound if that's just a guess, that's somewhere between 5 and 10 for the overall weighted average.

Again, one thing that probably we should clarify here is, is when we're talking about this, we're talking on a static balance basis. So if the balance sheet, if we get loans by $300 million or $400 million in the third quarter, that will have an offsetting effect of that. But on just a static balance basis, we would expect about 5 basis points of yield compression on the loan portfolio in the third quarter, assuming no production whatsoever. So the new production will come on and have an incremental effect.

To get to the overall margin, there are a number of things we -- I think for 6 quarters now probably one or more of you have been asking us when are you going to hit the bottom on deposit pricing. Well, we still managed to lower the cost of deposits 4 basis points this quarter and there's probably still a bit more to go. We -- the kind of the buildup of debt and cash associated with stockpiling money to repay TARP is an unusual effect that will go away in, late this quarter or in the fourth quarter when we do repay TARP. So I don't want you to come away with a focus on loan pricing, and get 5 to 10 basis points, and say that's the margin compression. There's going to be margin compression, but it's -- there are offsetting and other factors besides that.

Okay. All right. And then as a follow-up, can you talk a little bit about where you see your normalized loan loss reserve level falling out? I mean you're at 270 basis points right now relative to the loan book. So can you just give us a little bit of color on how much more downside you see there?

If I knew the -- what the accounting rules and the regulatory rules were going to be 3 years from now, I'd give you a pretty good idea. But I don't know and none of us knows, and you don't know. So it's a question that has no answer. I know you want to know it, but those who are giving you an answer, I think, are making one up, because I don't know how to answer the question. All I can tell you is that we're going to be cautious, and I wake up every morning and see what's going on in Europe and I -- 6:30 on CNBC, the latest economic indicator comes out, and it's not good. And yet, everything we see in our portfolio says every day in every way things are getting better and better to coin a phrase, or actually steal someone else's -- a 19th century French psychologist. So I don't know the answer to the question. I can't give you a number. Make one up, I won't make it up for you. But I don't see why were going to be different than anybody else, long-term. So whatever you're assuming for other regional banks with reasonable credit discipline, assume the same for us.

Our next question in our queue is Paul Miller with FBR. Paul J. Miller - FBR Capital Markets & Co., Research Division: Can you talk a little bit about what kind of activity you're seeing in your regions? Some CEOs -- I would say the majority of the CEOs over the last week are talking about they saw a material slowdown in activity on loan demand towards the end of the quarter. Are you experiencing the same thing? I know you are different, geography wise, but just wondering how do you're -- how do you see it shaping up?

I think it seems to be the contrary. We've actually been seeing probably some improvement for the last, the last couple of months, and so far in this quarter. And it's pretty broad-based. So I mean, I think some of the improvement you saw earlier on over the course of the last year was, perhaps, a little heavily weighted toward banks in the upper Midwest, et cetera, where there was maybe a little heavier manufacturing activity. That is probably slowing a little bit right now. And that maybe coloring some of the very recent results, and some things you're hearing from some of those funders. But you're -- in the West, we are seeing a generally, pretty much across-the-board improvement in film [ph] that we saw an improvement in line utilization. For the first time, we're seeing a couple of percentage point uptick this quarter in utilization of lines. And so it's still -- it's hardly -- it doesn't have the strength that we've maybe historically seen, but we think that it's still good for sort of the mid- to maybe and a little higher than mid-single-digit growth here in the second half of the year. So we are not at this moment seeing any slowing. Paul J. Miller - FBR Capital Markets & Co., Research Division: And can it -- I mean you said you say more broad-based, but well you know California's still struggling a little bit. Were you seeing, also, activity out of California also?

Yes, we're seeing good activity in California. We're seeing better growth in a market like Colorado than we've seen in quite some time. We're seeing it, really, in almost every geography with the exception of Nevada, was pretty flat. We're even seeing it in markets like Arizona.

I'll just go ahead and follow on California. We had over $100 million if you exclude the FDIC-supported loans which declined, and if you exclude that, we actually had over $100 million worth of net loan growth in California. Like Doyle said earlier, it's mostly the coastal regions which is where we, where our footprint is, but it's not a terrible economy.

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

I guess just first, just given where your pro forma Basel III capital levels should be under the NPR. I understand that this is just a proposal and you could obviously change your stance. But does this at all impact your ability to get out of TARP without issuing equity? And I guess longer-term, when you think about returning capital, do you think this will concern -- this will serve as a constraint in terms of your ability to do so?

First part of your question was does this impact our ability to exit TARP, we certainly don't think so. And I've reiterated a couple of times on the call our expectation that we will do so probably late third quarter or sometime in the fourth quarter. And there are no new conditions to that other than the ones we articulated at the time we announced the results of our, kind of our capital plan. In terms of capital distributions longer-term, We -- I assume you're talking about share buybacks and dividends and things like that as capital distributions. What I would point you to is that we have -- we have planned to -- a number of things that we want to do over the next 2 years in the way of reducing our cost of capital, and our cost of funding, which when added together -- we suggest that could kind of double the ROE of the company over that time frame. That's our primary focus for the next couple of years rather than massively distributing common equity anyway. We've never talked aggressively about that. And so no, I don't think it has -- certainly it hasn't caused us to have an OMG moment that we've got to do some massive change to our thinking. I'd also say, as I've pointed out in response to an earlier question, there's reason to believe that the size of that change should moderate quite substantially over the next year or 2.

Okay, that's fair. And then I guess just in terms of the excess liquidity position, with, I guess with talk of the extension of the TAG Program, the Fed potentially on hold until, looks like late 2014 and if we are to get cuts to IOER, should all these things happen, would you consider changing the stance on redeploying some of the excess liquidity in the near term, and, okay, I guess this question may [indiscernible] if you just have the number at hand, how much of the $7.9 billion of interest-bearing cash do guys to the Fed right now?

Generally -- today, I don't know. But in general the Fed account has been running at $7 billion to $7.6 billion on any given night, kind of in that range. I'm not sure what you're referring to about extension of the TAG Program, and...

Well I think, if it were extended, would we change our thinking?

I think the answer is probably not really. I mean, if you think the real question is, are you going to go out and dramatically lengthen the duration of your equity account and accrue the risk that, that entails at some point down the road when we expect to rise. And I think we're going to be likely to be losing the discipline between now and maybe if line clings a little, but not -- I don't think materially, as we said, Doyle said during his remarks, we change what we -- the risk there is asymmetric. And that we just don't get paid very much for extensions right now, so...

You're the first -- I must have missed something. I didn't know there was any recent talk about TAG Program extension.

There's been some chatter about it, but no...

Nothing definitive, but I think -- I believe it's something that's being talked about.

Next question in our queue is Ken Usdin with Jefferies. Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: Just one follow-up on the liquidity question. I mean, and conversely instead of extending, is there anything that you could do to, kind of, I don't know, just extend some of that cash from staying on the balance sheet in order to save some on NIM and even preserve capital from -- I know it's not a risk-weighting problem, but just from an equity perspective. I mean, I guess the broader question is, if you're not going to be reinvesting it, and some of it hopefully will remix into loans over time, is there anything that you can do to just maximize the capacity of the balance sheet, and how you're earning on it?

Well, we've already taken some action by some of our banks to basically work with their -- some of their very largest depositors to -- with their permission, sweep balances off our balance sheet. We've probably gotten $1 billion to $2 billion of that. We've -- for all intents and purposes, probably exited broker deposits. I think there are a couple hundred million left of residual, but they're -- that's down from several billion and it's on way to essentially 0. We continue to price non-relationship CDs at essentially 0, like 5 or 10 basis points. And so if you're -- if that's all you're here for, please don't come here. We give them a little bit more of their checking account or other customer, but we're trying to shrink, and you've seen we have shrunk some of the, the CD portfolio, as well as the money market portfolio. So yes, we're doing everything that we can think of to reduce those excess deposits without actually chasing out of the company good, long-term customers. And --

We have thought about coaching tellers to be surly. [indiscernible] very posed we can because we, I mean we've recognized that we've got a lot of excess liquidity. We just have a tough time figuring out where to put it about having disproportionate risk, the downside in the rising rate. Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: Understood. And my second question is just on the RWA question. Doyle, I understand that you mentioned it was mostly related to the commitments and then just small related to mortgage. Can you talk about any impact it had, positive or negative, on the TruPS book and the swap? And how, if anything, in the NPR changes your view around the swap on that portfolio, how it works and your ability to continue to use it?

I don't think there was anything in the proposal other than the phase out of Tier 1 qualifying capital for small banks, which I've discussed, one should have an impact on our portfolio over time. It's hard to quantify. That it doesn't have an impact on the risk-weighted, of assets. We -- I think our -- the previous estimates that we published pretty well incorporated what we think are the impact on CE T-1, Common Equity Tier 1 from the AOCI mark there. The swap, the total return swap, we discussed that several times a quarter, and we've reached no firm conclusion. I think the -- we will look at the final rules regarding -- that eliminate the use of rating agency ratings for regulatory purposes and what classified assets look like under that final rule. It's, I think supposed to be out this quarter, and we can -- and it will be a combination of looking at what the risk-based capital ratios look like, what the classified ratios look like and what the -- and the cost the TRS. I will remind you that in the non-hedged derivative income, the bulk of that negative number there is the quarterly cost of that TRS, which is a little over $5 million, pretax. So we haven't made any decisions with regard to it yet, but I think we'll, over the next few quarters as these changes become -- to asset risk ratings tied into classifieds in particular, we'll be looking at the TRS very seriously, as it may -- and I'm not foreshadowing anything. Obviously, we'll have to take a hard look at quantifying all of those impacts.

Next question in our queue is Ken Zerbe with Morgan Stanley.

Though it seems like you guys are pretty much well on your way to retain the second half of TARP, can you just give us a rundown when you look at your TARP repayment checklist, what still has to be done, kind of how much progress have you made. I guess I'm thinking specifically of at least the -- and I think it's roughly $50 million of debt that you may or may not have to issue from here, that I don't think you hit your full $600 million. And then based on how much capital's already been paid out from the bank's subs and what you expect in third quarter?

Yes, we're -- I think you said well on our way to meeting those conditions, and I will agree with that. Yes, there were essentially 3 conditions that we proposed, by the way, and the Fed accepted. One is that we want to issue $600 million of term senior debt as a way to achieve part of the funding. We have issued, as you pointed out round numbers $550 million. We expect to view into this, I think, at $554 million that we've issued. Approximately $558 million anyway. $558 million. We'll be issuing, I think we'll be issuing the rest of that this quarter. The second was that he would get at least $500 million in a combination of common and preferred dividends and redemptions of preferred stock that push in the that we -- that the parent had provided to the subsidiary banks. As of June 30, we were in the neighborhood of $450 million, and I expect to actually to get several hundred million more this quarter. So probably -- and those 2 items were critical to having enough cash at the parent after repaying TARP, repaying the TLGP debt, to have a pretty lengthy time for required funding. The third condition was, I believe it was characterized in our the press release is something like no material deterioration in the condition or outlook of the company. And certainly there's been no material deterioration in the condition as the outlook we proposed that we would give the Fed a -- an updated stress test, just a forward-looking view of capital, which we are in the process of doing and expect to submit in the first half of August for their review. I -- based on everything I've seen, it's -- and expect to see, it will show better results than what we submitted at year-end. So I do believe that by assuming regulatory permission for the preferred stock redemptions that we will be in a position again late this quarter. And if that permission is just delayed due to review in timing, sometime early in the fourth quarter to meet all of those conditions.

Okay. And if you get several hundred million more of capital from the banks' subs, do you have to raise the 42? Or can you just essentially ask regulators to let you swap the form of capital that's at the holding company?

I could -- the plan was to raise $600 million. There's -- in this day and age, there's probably a limited number of things you want to go back and ask the regulators to change. And I'd rather -- I'd -- for that amount of money, I'd rather just march to the drummer that's beating right now and get it done. I mean, we have $50 million more maturing in the fourth quarter. Our short-term senior notes, if we really want to, we can make it up that way. I'd rather check every box and "get 'er done," as Larry, the Cable Guy would say.

Next question in queue is Brian Klock at Keefe, Bruyette. Brian Klock - Keefe, Bruyette, & Woods, Inc., Research Division: Just one real quick question. On a slide there, on Page 15 of the release, I just noticed that securities portfolio yields did expand during the quarter. I guess can you talk about, was there anything that you guys did to sort of extend the duration a little bit there, just maybe you could talk about the...?

Brian, that was a good question. That was actually mostly a nonrecurring item. There was a security, a trust preferred security a single issue, trust preferred security that came current. So this fits into the same category the CDOs are getting healthier. But these weren't CDOs, this was a single issue, and there was about $1.5 million catch-up on deferred interest that we had not capitalized previously. So we caught up and that won't be as large next quarter. So they'll continue to pay us, but there won't be a $1.5 million catch-up. Brian Klock - Keefe, Bruyette, & Woods, Inc., Research Division: So they may have exacerbated the [indiscernible] bucket?

AFS. Brian Klock - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. So it looks like the ATM HDM may be smaller, but that actually had a yield expansion as well?

I didn't research that one because it wasn't terribly significant, but I'd be happy to do so.

Next question in queue is Josh Levin with Citigroup.

This is actually Arjun Sharma on the line for Josh. Just my first question is one of your peers said that they're going to close roughly 5% of their branches. So do you -- as you think about the environment, are branch closings or infrastructure cuts on the horizon?

We have closed actually a number of branches over the last 3 or 4 years. And I expect -- yes, you will continue to see some branch closures. We've also opened a handful, but net-net, we're down roughly 45 or so branches, I think, in the last 4 years. So I would expect for the next 12 months that we'll see a handful, but we don't have, by and large, especially outside of the state of Utah, the kind of branch density that some other banks have that gives us quite the same luxury of being able to combine as previously as some banks have been able to. So we're getting to a point where it's getting tougher, but we're still finding some opportunities do that, yes.

Next question in queue is Dave Rochester, Deutsche Bank.

Just drilling down into the C&I growth this quarter, did any of the pick-up in production come from your getting more competitive in the larger corporate arena, or was that primarily small business?

Well, we talked about the fact that small business was generally the remainder of, relatively weaker. So the growth probably net-net or I don't think we've had time to drill down inventory completely, was probably in the more medium-sized to larger commercial activity.

That is true, and I would syndicate it if underneath there is a question about syndicated credits or purchased loans. We didn't see any of that. Really, syndicated credit exposure is not materially different than it was last quarter on a net basis. A lot of the C&I growth, or at least acceleration in production came out of Utah and California, and it was relatively stable in Texas. So -- and it was out of the larger corporate -- or not larger, but maybe middle-market is what would be a more fair characterization.

Our next question in queue is Joe Morford with RBC.

Obviously just trying to understand the $11 million provision this quarter. I know you saw a little bit of loan growth, but classifieds were down another 9% and charge-offs were up 20%. Is it really just a subjective factor of wanting to be more cautious given the macro environment?

That's pretty much it.

Well, I think we're just -- we were trying to be pretty conservative. I think we, Joe, our view is there's still quite a lot of risk out there. I mean, we certainly see it and all the things you're hearing from the Fed. The fact that they're even thinking about for the [indiscernible] and et cetera, suggests that, we think -- they think the -- that the world remains a slow place and a risky place. And so we're likely to remain reasonably, conservatively -- we certainly have methodology in place. And we try to assess some of these factors but, which result in our being probably reasonably conservative right now relative to our peers in terms of forward keeping reserves.

Steve Scinicariello with UBS.

Hey everyone, just a real quick one for you. Just given the progress you guys have made in delayering the capital structure this year with TARP and the Series C preferreds, how likely is it that you're going to be able to get at the 8% trust preferreds for this year, or is that kind of more on the 2013 to-do list?

Well, the trust preferred was not in our capital plan that we -- as a part of the stress test last year. So and we're far enough along into the year that there's no point in submitting a formal new capital plan because we'll be -- so I think we'll deal with that one and the stress test and capital plan at the end of this year. And I'll remind you, we have that, and we have the call option coming up in September on this -- on the very large Series C 9.5% preferred issue. I think there's a bit over $800 million in that issue which is callable.

That's September of 2013.

Right.

Next question in our queue is Todd Hagerman with Sterne Agee. Todd L. Hagerman - Sterne Agee & Leach Inc., Research Division: Just kind of a follow-up, Doyle, as we about -- as we're about to conclude this journey on the TARP fund, if you will, just trying to get a sense, kind of as we look out the next couple of years, a, kind of targeted mix in terms of your capital structure and b, if you can give us a sense with the debt that's has been issued, the preferred, and so forth, as they roll off, just kind of a step function that we should think about over the next couple of years as some of this rolls off, and you kind of reach your targeted mix, if you will, from a capital standpoint, or structure standpoint as you say?

Well, Todd, I guess, in the interest of time, I think we've tried to address that in our recent IR presentations. We -- if there is plenty of time, we've put out a pretty comprehensive list of what capital issues are callable, what debt issues mature and basically there's just about everything out there that, except what we did this year with the Series F is now addressable in 2013, '14 or a little bit of it in 2015. There's some sub debt there. So everything on that list that's high cost at the time that comes up is going to be fair game for refinancing or calling and partially replacing. We've also put out some guidance on what our current thinking is about a long-term capital and financing structure. But the long-term has to be revisited just about every quarter in these days as new capital NPRs come out and things like that. But I think it's still reasonably operative that we're going to be kind of 9.5% -- 9% to 10% common equity Tier 1 long-term that we're likely to have a 1.5% -- 1% to 2% preferred, some Tier 2, or which one of, maybe 2% of Tier 2, which was -- includes the sub debt and 2% or 3% of risk rate assets in the form of senior debt. And I can't probably get any more specific now, but we've tried to lay that out and everything we do is in terms of looking at the things that become callable or mature, we're going to try to then figure out what the new issue ought to do and moving toward that longer-term structure. Todd L. Hagerman - Sterne Agee & Leach Inc., Research Division: No, I appreciate that. And then that's very helpful. I was just getting at the point that I realized you've put a lot of information out there in terms of maturity. It's just really in terms of what the puts and takes as it relates to your debt structure now, I'm just trying to get a, more of a sense of, again, longer-term from a funding standpoint, how much of this really needs to be replaced as opposed to just kind of a burn or run-through rate as we again, as we go through the TARP repayment process?

Well, I think that overall -- the repayment of TARP is a net reduction of Tier 1 capital by that amount. There's probably not that much more to reduce maybe a little bit after that, because there's a matter of cash and capital. I think that the bigger opportunity is the refinancing of a lot of the stuff that's substantially lower cost. Look at what our long-term senior debt is costing us on Page 15. It's kind of 11.25%. That's a combination of mark-to-market discounts and new issuance discounts. That -- and look at what we're issuing debt -- term senior debt for it today. It's in the 4 -- it's got a 4 handle on it. There is a pickup there of 6% or 7% potentially on long-term debt over the next few years. Preferred at 9.5%, we could do probably 7%, plus or minus today, so and for -- maybe the 6%s. So it's more going to be replaced not reduced. I think we ought to take that next question now.

Next question in the queue is Marty Mosby, Guggenheim.

Doyle, just a quick question on the CDO portfolio. There's only really 3 tranches and $72 million of par value that would be left that can have some credit impairment that's already in some trouble. Can you just figure this out, maybe not the next couple of quarters, but in 2013, it seems some of that overhang in the OTI that comes due every quarter to start and work its way out? And that was my only question.

Yes. The short answer I think, yes. Unless there is a very sharp deterioration in the, kind of go back in a higher rate of bank failures and deferrals and whatnot, again the only thing that I can see that's going to cause -- could cause a significant pick-up in OTTI temporarily with the significant acceleration of prepayments, which would be generally accompanied also by an improvement in AOCI. So yes, you could see some income statement impact from that. But the capital accretion would more than offset the income statement impact. So in general, again, I -- absent a severe downturn, I think, net-net the improvement's there, and we'll see an end it.

Our final question comes from Jeff Navarro with Lord Abbett.

Just quick, apologize. You guys have been adamant about the short duration on what the cash being parked there, but given the world we're all having to deal with unfortunately this lower for longer environment, how much pain, I guess, are you guys willing to endure before not to do anything crazy or dramatic, but just kind of on the margin maybe, or is this just how you see the world?

I'm not going to say never, particularly to what I am seeing on the margin. I mean we've entertained some things that we -- could lead to modest improvement without taking -- I mean the thing that I think -- I think the things that we're going to be willing to endure a lot of torture over are things that are going to have large conventional risk in a rising rate environment. If we defined things with defined maturities with reasonably bounded credit risk, even if we're not originating it, we might do it. We are mindful, for example, I'll just give you one example kind of and then we'll need to cut it off. We are mindful of the fact that the European banks are under enormous pressure to improve capital ratios, reduce funding needs and which means looking at assets to sell, and in this environment what you can sell or your better assets, not your worst assets. So we are looking at things that might be shed by people who are under some degree of stress, and maybe we'll find something there. We've actually looked pretty seriously at a couple of things, but haven't pulled the trigger on anything yet. But I would put that in your on-the-margin kind of comment. With that, I think, we need to call it a day. James, do you want to -- we appreciate your the indulgence in going over time, and sorry about that for those of you on the East. James?

Thank you very much, and I'll be around tonight and please free to e-mail me, and I'll call you back in the order that I receive the email, or you can try to call me, I'll be happy take the call as well. Thank you again for your time. We'll see you sometime throughout the quarter during -- in conference season. Thank you.

Thank you, gentlemen. Again, ladies and gentlemen, this does conclude today's conference. Thank you for your participation and have a wonderful day. Attendees, you may disconnect at this time.