Colonial BancGroup's Q2 2008 Results Conference Call

Colonial BancGroup Inc. (CNB)

Q2 2008 Earnings Call

July 17, 2008 5:00 pm ET

Executives

Lisa Free - IR

Bobby Lowder - CEO

Sarah Moore - CFO

Patti Hill - COO

Kamal Hosein - Treasurer

Analysts

Kevin Fitzsimmons - Sandler O'Neill

Andrea Jao - Lehman Brothers

Jennifer Demba - SunTrust Robinson Humphrey

Steve Alexopoulos - JPMorgan

Bob Patton - Morgan Keegan

Jefferson Harralson - KBW

Christopher Marinac - Fig Partners

Todd Hagerman - Credit Suisse

Dave Bishop - Stifel Nicolaus

Presentation

Operator

Welcome and thank you for standing by. At this time all participants are in a listen only mode. After the presentation we will conduct a question and answer session. (Operator Instructions). Today's conference is being recorded. If you have any objections you may disconnect at this time.

Now we will turn the meeting over to Lisa Free. Thank you ma'am you may begin.

Lisa Free

Thank you. We appreciate you joining us this afternoon for Colonial BancGroup's second quarter 2008 results conference call. Our report was released this afternoon, and many of you should have already received copies. If not, you can access the report as well as the slide presentations for this call under the Investor Relations section of our website, colonialbank.com

With me today are Colonial BancGroup's CEO, Bobby Lowder; Chief Financial Officer, Sarah Moore; Chief Operating Officer, Patti Hill; Chief Credit Officer, Caryn Hughes (sic) Cope, and our Treasurer, Kamal Hosein.

First, the advisory. I will remind you that any forward-looking statements made during this presentation are subject to risk and uncertainty. Further, we have no obligation to update any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. If you are interested in factors that do cause our results to differ materially from any forward-looking statements, they are detailed on our website, in our SEC filings, and summarized in our press release from today.

With that I will turn it over to Patti Hill.

Patti Hill

Good afternoon. In the second quarter of 2008 Colonial significantly increased capital to very strong levels represented by Tier 1 capital ratio of 10.10%, total risk-based capital of 14.13 % and leverage ratio of 7.38%. Colonial has announced a net loss of $0.05 per share in the quarter and a reduction in assets of $1.3 billion. $670 million in mortgage warehouse assets and $608 million in regional bank loans.

Colonial has a strong liquidity position over $5 billion of excess borrowing capacity and the average deposit growth was 15% over second quarter '07 and 5% annualized over the first quarter of '08. At this time Mr. Lowder will present the credit quality highlights.

Robert Lowder

Good afternoon everybody. As we said from the first of the year, our objective this year was to aggressively manage our problem loans, and I think that you will see some good results today. We did charge-off some $73 million in the second quarter. We increased foreclosed ORE assets by $94 million bringing non-performing assets to 2.62% of loans and other real estate, and we will discus that in detail in just a minute.

We are showing a substantial slow down in migration of loans from performing to delinquent status as 90 days passed due and still accruing fell 56% from the first quarter, and the 30 days to 89 days past dues fell 40% from the first quarter. We have significant excess capital and loan loss reserve cushion totaling 289% of our non-performing assets. Our provisions for loans exceeded our net charge-offs and we did increase our loan loss reserve to 1.62% of net loans.

We have isolated our problem credits as we talked about for the last couples of quarters. These credits primarily have to do with our residential related construction sector of our loan portfolio and we will talk about that in greater extend in just a minute.

Our residential construction portfolio has decreased in the second quarter by some $328 million. Only 15.4% of our residential construction and condo loans have interest reserves, and all those loans, almost 35% are located in Texas which we are still seeing no credit deterioration in. We have a great workout in collection staff that we have increased by 51%, and we have highly qualified commercial workout group with 88% of the staff having over 15 years of workout in banking experience.

The next slide, we will talk about our loan portfolio breakdown and give you some numbers about that. Our residential construction portfolio at $2.7 billion, that is 17.9% of our portfolio as we mentioned. That portfolio is down inside $328 million during the quarter. Significantly, our past dues are down from 6.07% to 3.59%.

Our commercial real estate and construction is $7.7 billion that is 50% of the portfolio, down some $163 million. Past dues are really performing very well there. You can see that we are down from 1.89% to 1.01%, an outstanding number for the second quarter. Our one-to-four family permanent real estate, which also includes a $600 million of home equity lines, which is about 16.5% of the portfolio, was also down.

Our past dues have also improved in those lines from 2.65% to 2.20%. Our CNI loans are also down. Our past due percentage has ticked up just very slightly, but still at a very respectable 1.41%. No past dues and mortgage warehouse lending, and our consumer and other loans continues, that is the only loan category we are really up in, but you can see it continues to perform very well with past dues at only 0.51%. So, our total past dues dollar wise from the first quarter to the second quarter are down 41%, I think a very important number for you to think about.

Let’s look at what we have here. In our breakdown, our residential construction portfolio, I know everybody has some thoughts about that. You can see the breakdown there about property type, and also at the bottom of that slide we have shown you where our exposure is. Florida gets the most talk, and that total outstanding in Florida is down to 1.3 billion. We do not have a slide showing the breakdown of that, but that is pretty well divided up among the four sections down there. Central Florida has the most outstanding at $584 million; West Florida is second at $428 million, the Panhandle including the Gulf Coast of Alabama at 172 and South Florida, being Miami to Palm Beach at $151 million. So we have got good distribution there. That portfolio continues to get better, we think. Again, we have isolated our problems there, and we think that we are seeing some real improvement as you can see from our past dues in that portfolio.

The next slide is our commercial real estate and construction portfolio. An interesting fact about this portfolio, if you take out the construction and just have what we called our seasoned commercial real estate portfolio, which is $4.98 billion, so let's just call it $5 billion. That portfolio continues to perform very well. Total past dues 30 days or greater are 0.42% or $20 million in that portfolio. In that portfolio, our non-performing assets are only $17 million or 4.2% of non-performings, and our net charge-offs year-to-date in that portfolio were only $7 million or 7% of the total.

So you can see, our seasoned commercial real estate portfolio, which is $5 billion of the 7.7 continues to do well as does the rest of it. You can see the breakdown of that portfolio there in the various types with retail being the largest dollar amount of our exposure there.

The next slide just shows our other loan types, and you have seen the past dues in those categories. So, those loan types are performing very well and we are very pleased how that is coming.

The next slide is something that many of you have asked us to do over the last several months, and we have provided here the weighted average loan-to-value ratios by property type for you. You will see in the total construction, the weighted average loan-to-value is 71.2%. That is broken down by our residential construction, and you can see all the different categories there totaling 73.6%, and then our commercial construction portfolio at 68.6% and all the different property types there.

You can see that is in the construction portfolio, the weighted average loan-to-value ratios are very respectable. Then, our total commercial real estate portfolio with a weighted average of 63.9%, and you can see the breakdown there, and then our one-to-four family permanent real estate including the home equity lines, our loan-to-value ratio is 71.4%. So we think those weighted average loan-to-value ratios should be very assuring to you in our bags.

Let's talk about non-performings now. Non-performings did increase somewhat, but that was a business decision on our part. Our non-performing loans increased $48 million; our ORE increased $94 million. We had 11 loans, totaling $91 million that we made the decision to bring in and we negotiated deeds in lieu of foreclosure or going to court or anything, with the individuals that had those and we brought those in. We felt like these are pristine properties. Most of these properties are all in Florida, most of them are beachfront type properties. We think that these properties had been written down to at least below their most current and all of them have current appraisals.

We think these properties are not something that we should take $0.50 on a dollar or $0.60 on a dollar forward. We will talk about what we are doing about those assets in a minute. However, we feel like we can get a full dollar back, and maybe more on these properties, and we just cannot bring ourselves to selling these at rock bottom prices. However, you see the nonperforming asset ratio at $408 million, broken down there by areas where they are. As you can see residential construction is by far the largest property type and you can see 57% of the total is in Florida.

Then on the next slide, it is just a breakdown of the residential construction nonperforming assets and the next slide is a break down of the commercial real estate. We have broken those down. Now the good thing about all this is if you look at the next slide where we see that our total nonperforming assets are broken down by assets, what you will see here is, and this is one good thing about Colonial, we are a large bank by some standards, but we are not so large that we can not sit down every Monday morning as we do and have a meeting of all of our special assets people including others, and we talk about every loan that we are working on.

As I had said, several months ago our objective was to build a wall around our problems and then work on those problems and solve them and that is what we have done. You can see from this slide that we have got 40 credits totaling $265 million or about 65% of the nonperforming assets and you can see the breakdown there and you can see, if you were sitting here in the room with me, I would show you one sheet of paper that had those faulty credits on it, and we could sit here and we could talk about each one of those credits and that is what we do every Monday morning. We have got a very aggressive program going on to attack these credits. We have setup a war room in Tampa, Florida, that we have staffed that with a large number of people.

We have gotten a large number of calls from individuals and others that are interested and looking at these properties. This war room has 42 credits, totaling some $325 million 40 of those 42 credits are in Florida and their objective over the next two quarters is dispose of those properties and those loans at full value and we think that we can do a good job of doing that, because we think these are properties that we can dispose of in such a way to do that. So, we have got a very aggressive program going on. As I said we have built a fence around our problems, and those are the problems we have and we are going to solve and we are going to attack them.

In the second quarter we did this from two what we call bulk sales through national brokers. We sold some 24 loans totaling those loans had a book value of $63 million. The net sales from those proceeds were $34.8 million, so we took a charge-off of $28 million. So, we took a charge-off for 49%, so we got $0.51 on dollar on those loans. Those were loans that we felt like that we needed to move out of the bank. Those loans that for whatever reason, some of them were notes of loans, I mean, many of them were notes we had not foreclosed on the properties, we just sold the note.

We felt like that for various reasons, it would take a long time to recoup any kind of value of that or they had problems in it, and we decided to sell those and take our money. We isolated the other loans I talked about that we took into ORE, because we felt like they will be worth a whole lot more than anything that you can get from that.

So our net charge-offs for the quarter were say some $73 million, of that $73 million, 18 loans complied $51 million of those charge-offs that ranged from a high charge-off loan of $6.5 million down to $1 million. The breakdown of where those loans were three in Alabama, 11 in Florida, one in Georgia and three in Nevada. So we aggressively charged-off all the loans we felt like needed to be charged-off and moved out of the bank or either charged down properties in there.

So the next couple of slides show you the net charge-offs in the various categories we have, and what the message that I am trying to tell you is, we have done exactly what we said we were going to do. We were going to be aggressive, we were going to recognize problems, we were going to attack those problems, we were going to get them out of the bank, we were going to move them into ORE and nonperforming and then work from there. I am very pleased that where we are and the progress that we have achieved in this quarter in getting these things done. I think the fact that our nonperforming, our past dues are down in the regular portfolio is very encouraging. We continue to do our weekly meetings of problems and we continue to review the rest of the portfolio to ensure that nothing else is coming in that we need to be aware of. So we feel that we have identified our problems, we have isolated them and we are working on.

With that I will let Sarah talk to you about our capital position.

Sarah Moore

Thank you, Mr. Lowder. On page 17 of your slide presentation shows a demonstration of our capital position, we believe that we have excess capital on reserves which provides significant cushion for loss absorption. Our excess capital, Tier 1 capital plus loan loss reserves cover almost 300% of our non-performing asset, and if we throw in all of our past dues, it is almost 200% of our non-performing assets, plus past dues if you have zero recoverability on those assets.

We feel like we are in a very strong capital position to manage through this cycle. We have conservatively been managing our balance sheet. We reduced our assets by $1.3 billion in the quarter. We had told you in April that we expect to get our balance sheet down by $1 billion before year-end. We are very fortunate and then we have short-term assets, particularly in our mortgage warehouse lending division, which we reduced those primarily in the loans held for sale category. We have reduced those assets by $670 million and all other loans by $608 million. We fully expect our balance sheet to be down around $25 billion by the end of 2008.

Colonial is in a very strong liquidity position. Colonial has more than 5 billion in funding available to the company over and above the deposit generation ability of our retail franchise. The retail franchise does provide the most important source of funding for the company and it funds 70% of our total assets. It is important to note, that we do not have any corporate debt maturities in 2008. We do not have any roll over risks to the institutional market and importantly, we do not have any off balance sheet funds or conduits that could cause liquidity issues for the company.

We were very pleased with our linked quarter growth in average deposits with over 5% annualized over the first quarter of 2008 and our retail franchise generated deposit growth of over 15% over the second quarter of 2007.

On page 21 of your slide, we have a reconciliation of net interest income and margins. When we talked about our margin in April, we fully expected deposit pricing to come back in line and normalize. Quite frankly that was apparent in the second quarter, really May and June deposit costs actually increased and remained at very high rates. We have large money center institutions in our footprint running high rate short-term time deposits, and of course we have them accept, because in many cases they are much more convenient in the market place than we did.

So, we have seen a deposit makeshift to time deposits away from lower cost money markets, and we have seen increase in pricing on those time deposits and that did hurt margin by 7 basis points in the quarter.

As you would expect, our increase in non-performing assets did have a margin impact that decreased margin about 4 basis points. On the good side of the page, our common stock issuance, which we completed in April, in late April of 2008 provided free funding for the company, so it is margin accretive of 2 basis points.

We also extinguished $105 million of Federal home loan bank advances, which had an average rate of around 467 in the second quarter, and that was also margin accretive. As we look at over the balance for the rest of the year, we expect margins to stay around the 288 to 290 range and report a 290 margin for the full year 2008. The risk to the margin forecast remains on deposit funding. Deposit pricing remains extremely competitive, and we are hopeful that that will normalize over the balance of the year. With that I will turn it back over to Mr. Lowder.

Bobby Lowder

Our outlook for the rest of the year, we do expect the remainder of 2008 to be a challenging operating environment for all banks including Colonial. Remember, we have a powerful franchise in the growth markets. Our liquidity is very strong. We have a strong capital position, which gives us financial flexibilities to weather the tough times ahead. We have isolated our problems credits and we are aggressively working them out. Our risk management activities, increasing capital, reducing loan balances, and maintaining strong loan reserves is working. We have no off balance sheet items, and we have strong insider stock ownership of over 6%.

With that we will open it up to questions from anybody.

Lisa Free

In order that we may respond to as many individuals as possible, we ask that you limit your question to a single question with one follow up. Operator, we are ready for the question and answer session to begin.

Questions-and-Answer Session

Operator

Thank you. (Operator Instructions) We'll go first to Kevin Fitzsimmons with Sandler O'Neill.

Kevin Fitzsimmons - Sandler O'Neill

Good afternoon everyone.

Bobby Lowder

Hi Kevin.

Kevin Fitzsimmons - Sandler O'Neill

A couple of quick questions. Just wondering first on, you cited in your 10-Q as of the end of first quarter, a dollar amount of potential problem loans that you had, I believe it was somewhere in the neighborhood of $540 million. Could you update us on that number, just so we know what you're doing with the NPAs numbers and you're working them out, we just want to get a feel for the inflow that’s coming in? I'm expecting a little redundant with some of the trends that are you are talking about the past dues, but if we can just have an apples-to-apples on that number?

Bobby Lowder

That number will be down.

Kevin Fitzsimmons - Sandler O'Neill

Okay.

Bobby Lowder

That number will be down Kevin.

Kevin Fitzsimmons - Sandler O'Neill

Is that something you can quantify to date Bobby or--?

Bobby Lowder

50 million, we are down about 50 million.

Kevin Fitzsimmons - Sandler O'Neill

Okay. And then secondly, you'd say pretty much upfront in the release that your keeping the dividend the same, and I'm just wondering, with all we're hearing today about, the uncertainty about capital levels, and you definitely are making that case here today, but with the uncertainty that's out there and the number of companies that have taken their dividends all the way down, I just want to get a feel for the discussion that went on within your company, how you came out on the side of let's keep the dividend versus why not take it down and provide a little extra juice for capital?

Bobby Lowder

Well, our dividend is $20 million a quarter. That's what it cost us. So, in the whole scheme of things it's not that much money. We feel like our retail shareholder base is very important. In the storm that we've been in lately, we've had I think probably more retail buying than anything else, and dividends are real important to our retail base. So, we think it's important that we continue to provide that dividend to them. Again, $20 million a quarter, you're not talking about that much money. Our projections show us, with the balance sheet items we're doing and with our strategy, our capital ratios will be higher at the end of the third quarter, and then higher again after that at the end of the fourth quarter. So our capital ratios are going to be increasing, and we just do not feel like at this time, it is justified to take that dividend away. Of course that's a decision that's made on a quarterly basis by our Board, but we just don't feel like that's justified to do right now.

Dave Bishop - Stifel Nicolaus

Okay, great, thank you very much.

Operator

We'll go next to Andrea Jao with Lehman Brothers.

Andrea Jao - Lehman Brothers

Good afternoon everyone.

Bobby Lowder

Hi Andrea.

Andrea Jao - Lehman Brothers

It is good to hear that downward migration has slowed substantially. Does this mean that the NPA ratio starts to stabilize from this level or could we still expect some increase from the 262 level?

Bobby Lowder

Andrea, I would say you are going to have some more increase, but I think the dramatic increase is over. I think there maybe some more increase next quarter, but I think we are getting to the end, so I think we are getting close to the end as we worked through. Some of that's going to be due to timing. We've got this war room in Tampa that's going to be disposing off these properties, and sometimes you can't dispose off them exactly by the end of the quarter and we may follow it. So, I think there maybe some increase, but I think the dramatic increases are over and I think we are close to the end.

Andrea Jao - Lehman Brothers

That's great. Now what does this imply for the provision, for at least a next couple of quarters?

Bobby Lowder

Well, we are going to continue to charge what we charge-off. I don't think the next quarters, the couple of quarters in charge-offs will certainly be any worst than this quarter.

Andrea Jao - Lehman Brothers

Okay. Thank you so much.

Operator

And we will go next to Jennifer Demba with SunTrust.

Jennifer Demba - SunTrust Robinson Humphrey

Thank you. Good afternoon. A question, Bobby, when you look at your problem loan or your problem property disposition here in the second half of the year, are you guys assuming that you loss severities increase in the next several months, given more banks will be putting properties or loans on the market. How do you look at that?

Bobby Lowder

I don't think that we will be Jennifer, because we have been aggressive the first two quarters in national auctions, that's why we put together this war room. We're going to be working with individuals that have called us, and we think that we can have better success now with these better properties working with individuals, because these are, we think A-plus properties, by and large, A-plus properties that our folks can deal with and we are not going to caught up in an auction type of thing that many of the banks have just now started. We've got that behind us.

Jennifer Demba - SunTrust

Okay.

Bobby Lowder

Charge downs should be going down from it based on that.

Jennifer Demba - SunTrust

Okay. And my follow-up, the properties that you don't have working out of your war room, would those be disposed off through national brokers again, give us a sense of what you would be doing with those?

Bobby Lowder

Well, we've got $324 million in the war room and we've only got $400 million in non-performing. So those are just small things that could be handled by local loan offices and local people.

Jennifer Demba - SunTrust

Okay. I have actually one more question. I will re-queue.

Operator

Thank you. We will go next to Steve Alexopoulos with JPMorgan.

Steve Alexopoulos - JPMorgan

Hi everyone.

Bobby Lowder

Hi.

Steve Alexopoulos - JP Morgan

Bobby, first question, if we adjust the net charge-offs for the loan sales, I guess we get to about a $45 million number. Could you see that getting any worst, that core number over the next couple of quarters or given the commentary you gave where the worst of the increase of non-performers is basically there, maybe that's a decent run rate to expect going forward?

Bobby Lowder

Well, that's a good question. Again, I don't think the total would be any worse than what has been this quarter. I think that's the best I can tell you, because the total number won't be any worse than the third quarter. That's the worst it could be.

Steve Alexopoulos - JP Morgan

Right. And second, for Sarah, given the Board confirming the dividends, how soon do you expect to actually cover the dividend with earnings?

Sarah Moore

Well, Steven, we're not going to comment on earnings guidance today. But again, as Mr. Lowder said, we expect capital ratios to be higher at the end of the third quarter than they are at June 30 and higher at year end.

Steve Alexopoulos - JP Morgan

Okay. Is that coming from just shrinking the balance sheet though versus actually growing your tangible equity levels?

Patti Hill

Well it does.

Steve Alexopoulos - JP Morgan

Okay, thanks.

Operator

Thank you, we’ll go next to Bob Patton with Morgan Keegan.

Bob Patton - Morgan Keegan

Good morning everybody or good afternoon in Montgomery.

Bobby Lowder

Hi Bob.

Bob Patton - Morgan Keegan

Bobby what is the percentage of your NP portfolio that is finished product?

Bobby Lowder

It’s a half percentage.

Patti Hill

The majority of it.

Bobby Lowder

I don’t have the exact number, but it’s probably.

Patti Hill

Over 75%.

Bobby Lowder

Yeah, it’s between 75 and 80%. We don’t have any large things that are not finished. Most things would not be finished would be some very small stuff.

Bob Patton - Morgan Keegan

Okay.

Bobby Lowder

We started early on in this process, and so we are not held up with much stuff that’s not finished.

Bob Patton - Morgan Keegan

And then, in terms of the appraisal LTVs, I am assuming because there’s only 40 credits in the NPA that you guys have got in current appraisals on everything or one of those? So those are all current?

Bobby Lowder

Yes.

Bob Patton - Morgan Keegan

And that finishes my two questions. Okay thanks.

Operator

And we’ll go next to Jefferson Harralson with KBW.

Jefferson Harralson - KBW

Okay thanks guys. Good afternoon.

Bobby Lowder

Hey.

Jefferson Harralson - KBW

I want to ask you about the properties that you decided to keep on the balance sheet, yeah the dues in there foreclosure? Did you consider selling these, and how far was the debt from what you’re willing to sell it?

Bobby Lowder

We considered selling some of them but not most of them. We just felt like that based on our knowledge of what was happening out there, it wasn’t going to get much better than what we thought it would be somewhere in the $0.50 to $0.55 range, and we just strongly believe these properties are a lot better than that. And so, we got new appraisals and we wrote it down either to below that appraisal or below what, below if we thought that day it was worsening it, we wrote them down there. We just think these are good properties, Jefferson and we just not going to let them go.

Jefferson Harralson - KBW

And how long do you think it takes for that value to be revealed? Do we have to have home prices to stop going down, yet to have a bottoming of land values, or what's the main piece of it, and how long do you think it will take for the value of these properties that you are holding onto to be exposed?

Bobby Lowder

Jefferson there's a lot of people out there with money looking to buy good properties. Remember if these loans were made to individuals and we were requiring cash equity in loans, so they had cash equity in it now, and then we've written it down. Some of these properties have got quite a bit of equity in them, and so we think there are lots of individuals out there. They've called us, we've met with them, and we've seen them. They are very interested in buying, and again these are not C properties. By and large these are A properties, and we think that we can move them off the balance sheet, just based on our experience.

Jefferson Harralson - KBW

Okay, thanks a lot guys.

Operator

Thank you. We will go next to Christopher Marinac with Fig Partners

Christopher Marinac - Fig Partners

Thanks. Hello.

Bobby Lowder

Hey.

Christopher Marinac - Fig Partners

I wanted to ask about your thought about how much concentration of overall real estate might be going forward and even though your capital is increasing, do you have any thoughts for that particularly as you changed regulators, about where that may shake out the next several quarters or year?

Bobby Lowder

You are talking about…

Patti Bill

Some of these concentrations are real estate concentration relative to capital.

Christopher Marinac - Fig Partners

Yes, correct.

Patti Hill

Well, as you could see the construction line has actually declined on the chart that was presented in the package, so naturally, as those construction lines decline and the real estate concentration will decrease as percent of capital.

Christopher Marinac - Fig Partners

So, my question is, is there any targeted level that you have?

Patti Hill

No.

Christopher Marinac - Fig Partners

Okay. And then, from a perspective of the securities portfolio and the decline of tangible book, is there any additional color there, anything individual there, or do you have any additional disclosure on Fannie and Freddie and related securities?

Kamal Hosein

Chris, hey it's Kamal. We have no meaningful exposure to Fannie and Freddie sub-debt of equity. With regard to the performance of the securities portfolio and the change in the mark-to-market during the quarter, it was all based on changes in general level of rates. As you know, the term structure increased during the period, which affected all fixed income prices and affected lot securities similarly to the way they affected 30 year Fannie or 30 year Freddies securities. Actually for the period, the portfolio outperformed significantly treasuries despite having a similar duration. So, it performed as we would have expected for that given change in rate.

Christopher Marinac - Fig Partners

Right. Thank you Kamal, I appreciate it.

Kamal Hosein

Thank you.

Operator

Thank you. We'll go next to Todd Hagerman with Credit Suisse.

Todd Hagerman - Credit Suisse

Good afternoon everybody.

Bobby Lowder

Hi Todd.

Todd Hagerman - Credit Suisse

Just a couple of quick questions. Bobby I don't know if you mentioned this before, just in terms of the ORE portion there. What can we expect in terms of a timeline of resolution? I mean, is that number would trend up a little bit you think over the second half? Is this something that you can see come in an orderly liquidation over the next six to 12 months or is it going to be a longer time horizon?

Bobby Lowder

I think by the end of the year you're going to see some nice removals from those. I'm very optimistic about getting those out in the next two quarters. I really think that five of the 11 properties are waterfront properties. Those totaled just over $63 million. I think that choice waterfront properties in Florida still have a lot of activity that people want to buy them, and I think at the prices that these properties are at now; they could be sold for full value for what we have here on the books.

Todd Hagerman - Credit Suisse

In any of those markets, particularly Florida, are you seeing any stabilization in terms of the absolute clearing values with any of these kinds of properties? Are you seeing any kind of signs of improvement, in terms of a bottoming and a clearing process?

Bobby Lowder

Well, I think the bottom, I mean you saw from our sales, we sold those 24 properties at $0.51 on the dollar and I think that's the bottom. You know, I think that's a benchmark, so I think those were not as good a property as these we took in the ORE. So they were secondary-type things. We sold those because we thought they would be the ones most difficult to get rid of, and so we sold the worst things and we got $0.51 on the dollar for the worst, so I think that's the bottom.

Todd Hagerman - Credit Suisse

Okay. And if I can just clarify an earlier comment, you mentioned on the LTV slide, if I understood you correctly that those refreshed numbers, specifically the land and the builder lots, those are current refreshed appraisals. Did I understand that correctly?

Bobby Lowder

That's correct.

Todd Hagerman - Credit Suisse

Terrific, thanks very much.

Operator

Thank you. We'll go next to Dave Bishop with Stifel Nicolaus

Dave Bishop - Stifel Nicolaus

Yeah Bobby, just a follow-up to that last question there. In terms of the 24 properties you sold there, what stage of completion with them, with this finished products, with that land under development, maybe give us some color there in terms of what stage of completion is the company's ramp?

Bobby Lowder

It was a variety of things. Virtually all of it was complete stuff, but some of it was townhouse type things, some of it was land, some of it was land to be developed. So it was hodgepodge stuff. Again, I think it was the worst stuff we had. We thought it was going to be the most difficult stuff to get rid off. So it was hodgepodge stuff.

Dave Bishop - Stifel Nicolaus

Thanks.

Operator

And we will take our final question as a follow-up from Jennifer Demba with SunTrust.

Jennifer Demba - SunTrust Robinson Humphrey

Hi. I was wondering if you could comment on what you're seeing in Texas specifically. Bobby, you mentioned that the housing market there was more stable, but we've had a couple of companies who have seen higher non-performing assets in that state. I’m wondering what you are seeing?

Bobby Lowder

Our portfolio in Texas is still very good. We may have one or two loans there in non-performing, we just don’t have any credit issues there. We’ve taken a conservative approach there, and we got a great team of people there, and with primarily in Dallas and Austin, done some development lending in San Antonio, but it's primarily Dallas and Austin, with the majority of that being Dallas, North Dallas, and so, we just are not having any credit issues there.

Jennifer Demba - SunTrust Robinson Humphrey

Okay. Thank you very much.

Operator

That does conclude Q&A portion of today’s call. I will now turn it back over to your host for any additional or closing comments.

Bobby Lowder

Well, we appreciate your participation today, and we look forward to seeing and talking to you in the future. Thank you very much.

Operator

This concludes today's teleconference. You may now disconnect and have a good day.

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