Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Regions Financial (NYSE:RF)

Q4 2011 Earnings Call

January 24, 2012 11:00 am ET

Executives

Matthew Lusco -

Barbara Godin - Chief Credit Officer, Executive Vice President and Head of Credit Operations - Regions Bank

O. B. Grayson Hall - Vice Chairman, Chief Executive Officer, President, Chief Executive Officer of Regions Bank, President of Regions Bank and Director of Regions Bank

M. List Underwood - Director of Investor Relations

David J. Turner - Chief Financial Officer, Senior Executive Vice President, Member of the Executive Council, President of Central Region, Chief Financial Officer of Regions Bank and Senior Executive Vice President of Regions Bank

Analysts

Craig Siegenthaler - Crédit Suisse AG, Research Division

Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division

Jefferson Harralson - Keefe, Bruyette, & Woods, Inc., Research Division

Christopher W. Marinac - FIG Partners, LLC, Research Division

Leanne Erika Penala - BofA Merrill Lynch, Research Division

Gregory W. Ketron - UBS Investment Bank, Research Division

Matthew D. O'Connor - Deutsche Bank AG, Research Division

John G. Pancari - Evercore Partners Inc., Research Division

Matthew H. Burnell - Wells Fargo Securities, LLC, Research Division

Marty Mosby - Guggenheim Securities, LLC, Research Division

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

Brian Foran - Nomura Securities Co. Ltd., Research Division

Kevin Fitzsimmons - Sandler O'Neill + Partners, L.P., Research Division

Operator

Good morning, and welcome to the Regions Financial Corp.'s Quarterly Earnings Call. My name is Kelly, and I will be your operator for today's call. [Operator Instructions] I will now turn the call over to Mr. List Underwood to begin.

M. List Underwood

Good morning, everyone. We appreciate your participation in our call this morning. Our presenters today are Grayson Hall, our President and Chief Executive Officer; and David Turner, our Chief Financial Officer. Also here with us this morning and available to answer questions are Matt Lusco, our Chief Risk Officer; and Barb Godin, our Chief Credit Officer. As part of our call, we will be referencing a slide presentation that is available under the Investor Relations section of regions.com.

Let me also remind you that in this call, we may make forward-looking statements which reflect our current views with respect to future events and financial performance. Forward-looking statements are not based on historical information but rather are related to future operations, strategies, financial results or other developments. Those statements are based on general assumptions and are subject to various risks, uncertainties and other factors that may cause actual results to differ materially from the views, beliefs and projections expressed in such statements. Additional information regarding these factors can be found on our forward-looking statement that is located in the appendix of the presentation.

I'll now turn it over to Grayson.

O. B. Grayson Hall

Thank you, List, and welcome to everyone to Regions' Fourth Quarter and Full Year 2011 Earnings Conference Call. We appreciate your interest in Regions and are pleased to have this opportunity to update you on the solid progress we made this past year in executing our business plans and building a stronger core franchise, as well as our expectations for continued progress in 2012.

Although the environment has clearly remained challenged, our 2011 results demonstrated that our disciplined business plans and focus on the customer is working. Total loan production for the year was a solid $60 billion. Of that, Business Services accounted for $51 billion or 83%, including $15 billion of new loan production, a 14% increase over last year. Consumer banking loan production accounted for $9 billion in 2011, driven by strength in mortgage, indirect auto and credit card. Loan growth was fueled by commercial and industrial loan balances, which on average increased 11% for the full year. Offsetting this growth was the Investor Real Estate loan portfolio, which favorably declined over $5 billion in 2011 or 33% of outstandings, as we continued to consistently and aggressively de-risk our balance sheet.

Average low cost deposits for the full year grew more than $4 billion in 2011 or nearly 6%, which led to a 29-basis-point decline in total deposit cost as a result of this favorable shift in deposit mix. Credit quality metrics meaningfully improved in 2011 as demonstrated by 29% decline in net charge-offs, a 24% decrease in nonperforming assets, a 40% decrease in inflows of nonperforming loans and a 35% reduction in Business Services criticized loans, which are our earliest indicator of problem loans for the future.

We also sharply reduced our credit-related costs in 2011, with full year provision down $1.3 billion or 47% for 2010, while continuing to maintain a solid reserve level to net loans of 3.54%.

Although 2011 revenues were down due to lower security gains, excluding these securities transactions, our revenues held relatively steady despite legislative, regulatory and interest rate challenges. Total expenses were higher due to fourth quarter's goodwill impairment charge associated with Morgan Keegan. However, excluding the goodwill impairment charge and last year's regulatory charge and related tax benefit as a result of our continued focus on cost, full year noninterest expenses from continuing operations were down 5%, aided by a 4% reduction in headcount and the elimination of 700,000 square feet of excess facility space. Additionally, we further strengthened our capital base, increasing our Tier 1 common equity ratio by approximately 65 basis points to an estimated 8.5%.

As recently announced, we reached an agreement to sell our broker-dealer operation, Morgan Keegan, to Raymond James for $930 million. As part of the transaction, Morgan Keegan is also expected to pay Regions a dividend of $250 million before closing, providing total consideration of $1.18 billion. As disclosed, Morgan Asset Management and Regions Morgan Keegan Trust are not included in the sale and remain part of Regions Wealth Management organization. To reiterate, the transaction reduces our overall risk profile, provides substantial liquidity at the holding company and modestly improves key capital ratios. It also establishes a strong long-term partnership with Raymond James, which we anticipate will provide incremental revenue opportunities and a source of low cost deposits while also enhancing our ability to serve our existing customers. Importantly, we also expect going forward that we will maintain important business relationships with Morgan Keegan associates that have developed over many years of working together to serve our customers' needs. The divestiture will strengthen Regions' overall focus and discipline on our core banking franchise. Although it's been less than 2 weeks since the announcement, we have been working productively and urgently to achieve a first quarter close of this transaction.

Results for 2011 included fourth quarter net after-tax $731 million goodwill impairment charge related to the process of selling Morgan Keegan, which is reflected in both discontinued and continuing operations. As a result, Regions reported fourth quarter and full year losses per share of $0.48 and $0.34, respectively. And from continuing operations, Regions' fourth quarter and full year losses were $0.11 and $0.02, respectively. Excluding the impairment charge, Regions' fourth quarter earnings from continuing operations was $0.09 per fully diluted share, leading to full year earnings per share of $0.17 on the same basis. Importantly, adjusted pretax pre-provision income has now exceeded the loan loss provision for 3 quarters in a row, clearly demonstrating improved underlying fundamentals.

Fourth quarter results from continuing operations also reflected lower credit-related costs, driven by broad-based credit quality improvement. This includes a 16% linked quarter decline in net loan charge-offs and a 26% decline in gross inflows of nonperforming loans. Fee-based revenues in the quarter were negatively impacted by the implementation of the Durbin Amendment on October 1. However, new revenue initiatives and changes to our checking account fee structure helped to offset some of the lost debit interchange fee income. Also, we continue to experience growth in debit card activity as total transactions have risen more than 2% from a year ago and total spending is up 3.6%. And now we're also seeing healthy growth in credit card transaction volume, which was up 2.5% linked quarter. We were able to modestly increase our interest margin third to fourth quarter and continued improvement in both deposit mix and deposit cost, offset long term, low interest rates on yields in our securities portfolio.

All in all, our underlying results and positive trends in certain key areas demonstrate that we are successfully executing our business plans by staying focused on our customer, and that we are making considerable progress positioning us well to take advantage of future opportunities.

I'll now turn the call over to David, who will provide you with fourth quarter and full year 2011 financial details, after which, I'll return to make some additional comments prior to opening up the call for questions. David?

David J. Turner

Thank you, Grayson, and good morning, everyone. I want to begin on Slide 4 with a summary of our fourth quarter 2011 and full year results. As Grayson pointed out, due to the after-tax goodwill impairment charge in the amount of $731 million associated with the process of selling Morgan Keegan, we reported a fourth quarter loss of $602 million or $0.48 per diluted share. $478 million on the impairment charge was recorded within discontinued operations and $253 million in continuing operations. Therefore, we incurred a loss from continuing operations for the fourth quarter of $135 million or $0.11 per diluted share. Excluding the goodwill impairment, income from continuing operations was $118 million or $0.09 per share. Fourth quarter's results from continuing operations were solid and primarily reflecting lower credit costs.

This morning's discussion, unless otherwise noted, will focus on fourth quarter results from continuing operations excluding goodwill impairment, as we believe this provides a clearer picture of fundamental trends. Starting with a quick overview, pretax pre-provision income, or PPI, was $485 million or 5% below the third quarter. As expected, service charges were negatively impacted by the implementation of debit interchange legislation, which drove the decline in PPI. Net interest income was steady linked quarter, while the net interest margin was up 4 basis points to 3.08%. Noninterest revenues were down 1% on a linked quarter basis, while noninterest expenses were up 2%.

Now let's take a look at some of the quarter's highlights, starting on Slide 5, with the credit quality trends that continue to improve. Inflows of nonperforming loans declined to $561 million or 26% from the third quarter's $755 million. The mix of inflows continues to be more income-producing commercial real estate loans, which have cash flows and tend to have lower loss severities. It is important to note that Land/Condo/Single Family portfolio, which now totals $1.8 billion, makes up 10% or $58 million of the inflows. Of this portfolio, 20% or $373 million have already been moved to non-accruing status.

It is important to note that 48% of all Business Services gross nonperforming loans were current and paying as agreed at the end of the quarter. This is up 11 percentage points from a year ago and compares to 45% in the third quarter.

Let's move to nonperforming loans on Slide 6. Nonperforming loans, excluding loans held for sale, decreased $338 million or 12% linked quarter and $788 million or 25% year-over-year. During the fourth quarter, we executed $306 million in strategic sales of problem assets primarily out of held for sale. We also moved $334 million of problem loans to held for sale. Throughout 2011, we were able to reduce nonperforming assets by almost $1 billion or 24%. Notably, Business Services criticized and classified loans continued to decline, down 13% or $935 million from the third quarter, and down $3.4 billion or 35% from one year ago. Importantly, criticized and classified loan trends are one of the best and earliest indicators of credit quality. As a result, we anticipate that 2011's marked improvement in overall credit quality trends will continue into 2012. More specifically, we expect our migration into nonperforming status in the first quarter to approximate the level of this past quarter.

Moving onto the loan loss provision on Slide 7. Net charge-offs declined $81 million or 16% linked quarter, and for the full year declined 29%. This quarter's disposition activity added $141 million to fourth quarter's charge-off level. However, markdowns associated with these disposed assets had mostly been provided for in our loan loss allowance. Excluding net charge-offs related to disposition activity, net charge-offs were down 8% linked quarter. Net charge-offs exceeded the loan loss provision by $135 million, marking the third straight quarter we have provided less in net charge-offs.

Our coverage ratios remain strong. At year end, our allowance for loan loss -- loan and lease losses to nonperforming loans coverage stood at 116%, up 15 basis points from last year. Meanwhile, our loan loss allowance to net loans declined from 3.84% at the end of 2010 to 3.54% at the end of 2011. From any metric observed, you will find much improved credit quality at Regions.

Now let's move onto the balance sheet on Slide 8. Fourth quarter's average loan yield increased 4 basis points to 4.35%. This increase primarily reflects slightly higher LIBOR rates. Ending loans for the year were down approximately 6%, which reflects a favorable 33% decline in Investor Real Estate, partially offset by a 9% increase in the commercial and industrial portfolio. In addition, we added $1.2 billion of credit card loans and indirect auto loans to the balance sheet during 2011. Average commercial and industrial loans grew $357 million or 1.5% third to fourth quarter. However, other portfolio runoff, primarily Investor Real Estate, more than offset this growth, causing the total loan portfolio to decline 2.2% linked quarter. Line utilization on commercial and industrial loans was modestly lower at 42.6%, but up from 40.3% in the fourth quarter of 2010.

We continue to see growth in our specialized industries, in particular, healthcare and franchise restaurant. In addition, we are expanding other industry practices, such as technology and defense. Noteworthy, total commercial and industrial commitments rose $3.7 billion in 2011, ending the year at just under $30 billion. This, along with other factors, lead us to expect continued growth in the commercial and industrial loan portfolio in 2012.

Investor Real Estate loans declined another $1.2 billion in the fourth quarter, resulting in year-end balances of $10.7 billion or $5.2 billion less than year-end 2010. This portfolio now comprises only 14% of our total loan portfolio, down from 19% a year ago. We do expect the Investor Real Estate portfolio will continue to decline in 2012, albeit at a slower pace.

On the liability side of the balance sheet, as shown on Slide 9, deposit mix and cost continued to improve in the fourth quarter. Average deposits were down 1% in the fourth quarter, driven by a $1.6 billion decline in CDs, partially offset by an increase in low-cost deposits. Given our continued success in growing low-cost deposits, average time deposits fell to 21% of outstanding deposits, down from fourth quarter 2010's level of 25%. This positive mix shift resulted in deposit cost declining to 40 basis points for the quarter, down 6 basis points from third quarter and down 24 basis points from the end of 2010. Related, our total funding costs improved 7 basis points linked quarter to 68 basis points. Additional opportunities remained to reduce our deposit cost, as we have approximately $11.7 billion of CDs that carry an average of 1.46% interest rate that are scheduled to mature in 2012. This compares to a current average going-on rate for new CDs approximating 30 to 35 basis points.

Now let's turn to net interest income on Slide 10. Actual equivalent net interest income for the fourth quarter was flat. However, the resulting net interest margin increased 4 basis points to 3.08%, benefiting from deposit pricing and an $843 million decline in average excess cash at the Federal Reserve. Late in the quarter, we repaid the final $2 billion of maturing TLGP debt, which resulted in a lower ending balance of cash held at the Federal Reserve. Consequently, excess cash reserves negatively impacted the margin, 14 basis points in this quarter, an improvement from third quarter's 16 basis points.

As expected, long-term interest rates led to higher prepayments in our mortgage-backed securities portfolio, which negatively impacted our securities yield, resulting in a decline of 25 basis points linked quarter. The net interest margin was negatively impacted by 7 basis points related to these prepayments. Looking into 2012, we expect this portfolio to grow modestly as we deploy excess cash reserves. And as previously noted, with the opportunities that remain on the liability side of our balance sheet and based on our expectation of a low-rate environment, we expect our net interest margin to continue to incrementally improve this year.

Let's turn to noninterest revenue on Slide 11. Fourth quarter noninterest revenues declined 1% from the third quarter to $507 million. Fourth quarter's implementation of debit interchange legislation reduced service charges $47 million linked quarter, in line with our expectations. One thing in particular I'd like to highlight is that total 2011 service charges were relatively stable as compared with 2010 despite the negative impact of Regulation E and debit interchange legislation, illustrating our ability to quickly adapt our business model. We've been able to successfully mitigate these hurdles by generating new revenue streams and through the ongoing product restructuring of deposit accounts, and we expect to completely mitigate this over time. Mortgage revenue declined 16% linked quarter, reflecting reduced benefit from MSR and related hedging activities. Production in the fourth quarter totaled $1.8 billion, bringing our full year production to $6.3 billion. Further, the extended Home Affordable Refinance Program, or HARP 2, is expected to foster mortgage production into 2012.

Moving on to Slide 12, noninterest expenses, excluding the goodwill impairment charge, were up 2% linked quarter. During the fourth quarter, we incurred a $16 million expense related to Visa litigation. Excluding this item and the goodwill impairment, expenses were relatively flat with the third quarter. For the full year, noninterest expenses, excluding goodwill impairment and the regulatory charge, were down $175 million or 5%. Regions has successfully been able to create and grow new revenue streams while also reducing expenses. Credit-related expenses declined $23 million or 23% linked quarter, primarily related to lower other real estate expenses. Fourth quarter 2011 credit-related expenses are 9% of total expenses, down from 14% in fourth quarter 2010. Additionally, and as previously announced, in the fourth quarter, we consolidated 41 branches. Furthermore, headcount declined over 1,000 positions or nearly 4% during 2011. It is down 6% over the last 2 years. We will continue to seek expense savings without sacrificing investment opportunities or compromising high service levels our customers have come to expect and deserve at Regions. As a result, we expect 2012 expenses to be slightly down from the 2011 level.

Moving on to capital and liquidity on Slide 13, we've maintained solid capital and held a favorable liquidity position throughout the year. The Tier 1 common ratio increased to 8.5%, and the Tier 1 ratio at the end of the quarter stood at 13.2%. In addition, our pro forma Basel III Tier 1 common and Tier 1 capital ratios are above their respective 7% and 8.5% minimums. Liquidity at both the bank and the holding company remained solid with a loan-to-deposit ratio of 81% and cash held at the Federal Reserve totaled approximately $5 billion at year end. Lastly, based on our interpretation, our liquidity coverage ratio is above the 100% Basel III requirement.

Overall, this year's results show progress that we've made. Our core business performance improved as we achieved sustainable profitability on a continuing operations basis. We have substantially improved our credit risk profile and further strengthened our balance sheet from a liquidity and capital standpoint.

And with that, I'll turn it back over to Grayson for his closing remarks.

O. B. Grayson Hall

Thank you, David. I want to spend just a few moments talking about 2012. Although we are encouraged by recent improvements in various economic indicators, in particular the unemployment rate and GDP growth, we do believe that the economy remains challenged by housing and unemployment and the pace of economic recovery does appear to be incremental. That being said, we are positioning our franchise to continue our recovery on asset quality and earnings performance. With this backdrop, we expect to be very disciplined in our focus on fundamentals, focusing on the basics of banking, focusing on our customers and continuing to take steps to position ourselves for growth when the economic recovery demonstrates sustainable momentum. By providing customers with superior service and a broad array of well-priced products, we are able to deepen existing relationships as well as profitably grow our business. In fact, we believe our competitive advantage is driven by customer loyalty, service quality and disciplined bankers, and that is what will ultimately differentiate us in the marketplace.

Regarding noninterest revenue in 2012, over time, we expect to recover the estimated $180 million loss due to the interchange pricing changes. We are seeing early success in recent introduced suite of products and services that offer customers new choices on how to bank with Regions. We are encouraged by the positive results of our changes in checking account fee structures. As we transition from free to fee-eligible, we have to sell into legitimate customer needs and deliver value at a fair price. We are building a stronger and more consistent banking model that customers appreciate and respect. Given our assumption of a continued low-interest-rate, low-growth environment, we expect growing net interest income will remain challenging. Additional improvement in funding mix and pricing should offset pressure on earning asset yields, but our margin will remain relatively stable with incremental improvement.

We believe that commercial and industrial loan growth was strong in 2011, and we are continuing to add resources into our specialized industries and will do so throughout 2012. As a result, we expect continued commercial and industrial loan growth in 2012. At the same time, we plan to continue de-risking some segments of our loan portfolio, although the pace of runoff is expected to moderate to some degree.

Overall, we believe consumers and small businesses will remain cautious about spending and borrowing, but we do anticipate incremental improvement. Obviously, we continue to focus on legislative and regulatory changes in our industry and adjust our business model, products and services as necessary. We are working every day to restore financial confidence and to provide financial products to stimulate economic growth across our markets.

In our business, we maintain a disciplined focus on streamlining and driving expenses down. However, innovation and new product development are critical and do require some level of investment. As such, we will be diligent about managing our resources to achieve the right balance of efficiency, effectiveness and growth. In fact, 2011 adjusted expenses are lower than those of the past 3 years despite increasing environmental costs. We have become much more efficient, reducing our operating expenses even as we added new products and services. And it is important, I think, to note that during the same time, customer service has actually improved at Regions, and this is supported externally by J.D. Power, by Gallup and by Greenwich.

Improving credit quality metrics, combined with sharp reduction in Investor Real Estate portfolio, are driving our expectation for reduction in loan charge-offs and provision in 2012. We continue to de-risk our portfolio through the liquidation of problem assets and foreclosed properties. We expect our overall credit trends to improve, and nonperforming assets are anticipated to decrease as the year progresses.

To wrap up, in 2011, we reached 3 important milestones. Our core franchise has strengthened and we do appear to have achieved sustainable profitability from continuing operations, excluding the recent goodwill impairment. All of our credit quality-related metrics experienced marked improvement throughout the year. And shortly after year end, we completed the strategic review of Morgan Keegan, culminating in the announced sale to Raymond James. While we are encouraged by all of these accomplishments, we recognize there's still much work to be done. As outlined earlier, we expect 2012 to be another year of slow, incremental economic recovery, but we remain committed to the ongoing successful execution of our business plans and we are taking decisive steps to deliver improved results. We are confident that we continue to make progress, and importantly, we believe this progress translates into improved returns to shareholders.

Before we turn to questions, as you know, we're among the banks required to participate in the Comprehensive Capital Analysis Review, or CCAR, as it's being called, using stringent stress test scenarios outlined by the Federal Reserve. Our capital plan has been submitted. We expect to receive results by mid-March. We look forward to receiving that analysis, which will give us clarity on a number of issues we believe that are important to our organization. That being said, it is premature for us to comment beyond this point at this time.

With that, I'll open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of John Pancari with Evercore Partners.

John G. Pancari - Evercore Partners Inc., Research Division

Can you remind us about the amount of total environmental-related credit costs in your operating expenses? And then more specifically, around the -- how we should think about the decline in those costs through 2012 and then beyond?

David J. Turner

Yes, John, this is David. We have approximately $300 million that are still in the environmental costs. And as we continue to go through 2012 and our credit metrics improve, nonperforming inflows come down, ultimate nonperformers come down, we expect those to trend down in 2012 as well.

John G. Pancari - Evercore Partners Inc., Research Division

Okay. And then related to that, can you -- or at least on the credit funds, still, can you talk about your expectation for the balance of TDRs, whether we can still expect some increases there on a quarterly basis as you work through some of the CRE?

O. B. Grayson Hall

Barb, I'll ask -- I'll ask Barb Godin to comment on that.

Barbara Godin

Yes, we anticipate that our risks [ph] and TDRs to remain relatively flat. As you know, we've kept our tenure on those pretty short, and the reason for that is so that we can keep our customer talking to us instead of waiting for an extended period of time. So with that, and as the markets improve, we will then start to see the TDRs roll off. But until the economy improves, I would say you're going to see roughly the same level.

John G. Pancari - Evercore Partners Inc., Research Division

Okay. And then lastly, with your expectation for the margin to see some upside here through the year, it's a little bit better than we had thought. And I guess if you could just talk about what changed with your expectation there because I believe you had thought it would be flattish at first? And then are you seeing some stabilization in loan pricing at all?

O. B. Grayson Hall

John, I'll just make a couple of comments, and I'll ask David to comment, as well. When you look at the margin, we do anticipate a continued incremental improvement in the margin. When you look at our margin relative to peers, our margin's lower than the peer median, and we've been working hard to bring that margin back in the line where it should be. Clearly, we've made a lot of progress on the deposit side; still more work to do there. We've brought it much more in line with where it ought to be. The loan pricing is really done one loan at a time, and it is a competitive marketplace where every basis point is a value that's debated. And we're making slow but steady progress on the loan side. Obviously, the reinvestment rate on our investment portfolio was challenged, and we will continue to see that in this rate environment. But we are seeing the opportunity to continue to incrementally improve our margin through 2012. David, do you want to add to that?

David J. Turner

Yes, I'll add to that. Grayson hit on a lot of them. We do believe the impact of the lower NPLs will be positive -- lower excess cash at the Federal Reserve. As we put that to work and are less defensive with our liquidity than we've been from a deposit cost standpoint, while we improved 6 basis points over the quarter, we still think -- we're at 40 basis points; we think we can clearly get in lower than that into the 30s. And I think if you look at our investment portfolio, we started to make some changes there going into different asset classes, and so you'll see some movement there. And then we've been pretty disciplined with our loan portfolio. We are ensuring we are paid for the risk that we take, and we feel like we're going to be able to book loans that are properly priced. And all that together, there's 5 or 6 points, John, when you add them together. It shows an incremental improvement in the margin.

Operator

Your next question comes from the line of Marty Mosby of Guggenheim.

Marty Mosby - Guggenheim Securities, LLC, Research Division

I had 2 questions. One is, David, as you look at the Morgan Keegan divestiture, now that we can see that discontinued kind of operations, it looks like, on average, it produced about $20 million per quarter in earnings. But if you take that earnings away, it would be about a 5% dilution, probably, to your earnings power. In comparison, issuing $1 billion, which is basically the cash you got out of the divestiture, it could have created close to 15% dilution. So when you finally see the deal done, we only get about 10 basis points in capital ratio improvement. But really, this deal was about the cash and the substitution for having to issue that $1 billion in some common issuance down the road.

David J. Turner

Well, I think, as Grayson mentioned in his comments, really, we're doing 3 things. We're changing our risk profile so that we could focus on our core banking franchise. Liquidity, as you pointed out, is very important to us. That generated a substantial amount of liquidity. And the capital was important, as well. And so if you look at all 3 of those and our continuing involvement with Raymond James -- don't discount that totally, either -- I think your number is a little high in terms of its overall contribution -- core contribution. We had about $0.01 relative to that. So we think, going forward, that this was the right decision for our shareholders, and we'll see what this relationship brings to us on a go-forward basis.

Marty Mosby - Guggenheim Securities, LLC, Research Division

The other thing that I was looking at was, if you look at the release of loan loss reserve, about $135 million, and you talked about the disposition of your sales and said that the haircut that you took this quarter was basically already provided for, which matches up your $141 million hit on disposition, it was basically what you guided in the release in loan loss reduction this quarter. Are you seeing enough improvement in the overall portfolio that we begin to see some release not just related to the impact from disposition but mainly from the broad portfolio as a whole?

O. B. Grayson Hall

I'll make a couple of comments, Marty, and then ask Barb Godin to speak, as well. Clearly, what we saw this quarter was that generally across every credit metric improvement -- but one thing I would point out we saw was we saw the ability for resolution improve marketably this quarter. And as we look at the marks we're taking on loans, we take our marks and then we also reserve. As we moved it to held for sale, we felt very confident in the marks and the reserves we had taken. Dispositions continue to be a big part of our strategy, and we've been consistent in that and I don't see us deviating from that at this point. Barb, comments?

Barbara Godin

The only other comment I would make is, as you look at the makeup of what came in and also match that up against the makeup of what we had in resolutions, we're pretty well with that inflection point. We're organically -- we're at neutral, and any loan sales that we do clearly are impacting positively our NPL balances. I'd also say, as you look at our -- what we took in terms of a mark, we took 41% on our loan sales of $307 million. We had a 41% mark against that. And again, 10% of that was liquidity premium, just given the way that we've disclosed the fees, including a small group of loans that had a bulk sale associated with it, et cetera. So again, we're feeling pretty good about the way we have our reserve matched up against those portfolios.

Marty Mosby - Guggenheim Securities, LLC, Research Division

And I guess what I'm really trying to get at is, can the release begin to broaden out so that you actually don't have offsetting increase in losses from disposition, you start to get just some release that starts to bring down the impact of the overall net charge-offs?

Matthew Lusco

Marty, it's Matt Lusco. Good question. I would say that our allowance model, really, we look at it more in terms of our portfolio. And it's balanced by, I guess, really the overall economic conditions we're seeing right now, which as Grayson stated, still remain relatively soft. That being said, today, we've only released about $430 million of allowance so that -- yes, we continue to believe we're appropriately reserved and we'll watch and see how the economic conditions moderate over the remainder of the year.

O. B. Grayson Hall

Yes, I mean, Marty, the signs we've seen this quarter are encouraging, and it's just a question of sustainability. And we are encouraged, but we're still being very disciplined about how we run our models and the projections we are making. And as we continue to see early indicators, obviously, the drop in criticized and classified, there was a clear drop in early-stage delinquencies, late-stage delinquencies from fairly relatively flat. So we're seeing a lot of signs that would tell us that the asset quality is improving. But we keep running very disciplined models to make sure we're making the appropriate changes in that allowance as the numbers justify that.

Operator

Your next question comes from the line of Brian Foran of Nomura.

Brian Foran - Nomura Securities Co. Ltd., Research Division

Just as I was trying to write down all your different points of guidance, I just want to make sure I got it right. So NIM will improve. We've got C&I loan growth, but we have continued reductions in Investor Real Estate. If that's right, when you put it all together, is there any range you can give us of where the overall loan book is likely to bottom? Or I guess, at what level would the C&I growth start outpacing the CRE declines? And then secondly, would you expect the dollars of net interest income to grow from the fourth quarter base? Or is the NIM going up on a smaller balance sheet?

O. B. Grayson Hall

I'll tell you -- just taking a couple of points, Brian. If you look at the opportunities for loan growth over the 2012 time horizon, what we've seen is that we're seeing growth in C&I as the predominant place we're seeing growth. Our commitments have grown faster than our outstandings. Most of that growth has been in the larger end of C&I. When you look at the marketplace, it's been predominantly in the -- up into the larger syndicated markets. We've stayed pretty disciplined in what we're putting on our books. We've very much of a relationship-banking model. Our core competency is really in that middle market and lower end of the upper corporate market. We have had very good results through 2011. That moderated a little bit in the latter part of 2011, and then we saw it accelerate in the last 2 months of the year. Our pipelines are still very solid, so we feel good about the growth there. We feel good about the growth in our specialty industries, in particular asset-based lending, healthcare, energy, and we're still continuing to add resources into those segments. So from a commercial standpoint, we feel good about it. I think when you look at the consumer side, we still are seeing deleveraging on the part of the consumer, but growth in auto to a strong degree. Mortgage has been strong, but we've not held much of that on our balance sheet. We're holding very little of that. We're mostly passing that through. And so when you net it all together, I think consumer is up slightly through '12. And I think that when you look at the commercial, it's going to be a question of how fast -- what's the pace of decline in that investor and commercial real estate portfolio. And I think that is a question we ask ourselves all the time. That's going to have more to do with the economic strength in this country. As the economy recovers, hopefully, we see more demand in that segment. Right now, the strength that we're seeing in that segment is pretty much isolated to multifamily.

David J. Turner

Brian, this is David. I'll add from an NII standpoint, we do see a modest increase in the dollars as well, so it's not just a shrinkage of the earning assets that drives the NIM up. I think that rounds out your first question.

Brian Foran - Nomura Securities Co. Ltd., Research Division

That does. And I guess to follow up on TARP, I know you're limited in kind of how your things -- what you can say about thinking about the timing. But just as you think about the economics of TARP, I guess one school of thought is that the preferred dividends are pretty significant drag to near-term earnings. And even if you do a pretty sizable capital raise, the EPS in the near term improves because you don't have that dividend anymore. That pays like $0.14 a share per year. And then the other school of thought is, the longer you wait, the better because even though you've got this EPS drag in the near term, the preferred dividend is temporary, while whatever shares you wish you are essentially permanent or, I guess, you can always buy it back in the future, but you're issuing those shares forever. So I mean, as you think through just that economic trade-off between improvement in near-term earnings by canceling out the preferred dividend versus the long-term share count, how do you think about the balance in the trade-off between those 2?

David J. Turner

Well, you've brought up what we've been looking at for a long period of time. We've been very disciplined and patient with regards to TARP. We will continue to be that way. But those are the things we look at, in terms of immediate dilution versus what the dilution would be by paying the dividend. And so we think we needed to get some other things taken care of that would be reflected in the market for our company, which includes return to sustainable profitability, getting credit metrics turning. And we do those things, and as we've demonstrated, we think that all that actually gets taken care of in due course. We don't have specific timing that we can talk about today relative to TARP. As you know, we submitted our capital plan, and we expect to hear back in the middle of March on that. And, perhaps, that will provide clarity with regards to what we do from there.

O. B. Grayson Hall

Yes, I do think it's premature and it's inappropriate for us to give much specific guidance on that. I do think the way you're thinking through the economics of the alternatives -- we had been laboring through those same analysis for several months now, and as David said, have been very patient and prudent in that regard. And we will continue to be so. But it is premature at this point in time for us to communicate anything in regard to that exercise.

Operator

Your next question comes from the line of Ken Usdin of Jefferies.

[Technical Difficulty]

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

One question on expenses. You mentioned that they might be down in 2012 over 2011. And I just wanted to check, given the restatement post the Morgan Keegan sale, can you give us a comparison basis of what you're thinking about as far as the expense starting point and then the kind of the go-to decline off of that?

David J. Turner

If you look at our core expenses that are adjusted expenses so it gets goodwill charged out of that, that didn't have Morgan Keegan in it. It's in our supplement. I don't have the page number, but it's off of that base for the year.

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

Was that about $3.6 billion x the $250 million, then?

David J. Turner

That's right.

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

But I was looking in the supplement, it's like $3.8 billion something minus its $2.62 million. And that you're saying minus the $250 million, and that's the core?

David J. Turner

That's right.

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

Okay. So a little down off of $3.6 billion. Okay. The second question I had is, you talked about this a little bit on the call a couple of weeks ago, but I wanted to just follow up and try to get a bit more detail. The litigation of reserve, you'd mentioned on the call that, that was a fair value, but that didn't seem to be the max value. So can you walk us through how it works with potential, what's the max exposure on top of the charge that you did that you're going to take upon sale of Morgan Keegan and how that could work in the future?

David J. Turner

I will attempt to get you closer. We do not have a maximum. That question came up last call that we had: was that the maximum? It is not. It is the fair value of our indemnification, which is indemnifying the buyer for all of the pre-closing legal contingencies that exist at Morgan Keegan, and there are several things that are embedded in that. And that fair value number comes -- we get to that number by thinking through possibly with a third party. Any related third party would ask for us to pay them to take that liability or that risk from us. Those cases that are underneath that aren't necessarily probable and estimable under the current accounting guidance, but they're fair value. So we may not have any payments that we have to make out of that. It also includes cost to defend us relative to all the litigation matters that are pre-closing issues. So we have not had a maximum. I can give you as kind of a reference point, if you look in our previous disclosures in the legal footnote, we talked about possible losses that we could have, and we had a range on those possible losses in the 0 to $300 million. These components of the litigation that you're reading about, indemnification is a part of that range of 0 to $300 million.

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

Great. Okay. And then one last thing, also related to the last call. In the last call, you mentioned that you want to keep 2 years of cash at the holding company even after a TARP repayment. So can you just walk us through how you think about what 2 years of cash flow is in dollar terms, so that we can try to understand how much cash you'll eventually need to get to the parent company on presuming an eventual TARP payment of $3.5 billion?

David J. Turner

Yes. Ken, I don't have those numbers. I can have List follow up with you specifically on that. But we've had a policy, a long-standing policy, that we would have 2 years' worth of debt service dividends and so forth in the parent company. And all we're trying to say is, we're going to continue to maintain that policy. We think that's the right thing to do.

O. B. Grayson Hall

We think it's been an appropriate policy we've had in place for a good long time. And the only thing we communicated in the last call is we plan to continue to adhere to that policy.

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

Can you just then tell us how much cash was at the parent company at March 31?

David J. Turner

At March or December?

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

I'm sorry, at December. My bad.

O. B. Grayson Hall

We can get that number.

David J. Turner

About $2.6 billion.

Operator

Your next question comes from the line of Matt O'Connor of Deutsche Bank.

Matthew D. O'Connor - Deutsche Bank AG, Research Division

Two unrelated questions. First, on the NPA inflows, they've been coming down. But obviously, it's been a little bit of a bumpy leg down. But clearly, downward trends, stable in 1Q. I guess as we think from a timing point of view throughout 2012, are there any pluses and minuses that we should be focused on, whether it's a bunch of loans coming due or seasonality? It feels like kind of one quarter in each of the last couple of years has had a blip up, and any forecast of that, that would be helpful in advance, of course.

Barbara Godin

Matt, this is Barb. I would say the general projection is, we're looking at that continuing to show improvement for 2012. The last couple of years, we've shown that there's a slight increase in the third quarter. I would attribute that to seasonality. The rise last quarter was not -- in the third quarter was not as big as the rise in 2010. So we hope that it, too, would modify in 2012. But if there's going to be any kind of a small bump, it's likely to be in the third quarter. But again, even from where I sit right now, we just see continued improvement.

Matthew D. O'Connor - Deutsche Bank AG, Research Division

Okay. And then separately, as we think about capital build from here, you still have, I think, about 50 basis points of disallowed DTA. And obviously, making money brings that back. But just give us a sense of the timing of which you think you might get some of that back? Are there any nuances beyond just positive EPS that might allow some of that to come back?

David J. Turner

No, Matt. You've really got it, it's based on projections. We look at that every quarter. We project out the next 12 months from the measurement date, and we expect that to start coming in, in 2012. Won't have all of it, but a decent portion of that comes into the capital calculation throughout 2012.

Matthew D. O'Connor - Deutsche Bank AG, Research Division

And I guess just putting it all together, it seems like there's some DTA's coming back in, some positive earnings and RWAs sound like they're still going to trickle down a little bit. Do you think the Tier 1 common gets to the 9% range by the end of the year?

David J. Turner

No. I think, honestly, we have a lot going on relative to our CCAR submission, which includes our forecast of where we think capital ratios will be at any point in time along the 2 years. And I think it'd be a little be premature to talk about specifics in terms of our capital plan right now. We'll probably wait until we hear back from our supervisors. That might be a more appropriate time.

Operator

Your next question comes from the line of Erika Penala of Bank of America Merrill Lynch.

Leanne Erika Penala - BofA Merrill Lynch, Research Division

I just had 2 follow-up questions. The first is on Matt's question with regard to the DTA. With this year, you have 3 years of GAAP loss. Should we -- will the accountants get more worried about 3 years of GAAP loss with regards to your GAAP DTA? Or it's not as relevant because it's not the timing difference between the loan losses and the provision that caused that GAAP loss, but it was the goodwill impairment?

David J. Turner

Yes, from a GAAP standpoint, different from what Matt just mentioned, that was a regulatory issue and the past losses really aren't applicable to that conversation. But from a GAAP standpoint, we have to evaluate the recoverability of our deferred tax asset every quarter. And at year end, obviously, our auditors sign off on that relative to the financial statements. When we have to support that, we do look at continuing losses, but we also look at the content of those continuing losses. And when you have an unusual event or item, like a goodwill impairment charge, you can take that into account in terms of providing support and basis for whether or not you need to have a valuation allowance. We did not add a valuation allowance. We don't believe one is required other than a small one that we have for some state net operating loss carryforwards. But we don't believe that there's any big valuation allowance required for deferred tax assets. Our core operations are profitable and have been for the year, and so I think -- and we expect that to continue. So we don't see the need for valuation allowance.

Leanne Erika Penala - BofA Merrill Lynch, Research Division

That was helpful. And my second follow-up question is on the guidance for NIM improvement. That does not include any potential financing plans or issuance of debt regarding potential TARP repayment, correct?

David J. Turner

Well, we get into specifics related to the capital plan. I would just say that, taking into account everything that we think we need to do, our NIM would increase.

Operator

Your next question comes from Craig Siegenthaler of Credit Suisse.

Craig Siegenthaler - Crédit Suisse AG, Research Division

Can you talk about the regulatory constraints on the Regions Bank subsidiaries' ability to upstream capital to the holding company? So really, kind of dividend capacity in 2012?

David J. Turner

Craig, as you know, the regulators have rules in terms of the earnings that you have to have, looking at the last 2 years' worth of earnings that you have to have without receiving any approval from them. So you'll see that disclosed in our 10-K in terms of, without prior approval, what that number is. I don't have that with me right at this moment, but that's really the constraint without prior regulatory approval.

Craig Siegenthaler - Crédit Suisse AG, Research Division

And do you, by any chance, have the common equity Tier 1 level of the Regions Bank offhand?

David J. Turner

I can get that for you if you give me just a minute. I can tell you the leverage.

Craig Siegenthaler - Crédit Suisse AG, Research Division

And what's the Tier 1 leverage?

David J. Turner

It is -- I said that too quick. 9.6. It was 9 points in the third quarter and 9.6 at the end of the fourth quarter.

Craig Siegenthaler - Crédit Suisse AG, Research Division

And maybe just a follow-up while you're looking for that. In the 4-basis-point increase in loan yields, if we kind of oversimplify this trend when we looking at, what was driven by the change in rates, mainly LIBOR, and what was driven by the change in spreads repricing? How can you kind of -- how can you break up that 4 basis point in terms of the contribution?

David J. Turner

I don't know that I have the specifics in terms of whether it was -- what amount we have for repricing?

Craig Siegenthaler - Crédit Suisse AG, Research Division

Was it mostly repricing then?

David J. Turner

Most of it would be through repricing.

O. B. Grayson Hall

There's a slight improvement in LIBOR, but I think most of that came from repricing and new loans.

David J. Turner

Tier 1 at the bank -- Tier 1 risk base at the bank is 12.86. And the leverage was 9.7 instead of 9.6.

Craig Siegenthaler - Crédit Suisse AG, Research Division

I guess the Tier 1 common ratio was in the mid-9s?

David J. Turner

No, 12.7.

Craig Siegenthaler - Crédit Suisse AG, Research Division

I thought that was the Tier 1 risk-base, not the Tier 1 common?

David J. Turner

Yes, that's right. That wouldn't be really applicable, anyway, to the bank, the common.

Operator

Your next question comes from the line of Jefferson Harralson of KBW.

Jefferson Harralson - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. As you guys have talked about the, I guess, the ongoing relationship with Raymond James, can you just talk about the nature of what that venture is and what the revenue stream consists of there?

O. B. Grayson Hall

Jefferson, I think it's a little early to do that. I mean, we have started a very productive relationship and held conversations going on in a number of fronts. Since we've signed a definitive agreement with Raymond James 2 weeks ago, we've had a number of meetings, and we continue to be encouraged about where we think that relationship is going. It's a little early for us to start assigning revenue streams to that today, because clearly, we're still try to define some of that. But I would bring you back to the fact that Morgan Keegan and the associates there, and the leadership team there, has been part of this company since 2001. There's some very strong relationships built there. I'd also remind you that Raymond James has been a long-time customer of the bank, and so we know the leadership team there very well. And we continue to believe that there are future opportunities that are undefined at this point in time, but we fully intend to define those over the next several weeks.

Operator

Your next question comes from Gerard Cassidy of RBC Capital Markets.

Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division

A quick question. On the write-downs that you guys took, could you share with us what the dollar amount was for Morgan Keegan? And then in the goodwill impairment charge for ongoing operations, what are the operations for those that was applied to?

David J. Turner

Yes.

O. B. Grayson Hall

David can explain that, but the goodwill calculation is really based off the segment reporting we're doing every quarter.

David J. Turner

Yes, Gerard, I know it seems odd, but the goodwill calculation -- the first half of the goodwill calculation is at the segment level. The segment included primarily Morgan Keegan, what we sold to Raymond James, but excluded trust. And so when we evaluate the whole segment's goodwill, we ended up impairing virtually all of it. Well we did impair all of it. But you have that impairment and allocate that impairment. The allocation of the impairment then has to be made on a relative fair value basis between the discontinued operation and the continuing operation. And that's why you end up having the impairment attributed to continuing. And it looks like it was related to trust; it is not. It's related to the segment.

Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division

Okay. Speaking of Morgan Keegan, are there any reps and warranties regarding the large producers at Morgan Keegan if they leave before the deal closes? Would that impact the price?

O. B. Grayson Hall

There is a -- if you look at the agreement that was signed, that we filed, you can see that there is a post-closing adjustment language in there that talks about production and retention of large producers. We continue to be very confident that we've got a retention plan in place and enthusiasm in place with the team to hold those producers in place. But that risk is there.

David J. Turner

That risk, Gerard, lasts for 90 days post-closing. And when you read the agreement, you'll see that there was a rep that the buyer put in an appropriate retention plan, on top of the existing retention that existed with the company, to reduce the risk of revenue producers leaving, because they don't want revenue producers leaving. Nor do we. And we think that, that's been taken care of.

Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division

And the final question is, when you guys get back to normalcy on earnings and profitability, what type of efficiency ratio do you think you're going to need to get to, to reach that normalcy and profitability?

David J. Turner

We've talked for a while now about wanting to get to into that high '50s, low '60s rate. We actually think that we can do -- be in the 50 range, in that mid to upper 50 range from an efficiency ratio, in time, as certain costs abate, as we continue to do and improve from a revenue standpoint as well.

Operator

Your next question comes from Kevin Fitzsimmons of Sandler O'Neill.

Kevin Fitzsimmons - Sandler O'Neill + Partners, L.P., Research Division

This is probably for Matt. I just wanted to get any kind of update in your thinking in terms of the timing or what you all have to do to get upgraded back to investment grade status, and the timing of that and then what that would mean for you from a financial standpoint in terms of lifting some drag.

David J. Turner

This is David. I'll take that, Kevin. We've spent a lot of time with rating agencies explaining kind of what our plan has been. We think our continued -- our return to sustainable profitability and our return to credit metrics were critical to getting our ratings stabilized in some cases and working on upgrades in the others. And we think that timing -- and to the extent we can continue to execute on our business plan, our credit continues to improve as we demonstrated through the fourth quarter, that we'd be in position to receive an appropriate adjustment to our ratings. So we clearly can't -- we don't know what the rating agencies will do, when they will do it, but we know the things that we need to do, which is that continued improvement in performance, including improvement in credit metrics.

Kevin Fitzsimmons - Sandler O'Neill + Partners, L.P., Research Division

Okay. And this is just more of a housekeeping thing, but your line item within fee income brokerage, investment banking, capital markets, that's a very small amount, obviously, now post-Morgan Keegan. What's left in there? And is that going to be something you continue to break out? Or is that going to be folded within something else going forward?

David J. Turner

Yes, we've looked at that. We'll probably change the title on a go-forward basis, but it's got our capital markets group in there. We do foreign exchange and derivative transactions and hedging things of that nature.

Operator

Your next question comes from the line of Matt Burnell of Wells Fargo Securities.

Matthew H. Burnell - Wells Fargo Securities, LLC, Research Division

Just a couple of, I guess, housekeeping questions. First of all, in terms of the Durbin mitigation, you said you certainly plan to mitigate most, if not all, of that. I'm just curious as to the timing of that and if you're getting somewhat faster mitigation than you previously anticipated, given some of the steps that you've already rolled out, that you've discussed earlier in the call.

O. B. Grayson Hall

No. I mean, what we've said is, we will mitigate that revenue loss over time. We do believe that time through 2012 that we will get the majority of that cost mitigated; not entirely, but the majority. We think that, so far, our numbers appear to be tracking where we thought they would. We've had some of the products that we've introduced. They've been slightly more successful than we had anticipated. The conversion from free checking to a fee-eligible checking, our numbers there have been almost spot on of what we had forecasted. So I would say no real surprises. We continue to be slightly ahead of where we had projected from a service charge revenue standpoint, but only slightly. So we still feel confident that our plans are working. And while it's been a challenge, I think that we've met that challenge very well.

Matthew H. Burnell - Wells Fargo Securities, LLC, Research Division

Just switching gears. In terms of the margin, you mentioned a little bit less than $12 billion of CDs are going to mature. What is your expectation in terms of the percentage of that amount that you will retain?

O. B. Grayson Hall

Matt, a lot of that depends on what our competitors are doing. But we've obviously had -- in total deposits, we've stayed fairly stable. We've been down slightly. But as we've shifted dollars from time deposits into low-cost deposits, we've had a fairly strong retention of the dollars in the bank. But we also -- when you look at maturing CDs, what we've experienced is a retention rate of about 60% to 70% of them stay in a CD or time deposit product, and we don't see that changing in 2012. But obviously, the competitive pressures could change and alter that, but we don't anticipate that at this juncture.

Matthew H. Burnell - Wells Fargo Securities, LLC, Research Division

Sure. And then just one question in terms of the environmental costs. You mentioned that you expect that the $300 million that you're currently experiencing in environmental costs should be down a little bit in 2012. And I guess I'm just curious as to how those of us in the outside might get a sense as to the trend. And one way other banks have suggested we might look at that is just the trend in overall OREO amounts. Is that a reasonable proxy for thinking about the pace of the decline in environmental costs for Regions this year?

O. B. Grayson Hall

Yes, I mean, I think the way I would look at it if I was trying to find a positive correlation, as I do think assets that are held in OREO are held for sale, as well, as overall asset quality trends would be where I think the correlation on those environmental costs would be at.

Operator

Your next question comes from the line of Greg Ketron of UBS.

Gregory W. Ketron - UBS Investment Bank, Research Division

Just a question on the -- a follow-up question on the margin. When you look at the CD rates, if you go back to the first quarter of 2011, which, I think, is one of the higher maturity quarters, we saw the margin jump about 8 basis points and the yield on CDs drop about 20 basis points. Is that -- looking at your maturities and the going-out rate for the CDs in 2012, is it possible to see that kind of similar action? And where do you think the CD rates for the portfolio could ultimately reach?

O. B. Grayson Hall

When you look at roughly $11.6 billion, $11.7 billion in maturities we have for '12, you don't see that abnormally large group of maturities in the first quarter that you saw last year on high rates. It's spread out more evenly this year than what you saw last year, and probably a little more heavy in the second and third quarter than in first.

Gregory W. Ketron - UBS Investment Bank, Research Division

Okay. So is it fair to say, as you think about the margin improvement this year, it would be more of a gradual improvement instead of maybe a large jump?

O. B. Grayson Hall

That's what we were trying to communicate. We believe if they've continued to play out as we see them today, that if they play out that way, that we would see an incremental improvement in our margin over the course of the year. We don't see that being a rapid jump in the first quarter and then leveling out. We think it will be gradual throughout the year. But if you look at our time deposits, we're down to -- just slightly over 20% of our deposit mix is now in-time deposits. We can see that -- we see that percentage continuing to fall throughout 2012.

Gregory W. Ketron - UBS Investment Bank, Research Division

Okay. And what is the new CD rate that you're seeing on average?

O. B. Grayson Hall

It depends on term. Obviously, customer selects the term. But when you look at overall mix, we're probably coming on new CDs probably in a 30 to 35-basis-point range, all in.

Gregory W. Ketron - UBS Investment Bank, Research Division

Okay. And one final question on loan growth. As we play out 2012, you have runoff in areas like investor commercial real estate. Could we expect to see any type of change? We've seen some people commit more mortgage production to the balance sheet. Is that something that you all would consider?

O. B. Grayson Hall

Yes. We continue to revisit that question every month, and certainly could alter that decision if we thought circumstances warranted it. I think the question on how much earning asset growth we have this year is really is just going to depend on what is the pace of decline that we continue to see in investor commercial real estate. We do anticipate that pace of decline to moderate over the course of '12. In terms of balance sheet, we're seeing the assets on the consumer side that we have for the consumer, whether it's in equity line and first residential mortgages, continue to decline roughly $100 million each per month. But if we were to elect to keep more residential first mortgages on the balance sheet, we would actually alter that pace of decline on that particular asset type. But we also are encouraged by some of the growth we're seeing in some of our other products. And so if we can get to the point we're outpacing the decline in Investor Real Estate, we'll have net growth, and that's -- we're looking for that inflection point.

Operator

Your final question comes from the line of Christopher Marinac of FIG Partners.

Christopher W. Marinac - FIG Partners, LLC, Research Division

I just wanted to explore the disclosure you gave about the Business Services on the criticized information, particularly in Investor Real Estate, the improvements on special mention and substandard. What's driving that? And is there anything unusual happening in this quarter that may not be repeated in future quarters?

Barbara Godin

Things are getting better, quite frankly, in that space. But I think part of it is perhaps just the driver bias. Those that have lasted this long are able to last a little bit longer, and they're hanging on to better days. I think we saw the early fallout, and that's been a lot of what we've seen in the last couple of years. In terms of our charge-offs, there are things moving to criticized and classified. But we again -- we're seeing just an overall improvement in that sector right now.

O. B. Grayson Hall

Yes, and Chris, I'd also say, when you look at, the most troubled part of our portfolio has been in land, single-family and condo. And if you look in our release, you'll see that's down to about $1.8 billion. And so in that -- to Barb's point, that exposure's now reduced, and those borrowers have made it this far. I would tell you also, in certain geographies, we're seeing geographies that have been pretty stressed throughout this cycle starting to turn in much better numbers. So it's just where we are in the cycle, quite frankly.

Operator

There are no further questions at this time. I will now turn the call back over to Mr. Hall for closing remarks.

O. B. Grayson Hall

Well, thank you for your time and interest in Regions Financial. We certainly appreciate it and respect it. So thank you.

Operator

Thank you. This concludes today's conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Regions Financial's CEO Discusses Q4 2011 Results - Earnings Call Transcript
This Transcript
All Transcripts