Solidion Technology Inc.
Q4 2011 Earnings Call Transcript

Published: 20 Jan 2012

[Executives:]

William Henry Rogers - Chairman, Chief Executive Officer and President Kristopher Dickson - Aleem Gillani - Chief Financial Officer

[Analysts:]

Jefferson Harralson - Keefe, Bruyette, & Woods, Inc., Research Division Conor Fitzgerald John G. Pancari - Evercore Partners Inc., Research Division Gregory W. Ketron - UBS Investment Bank, Research Division Matthew D. O'Connor - Deutsche Bank AG, Research Division Marty Mosby - Guggenheim Securities, LLC, Research Division Robert S. Patten - Morgan Keegan & Company, Inc., Research Division

[Operator:]

Thank you for standing by, and welcome to the SunTrust Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, please disconnect at this time. I would now like to turn the conference over to Mr. Kris Dickson, Director of Investor Relations. You may begin.

[Kristopher Dickson:]

Thanks, Wendy. Good morning, everyone. Thanks for joining us. We appreciate it, and welcome to our fourth quarter earnings conference call. In addition to the press release, we've also provided a presentation that covers the topics we plan to address during our call today. The press release, presentation and detailed financial schedules are available on our website, www.suntrust.com. This information can be accessed by going to the Investor Relations section of the website. With me today, among other members of our executive management team, are Bill Rogers, our Chairman and Chief Executive Officer; Aleem Gillani, our Chief Financial Officer; and Tom Freeman, our Chief Risk Officer. Before we get started, I need to remind you our comments today may include forward-looking statements. These statements are subject to risk and uncertainty, and actual results could differ materially. We list the factors that might cause actual results to differ materially in our press release and SEC filings, which are available on our website. During the call, we will discuss non-GAAP financial measures in talking about the company's performance. You can find the reconciliation of these measures to GAAP financial measures in our press release and on our website. Finally, SunTrust is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized live and archived webcasts are located on our website. With that out of the way, I'll turn the call over to Bill.

[William Henry Rogers:]

Okay. Thanks, Kris. I'll begin today's call with some brief comments about the quarter and then we'll pass it over to Aleem to provide more detail on the results and then I'll come back. I'm going to start today on Slide 3, which provides a summary of the major drivers for our performance. Net income was $152 million for the quarter or $0.28 a share. Full year EPS was $1.09 and up meaningfully from the prior year. While we generated good core business momentum, and that was building throughout the year, some of that progress is being masked by legacy mortgage issues that continue to impact results. Our favorable loan and deposit, both growth and mix trends, continued this quarter. Performing loans were up a solid 4%, and that is net of our continued efforts to reduce our exposure to higher-risk loans. At the same time, we saw strong DDA growth over the last quarter and last year. Over the course of the last few years, strong deposit growth has outstripped loan growth, causing our loan-to-deposit ratio to decline, though the current momentum on the loan side is going to allow us to better utilize the deposits and thus bring the ratio more back in the line. While the net interest margin was down slightly, improved deposit mix, pricing discipline and loan growth drove an absolute increase in net interest income. Conversely, fee income declined from last quarter due to lower debit interchange revenues and an increase in the mortgage repurchase provision. We're going to provide much more detail on mortgage repurchases later in this call. Total expenses were down modestly from the prior quarter, but we've made excellent progress on our PPG program this quarter, hitting 25% of our annualized target by year end and putting us firmly on track to remove $300 million from our expense base by year end 2013. From a credit quality perspective, we continued to see improvement across all primary credit metrics. Most notably, nonperforming loans were down 10%, sequentially. Lastly, we generated positive capital growth, and our capital ratios remained strong and well in excess of current and proposed regulatory requirements. Now that sums up the quarter from a very, very high level. I'm going to turn it over to Aleem. He's going to give you some more details. And then, as I said, I'll come back and sum up a bit. Aleem?

[Aleem Gillani:]

Thanks, Bill, and good morning, everybody. We appreciate it's been a busy week for you, so thank you for choosing to join us this morning. We had several large items impact our results this quarter, some positively and some negatively. So before getting too deep into our results, let's get grounded in these. As we do each quarter, we spelled out certain adjustment items in our appendix. This is done to provide you clarity on items affecting our noninterest income and expense trends that are nonrecurring or non-core. The 3 largest such items from the fourth quarter are shown at the top of Slide 4. First, we wrote down the value of our MSR by $38 million due to the expected increased prepayment speeds associated with HARP 2.0. While this is an upfront financial cost of the program, we do expect to realize future benefits from HARP-related refinance activity. Second and per our November 8-K filing, we made the decision to freeze our defined benefit pension plan. Concurrent with the freeze, we also made a onetime contribution to our longer-tenured teammates' 401(k) accounts. The net impact of these 2 items resulted in a fourth quarter gain of $60 million. We also recorded $27 million in severance-related expenses associated with our Playbook for Profitable Growth or PPG Expense Program. This was due to progress that we made on the implementation and design of the program during the fourth quarter. This quarter's accrual reflects what we currently believe to be the majority of the severance costs to be incurred over the life of the program. Two other notable items this quarter are shown at the bottom of the slide. As we previously communicated, we observed an elevated level of mortgage repurchase demands during the fourth quarter. These demands, together with an increase to our mortgage repurchase reserve, led to a $215 million mortgage repurchase provision, which is up by $98 million from the third quarter. We'll discuss this in greater detail in a few minutes. And lastly, we had an approximate $50 million reduction in card fees due to the impact of debit interchange regulations that became effective during the fourth quarter. One item you don't see on this slide is an accrual for a mortgage servicing settlement with the state's Attorneys General. Like several other servicers, we have very recently commenced discussions regarding such an event. However, this dialogue is in the very preliminary stages, so we do not yet have a reasonable estimate of the amount, and no accrual for the potential financial impact has been recorded in our financial results. As discussions progress over the next few weeks, we expect to provide an update on this matter in our 10-K. With these items as a backdrop, please turn to Slide 5 for a review of the summary income statement. Net income to common shareholders was $152 million this quarter or $0.28 per share. This compares with $0.39 per share last quarter and $0.23 per share for the fourth quarter of last year. The $0.11 sequential quarter decline was the result of lower noninterest income primarily due to the impact of 3 items I mentioned on the previous slide

[William Henry Rogers:]

Okay. Thanks, Aleem. We're pleased with the progress we've made on our expense saving program. As Aleem stated, we got off to a fast start in 2011, and you can expect to see us move steadily towards our targets in 2012 and '13. Let me assure you this has my, Aleem and the company's full attention. Now by now, you are familiar with our strategic priorities to drive higher profitability from a more diversified platform. In addition to our efforts to improve the expense efficiency, we're also focused on growing consumer market and wallet share, diversifying the loan portfolio and optimizing our business mix, and we've had some real successes against these initiatives in 2011 and more importantly, have positive momentum headed into 2012. I'm going to spend a few minutes just today highlighting some of the key underlying fundamentals in each of our lines of businesses to give you a perspective on core performance. In spite of regulatory headwinds, we've made great strides in our efforts to grow consumer market and wallet share. The core of these initiatives show up on our retail line of business and is a testament to our investments in improving client loyalty. In 2011, despite all the product changes, we were able to expand our primary relationships over the prior year. Building on client loyalty as the foundation, we also significantly expanded our product penetration per relationship, and this was done particularly well in the fourth quarter. From an overall deposit market share perspective, despite increased competition, we have increased share in 8 of our 10 largest MSAs. And on the lending side, we're delivering strong performance with both consumer direct and indirect loans, up marketably over last year. On a very short period of time, we've become an industry leader in our market in service quality and client loyalty. Our goal now is to better monetize this position via increased momentum and acquisition, retention and significant improvement in relationship expansion, and I'm pleased to say they're all showing a positive trajectory. Our Wealth and Investment Management net income was up 16% over last year, with retail investment income generating an impressive growth rate of 12%. Trust income was also up significantly over last year, and we drove the revenue of this line of business while keeping the expenses stable. An improving market can only add additional leverage. Our Corporate and Investment Banking business delivered record revenue and net income results in 2011, evidence that our relationship-based business model is working and being embraced by the market. On the asset side, loans were up an impressive 25%. Further, we moved up in most lead table rankings, and we're simply winning more lead left mandates. The business is growing the top line, adding and expanding relationships and investing in talent, all while operating with a close eye on efficiency. Our Diversified Commercial Banking line of business delivered solid growth in both net interest and fee income with total revenue up 9% and net income up 33% over last year. Loans grew steadily throughout the year, coupled with strong growth in primary relationships, which helped drive performance. The efficiency ratio for this line of business is also very attractive. Growing CIB and Diversified Commercial Banking are key elements of our strategy to optimize our business mix, and they will be accretive to our efficiency story. I'll also point out that credit quality held up very well in both businesses on a relative basis throughout the cycle, and both had low loss rates in 2011. Overall, I'm pleased with the progress that we've made here and the potential for future growth. I hope you can tell from the discussion thus far that SunTrust is driving some very solid core business momentum. But as I stated earlier, some of the momentum is being masked by legacy mortgage issues. The Mortgage line of business lost about $700 million in 2011 largely due to issues related to loans originated in 2008 and before. So we're continuing to work through these legacy issues, and we'll get them behind us in due time. In the meantime, our mortgage origination volume continues to be healthy. It's got attractive margins. It's relationship driven, and our risk management has significantly improved. As evidence of our client-centric approach to origination, we just ranked second highest overall in customer satisfaction according to the 2011 J.D. Power survey. Our Corporate Treasury and Other segment is next in line by revenues. What I want to point out here is that due to our intense focus on balance sheet management, we were very well positioned for the lower-for-longer rate environment. We have a lot more discipline at SunTrust around our asset and liability pricing, and you see the benefits of that showing up in our NIM which, while down slightly, is still well above our own historical average. Lastly, Commercial Real Estate, our smallest business but one with a great amount of potential for earning asset growth. CRE lost $300 million in 2011 as it also had a housing-related exposure, but on a relative basis, we had significantly fewer challenges than many of our peers. We're beginning to see opportunity in the marketplace in select markets and in particular asset classes. We transitioned this business back into production mode, and we believe there's good future potential here. As with our other nonhousing-related exposures, our commercial-oriented real estate businesses have also performed relatively well through the cycle. Now let's move to the last slide of recap. While 2011 was a challenging year, overall, we ended it with significantly better momentum than when it began. Full year EPS was up meaningfully from last year. Balance sheet trends closed favorably. Low-cost deposits continued to increase, and loan growth exhibited a notable pickup during the third and fourth quarters, particularly in the portfolios that we targeted for growth. Many of our core businesses demonstrated good trends throughout the year, helping to offset some of the regulatory and environmental headwinds we faced on the fee side of the business. Credit quality improved steadily through 2011. We further reduced our exposure to higher-risk loans and have produced a much better diversified and lower-risk balance sheet. Our capital ratios remain strong at the close of the year and well in excess of the current and proposed regulatory requirements. We repaid the government's TARP investment in a less dilutive manner and increased our common dividend to shareholders during 2011. We hope to be able to increase our return of capital to shareholders coming out of this year's CCAR process. From an operating perspective, we launched our PPG Expense Program and made progress towards our goal. We also saw results from our other strategic priorities. So we've clearly generated momentum in many of the key areas of our business. Our focus on our strategic priorities is yielding results, and we're committed to building our -- on our momentum as we move into the year. I know we spent a lot of time, but we had a lot to cover today. So with that, Kris, let me turn it over, and let's take in to Q&A

[Kristopher Dickson:]

All right. Wendy, we're ready to open the line for Q&A. I'd like to ask the participants to please limit themselves to one primary question and one follow-up.

[Operator:]

[Operator Instructions] Our first question today is from Matt O'Connor with Deutsche Bank.

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

If you could just hone in on the expenses a little bit. You talked about some of the moving pieces going into 1Q. But just as we think about reported expenses from 4Q to 1Q, any clarity you can give on the absolute level? Did they go up, down, relatively flat?

[Aleem Gillani:]

Well, as you said, Matt, we've got a lot of moving pieces. We do know that there will be some of those moving pieces that will go up in 1Q. As you know, FICA expenses typically go up in 1Q, and our compensation plans will reset for the quarter. So we expect those things to go up. We are continuing to get benefits from our PPG program, and we expect that there will be further expense cuts as a result of that program as we move forward during the year. So that will be a benefit. I think the big key overall for us is our credit-related and operating expenses and operating loss expenses and how those look. And it's just too early in the quarter to give you a really good indication of how we -- how those will look for the full quarter.

[William Henry Rogers:]

And Matt, it's Bill. And I know it's frustrating to sort of look at the absolute level, but we're really tightening down to make sure that we're fundamentally changing the core run rate of expenses. And we're going to provide a lot of transparency on this PPG program so you can gain some confidence that that's happening. And as we stated, I think for the 2011, we gained a lot of momentum. I'm confident of where we're headed to this to get that run rate by 2013.

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

And I guess maybe just taking another stab at this. If we take out the credit-related expenses and the operating losses, which can be very variable, I can appreciate that. If we take that out and we think about cost for the full year of 2012 versus 2011, do they come down? Or I'm just trying to get some kind of absolute guidance or a little more clarity on the underlying expense trends as we go forward just to make sure that there's steady progress going on or how to think about that.

[William Henry Rogers:]

Matt, it's Bill. Let me try to take it at a really, really high level, and then we can dive down anywhere you want to. But sort of taking it at our highest level and doing it the way you suggested, we've got about a $6 billion expense base. We have about $800 million of the credit and operating expenses. So core expense run rate's about $5.2 billion. And then sort of take that as its -- sort of the working number. What we'll do by 2013 is we'll take $300 million out of that core expense base. Now it will grow. Because it's core, it'll grow by whatever it may grow by, merit increases, investments in the business and all that kind of stuff. But if you look at our past history on that core base, sort of about what we've shown before if you take E squared out, that was really, really low single-digit growth over the past, actually, 5 years in that core expense base. So we're going to take $300 million out of it and then it will grow at it's well-managed type of base. And then as it relates to the $800 million, it's just hard to predict. I mean, we know that's going to come down. We know it's going to come down appreciably. It's just hard to predict on a quarter-to-quarter basis exactly when that's going to happen.

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

So taking the $5.2 billion, if I assume, say, a 3% growth in our core growth in 2012 and 3% in 2013 and then you phase in the $300 million, just say half and half, that would imply flattish expenses in '12 and '13...

[William Henry Rogers:]

And I think your assumption of the core growth is high, so start with that as a premise. When I say low single digits, I mean really low single digits.

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

Okay. So hopefully we come down then each year off of the $5.2 billion.

[William Henry Rogers:]

I think when we get to 2013, that should be flat to slightly down, including that $300 million. And Matt, as we've also said, which we've been clear about, this is also efficiency ratio driven. So that answer will also be predicated around our revenue and our opportunities around revenue.

[Operator:]

Our next question is from Erika Penala with Bank of America Merrill Lynch.

[Conor Fitzgerald:]

This is Conor Fitzgerald for Erika. Just heading into CCAR, can you talk about how you thought about stress case kind of put-back losses if the economy deteriorates like the Fed outlined? And do you have a sense about, like, if regulators are thinking about it the same way?

[Aleem Gillani:]

Well, Conor, we can't tell you exactly how they're thinking about it. We can tell you how we thought about it. You know what the stress case was and the kind of assumptions that were built into the Fed stress case

[William Henry Rogers:]

And Conor, it's Bill. This -- and we dealt with this last year as well. So I think we've got some credibility with our modeling as it relates to that process. And last year, as you know, we were highly TARP focused, and I think you'd have to say the result of our CCAR process as it relates to TARP was very successful.

[Operator:]

Our next question is from Bob Patten with Morgan Keegan.

[Robert S. Patten - Morgan Keegan & Company, Inc., Research Division:]

Just following up on Matt's question. We talked about the core numbers. Any -- can I get you to tackle the environmental as it trims down over the next couple of years?

[William Henry Rogers:]

Let's all take a couple of cracks at it. How about that? Because in fairness, it's just -- it's hard to predict it quarter-to-quarter. Aleem, you want to take the first shot, and I'll jump right in.

[Aleem Gillani:]

Yes. And I don't know that I can give you enormous confidence, Bob, but honestly, we don't know where this is going except directionally, it will be down. Clearly, as the economy normalizes, our credit and collections expenses will come down. Our OREO expenses will come down. Our operating losses will come down. We're leveraged to the economy, and that's where all of these are going. Also, as we move through the backlog of properties that sit in Florida and as that inventory comes down over time, all of the associated expenses with those homes

[William Henry Rogers:]

And Bob, I think for us, related to that Florida-specific exposure to Aleem's comment, property taxes, given that's a no income tax state, they're higher in the state of Florida. It's a judicial foreclosure state, so we're stuck with a multi-hundred million dollar portfolio that we sort of can't get all the way moved through yet. So to Aleem's point, we can see it. I mean, the proverbial rat through the python is being digested at a rate, and I have confidence where it'll end up. It's just a hard quarter-to-quarter number to nail.

[Robert S. Patten - Morgan Keegan & Company, Inc., Research Division:]

I know, Bill. And not that I want to create more work for Kris, but I guess is there any way to think about the number of homes in Florida, the sheer number that we've been through to date, how much more is to go or maybe some kind of way we can take a look at that inventory and say we're making progress on it?

[William Henry Rogers:]

Well, I have no hesitation about making more work for Kris. That is not something that I worry about. Let us think through that. I mean, it's a good question, and let us think through if there's a more granular disclosure that will help give you sort of a longer-term confidence. I hope you can hear from our voices, we have long-term confidence, we're just very apprehensive about giving a quarter-to-quarter guidance.

[Robert S. Patten - Morgan Keegan & Company, Inc., Research Division:]

No, it's a sticky number and there's a lot of people involved in that number too.

[Operator:]

Our next question is from Jefferson Harralson with KBW.

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

I was going to follow up on the repatriation question, the capital repatriation. I understand that a lot of this is going to rest on the CCAR, but can you just I guess talk about the type of capital that you expect to return to shareholders next year? You already have a $0.05 dividend in place, so that's a $100 million already. But can you talk about appetite for buybacks or your thoughts on capital repatriation as a whole?

[William Henry Rogers:]

Jefferson, this is Bill. Let me sort of -- there's not a whole lot we can say, but let me sort of take it at a high level. If you, again, sort of take it back to last year, we put all our eggs in essentially one basket. And with guidance from our shareholders, that basket was to get out of TARP in the less dilutive manner possible. So last year, we were sort of focused -- we were a one-trick pony, so to speak. This year, we'll be very different. And if you think about this year, where we're approaching it from different from last year, I mean, we're profitable. We've generated more capital. Our credit metrics are wildly better. We've got good dynamics as it relates to asset growth and deposit growth. So the fundamentals are just different. So I think at sort of the very, very highest level, what you could expect to see from us is an improved return to shareholders and a more balanced mix.

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

Okay. That's very helpful. And for my follow-up, I just want to ask about the direct [ph] warranty provision, that $215 million. It sounded like we expect that to still be in that range for the next quarter or 2, but I just wanted to see what you guys -- see if that's what you guys think.

[Aleem Gillani:]

Well, it's probably just a little bit too early in the quarter yet, Jefferson, to give you a sense of how it looks for the quarter. What I can tell you is that the trends that we're starting to see now are a little bit encouraging for us and that the move that we've now got past 2011, we're past that 3-year period for the 3 most challenging vintages, 2006 to 2008 for us. So that should indicate a lower set of demands going forward and in the trend that we see from the agency starting to move in their full file request promise to loans that are delinquent rather than loans that are actually in foreclosure. Those kinds of trends are encouraging, and those ought to play out over the rest of 2012. The next quarter or 2, we certainly do expect provisions and demands to be elevated, but I can't tell you exactly whether they're going to be where we are -- where we were in Q4 or lower than that.

[Operator:]

Our next question is from Greg Ketron with UBS.

[Gregory W. Ketron - UBS Investment Bank, Research Division:]

A question regarding balance sheet strategy going forward into 2012 centered around the loan growth and how it would impact net interest margin and net interest income. It looks like you've had very good growth. And as 2012 plays out, would you anticipate that growth to continue, maybe continuing to put more mortgages on the balance sheet? And when you think about the spread of the incremental growth maybe being dilutive to margin, but we could see net interest income grow somewhere to what we saw this quarter.

[Aleem Gillani:]

It's Aleem. A couple of points there. The loans that we put on the balance sheet -- the government-guaranteed loans that we put on the balance sheet over the last couple of years, I think, have actually proven to be very helpful for us, very successful through a period of time when the economy wasn't growing at all. So they were a terrific bridge to help manage the balance sheet. Going forward, I would actually annualize, as you saw, we put 4% -- we had 4% loan growth in the fourth quarter, I wouldn't actually annualize that going forward and think about that kind of number going forward as a result of portfolio purchases and putting government-guaranteed loans on our books. If we start to see the organic loan growth that we saw in the last couple of quarters continue on through 2012, obviously, client-related business will have the first call on our balance sheet and our liquidity, and we'd much rather do organic client business than the kind of government-guaranteed product that we put on. So it was a successful strategy for us in the past. Hopefully, it starts to decline now as the economy starts to come back and we're able to do more client business and lend more money to clients.

[Gregory W. Ketron - UBS Investment Bank, Research Division:]

Okay. Would it be fair to look at net interest margin, expect some degree of compression like you alluded to in the first quarter but still having the ability to grow net interest income in 2012?

[Aleem Gillani:]

We will be focused on net interest income. I think it'll be challenging for the entire industry given where asset yields have gone over the last couple of years. And if you think about the 3-year swaps, for example, now at 70 basis points, it's pretty hard to make money when that's the gross yield that the market is offering you. So I do expect margins will drop for the entire industry, and we will be focused on net interest income rather than margin. But we also have a couple of levers, I think, that we can continue to try to pull to try to improve net interest income and margin over the course of the year. We're going to be focused on additional deposit pricing initiatives. We've got some more debt rolling off the books. And to the extent that we can, we're going to be focused on what we're able to do on the TruPS side, too. So we're going to be doing whatever we can to manage the balance sheet appropriately and try and grow income and mitigate the margin decline.

[William Henry Rogers:]

And Greg, I think Aleem's point was really the one -- the critical point strategically is to start replacing some of that lower NIM, although low-risk, government-guaranteed business with more client-centric-oriented business. And as Aleem said, I think that's been a smart strategy for us. We were very aggressive in getting the higher-risk loans down. And I don't want to use the word plug, we were putting a place on our balance sheet on low risk while we were waiting for and working towards getting more of our client-centric businesses back on a positive trend.

[Operator:]

Our next question is from John Pancari with Evercore Partners.

[John G. Pancari - Evercore Partners Inc., Research Division:]

Can you talk about the pricing environment on the loan front, what you're seeing there in terms of trends and then how that's impacting the shared national credit space in terms of the spreads you're able to achieve in that book?

[William Henry Rogers:]

Yes. I'll start at the high level, and it's something we've been really concerned about, obviously, as all of us have been asset-hungry here in the last several quarters. And it is a very competitive environment, so I don't want to be dismissive of that at all. But that being said, maybe a lot due to scale and focus on client and selection and all that kind of stuff, but spreads have held up pretty well. I mean, spreads in the fourth quarter, coming on spreads were pretty consistent across most lines of business with where they were in the third quarter. A couple of aberrations in a different line of business, but overall, we've not seen a significant declination in spreads, fourth quarter to -- in accordance [ph] so far, sort of continuing to hold up.

[John G. Pancari - Evercore Partners Inc., Research Division:]

Okay. And then in terms of the loan demand on the core book, can you give us some additional color on what your commitments did this quarter? And then also a little bit more color around the pipeline for the commercial book.

[William Henry Rogers:]

The commitment story is good in the sense that commitments were going up in some of our businesses. 2.5x to 3x core outstandings were going up, so the good news is we're adding core new relationships and utilization rates, which hopefully are harbingers for the future. But utilization rates in the CIB side are pretty flat. And so while commitments are up, number of new relationships -- so it's not just adding bigger commitments, it's adding new lead relationships -- are up fairly dramatically and again, in some cases, at 2.5

[Aleem Gillani:]

And the only other point I'd add to that, John, is when you sort of step back and look at the year and what that sort of tells you year-over-year about the economy and how we're able to do within that, actual loan production for us went up 13% year-over-year. So I think that gives you a good indication of what's happening in the overall economy and what we're able to do for our clients.

[William Henry Rogers:]

And the third and fourth quarter were particularly good on the production side.

[Operator:]

Our final question today is from Marty Mosby with Guggenheim.

[Marty Mosby - Guggenheim Securities, LLC, Research Division:]

I wanted to ask about -- and I wanted to tell you I appreciated the format you put together on looking at the detail of the mortgage repurchase. In my mind, the critical assumption really lies on that 20.9%. In other words, when you start looking at whatever been's delinquent at a little over $20 billion. And so far, you've had 20% of those get pushed back to you. What was -- if you kind of think about in guesstimate of the population of your loans that potentially would have had those borrower misrepresentations or appraisal issues, so what's kind of maybe the guesstimate of what that 20% number could be in the whole population of the portfolio?

[Aleem Gillani:]

Help me with your question for a moment, Marty. Are you asking what you think that 20.9% request rate could go to?

[Marty Mosby - Guggenheim Securities, LLC, Research Division:]

Right. In other words, if we have a subset of loans that are already fixed and the only issue is the agencies have to go through the loan documents to get to the amount that have deficiencies, if we kind of knew what the percentage was that -- were potential to have deficiencies, we got to be closing in on that number, because they've had a couple of years to work at this. And especially recently, they've been very active. So I wanted to get a feel for out of the general population, what is your kind of rule of thumb that had these deficiencies that would potentially be coming back to us?

[Aleem Gillani:]

Well, I think there are several things that go into that, Marty. There's sort of the -- that's one issue, is where are there issues, they can come back, and there are several subsets within those. It's borrower misrepresentation. It's documentation issues. It's appraisal issues. It's a whole list of those things. But I think, as we talk with the agencies, they seem to be looking at sort of 2 variables within that. One is the amount of time that's gone by for which the loan has been delinquent. And as I said earlier, the -- there seems to be a very, very high correlation between the demand and the amount of time, with 0 to 36 months being the key. So that is particularly helpful to us in the industry as we now move past those 3 most challenging vintages. I think the other big issue that the agency seemed to be looking at is LTV. And to the extent that the housing market has stabilized from here and LTVs don't continue to decline, I think that will also be helpful. Both of those things, I think, Marty, are going to help mitigate the rise in the request rate. Because this is a cumulative request rate, 20.9%, your point is dead on. It will rise from here, but I think both of those issues I just mentioned will help mitigate that rise, and it just -- it shouldn't go up significantly more from the kinds of numbers we've been seeing. Does that help? Does that get at your point?

[Marty Mosby - Guggenheim Securities, LLC, Research Division:]

Well, it does. I mean, I think the amount of time actually limits the loans over 120 days past due. Whatever comes to past due past this doesn't really matter, because you've already passed that timeframe. So the $21.2 billion there stays the same because we've already passed out of the sweet spot of when they could actually think about it from that standpoint. I was just curious in the overall portfolio. To me, if you were to get to 30%, that would just be an extraordinarily high number relative to loans that were delivered to agencies that had a potential discrepancy that would give them the right to give it back to you. So I think we were -- as a banking, looked at regulated, and that was something that we all spent a lot of time on. So that's -- you're saying that we're getting close to the top at 21%. If you double that number and get to 30%, you can only add about another $500 million to $600 million, which you've already reserved $300 million. So the incremental impact from here going forward has to start to wane just because we've kind of gone through the subset that's potentially able to get back to us.

[William Henry Rogers:]

Marty, I'm glad you found this framework helpful.

[Kristopher Dickson:]

Thanks, everybody, for joining us. We apologize for going a bit over today. If you have any further questions, feel free to give the IR Department a call.

[Operator:]

Thank you. This does conclude today's conference. Thank you for participating. You may disconnect at this time.