Atlantic Union Bankshares Corp (AUB) 2009 Q3 法說會逐字稿

Good day, and welcome to the StellarOne Corporation Earnings Results Conference Call. Today's call is being recorded.

At this time, I would like to turn the call over to Ms. Linda Caldwell. Please go ahead, ma'am.

Thank you, Misty.

Today, we have with us O.R. "Ed" Barham, Jr., President and Chief Executive Officer of StellarOne Corporation; and Jeffrey W. Farrar, Executive Vice President and Chief Financial Officer. Mr. Barham and Mr. Farrar will review results for the third quarter of 2009. And after we hear comments from Ed and Jeff, we'll take questions from those listening.

Please note -- StellarOne Corporation does not offer guidance. However, there may be statements made during the course of this call that express management's intentions, beliefs or expectations. Actual results may differ from those contemplated by these forward-looking statements.

Now, may I introduce our President and Chief Executive Officer, Ed Barham.

Thank you, Linda. Good morning to everyone.

Today's earnings call will follow a similar format of earlier earnings calls. And I will open today's presentation by making some general comments regarding StellarOne's third quarter results and observations regarding asset quality as we look forward. In fact, the majority of my comments will focus on credit quality, since this is the biggest determining factor of earnings. I will then ask Jeff Farrar, EVP and CFO for StellarOne Corporation, to speak in more detail to other financial aspects of our third quarter and year-to-date results.

Obviously, we had a challenging third quarter, which was impacted by a large provision for loan losses totaling $20.1 million for the period. Allow me to provide some further detail around this event.

First, $13.9 million of this provision was absorbed by charge-offs, of which almost $12 million were already specifically reserved at June 30th, 2009. A decision was made to write off these non-accrual credits in hopes of future recoveries. And the remaining provisioning was used to meet needed allowance coverage per our reserve calculation, which weighs more heavily upon recent historical charge-off activity, which has been, for StellarOne and for other banks, elevated compared to earlier periods.

As the economy continues to improve, our need for greater provisioning per our reserve methodology should ease. Given our actions, our loan loss allowance coverage as a percent of these actions went from 1.56%, June 30th, 2009; to 1.85%, September 30th, 2009. This allowance now provides a 67% coverage of all nonperforming loans compared to roughly 48% coverage, June 30th, 2009.

We recognize the inherent losses in these already recognized troubled assets. And to increase our allowance we view as a prudent measure, given the anticipated slow economic recovery and the uncertainty that still exists in the real estate markets. The net effect of taking this aggressive third quarter write-off and additional provisioning resulted in a third quarter net loss of $8.1 million, or $0.36 per diluted common share, for the 2009 third quarter.

Despite this significant loss, there are some positive takeaways. Pretax pre-provisioning earnings -- otherwise known as PTPP -- amounted to $7 million for the quarter. This was consistent with second quarter of the year after adjusting for the $1.3 million special FDIC assessment paid during second quarter.

Consistent PTPP earnings, coupled with our continuing strong levels of capital and liquidity, have allowed StellarOne to take an aggressive approach to dealing with credit problems while minimizing the impact to our balance sheet, especially capital. As of September 30th, 2009, our tangible common equity still stood at a very healthy 9.35%. And Tier 1 risk-based and total risk-based capital ratios were 13.14% and 14.4% respectively.

We intend to do whatever is needed to maintain a strong capital base, both for the current challenges we face, but also with the future needs. This has always been our philosophy, and it will continue to be our philosophy.

Without loan write-downs for the third quarter, StellarOne's ratio of nonperforming assets as a percentage of total assets decreased to 2.27%. This is the lowest level since March of 2009. For comparison, last quarter, June 30th, 2009; nonperforming loans to total loans stood at 2.6%.

Our primary concentration of credit problems still continues to be in our construction and development portfolio. Smith Mountain Lake continues to be our biggest concentration and biggest geographic concentration of A&D, and our largest bucket of nonperforming assets. Of the non-accrual loans of $61.3 million at September 30th, 2009, $21.5 million are Smith Mountain Lake-related -- roughly 35%. While still a high percentage, it is considerably smaller than where we began the year. And we hope to see this continue to reduce.

Both the remaining bulk of our non-accruals consist of another $11.7 million of residential development and construction loans, which are spread across our franchise footprint. It is worth mentioning that further credit deterioration at Smith Mountain Lake has slowed considerably, and little has been added to nonperforming loans since first quarter '09. We hope this trend will hold, but we are cautious, as this area continues to be very stressed due to the excess of properties relative to fires.

A large amount of our previously mentioned write-offs during the quarter were Smith Mountain Lake credits which we felt should be charged off, given the apparent lack of market demand and anticipated duration of liquidation.

As we look to the remaining part of the year, we have heightened our loan-review focus into a closer examination of our commercial real estate sector. Many of our examiners and some economists are expressing concern that this may be the next trouble spot for the banking industry. We intend, with the additional support of an outside examination firm, to complete an additional deep-dive review by year end of this particular segment.

I should add that year-to-date, commercial real estate historically has been our best-performing and lowest past-due category of any loan segment for us. Year-to-date, average past-dues stand at 1.27%. For the month of September alone, the past-due level was 67 basis points, less than 1%.

Another area of focus over the next few months is to become more aggressive on managing down our OREO properties. Our OREO levels now stand at approximately $5.4 million. We currently have $2.2 million under contract for purchase by year end and are in negotiation with potential buyers on another $1.5 million. Both sales and our auctions will be considered for any remaining properties. These actions again will help reduce our OREO outstandings. But clearly, we will add foreclosed properties to the list in the coming months.

We approach fourth quarter 2009 and the beginning of 2010 with a subdued optimism. In aggregate, the Virginia unemployment picture compared to many other states is holding up well. We currently have the fifth lowest unemployment rate in the nation, at 6.6%, per the Bureau of Labor statistics. Some markets where we do business are even posting unemployment rates under 6%. In general, though, the majority of the markets where have a presence are running between 6% to 8% unemployment.

The issue of lingering unemployment is, in my opinion, the most concerning issue relative to further credit deterioration for StellarOne. This unemployment scenario directly impacts consumer loans and consumer spending, which affects commercial real estate.

I have concluded my remarks for now. And I would ask Jeff Farrar to provide some further financial detail as to our third quarter results. Jeff?

Thank you, Ed, and good morning, everyone. Thank you for joining us. I have several traditional topics that I'd like to cover today, including results of operations, revenue and its components, overhead control, and some balance sheet trends.

Let's focus on the results for the quarter. Our loss of $8.1 million, or $0.36 per common diluted share, compares to a loss of $785,000, or $0.03 per share, for second quarter 2009. This loss does include $464,000 in accrued dividends and discount accretion associated with the preferred stock within the capital purchase program.

The quarterly results were obviously impacted by the $20.1 million provisioning for loan losses. And I think Ed has covered that topic pretty well. Another impact continues to be FDIC insurance, which amounted to $1.2 million for the quarter, or roughly double the overlay for the same period in the prior year.

We are encouraged by the FDIC proposal to prepay premiums rather than special assess. As you may recall, we had a special assessment in the second quarter of $1.3 million. We do have ample liquidity to fund what we estimate to be roughly $16.3 million in prepaid premiums, to be paid in the fourth quarter as proposed.

From a revenue perspective, revenues amounted to $30.3 million for the quarter, consisting of $22.7 million, or roughly 75% in net interest income; and $7.6 million, or roughly 25% in non-interest income. On a positive note, core net interest income and margin was stable sequentially, and we began to see some widening of the net interest margin during the second half of the quarter on the strength of liability re-pricing.

Non-interest revenues on an operating basis were $7.7 million for the quarter, representing a decrease of $550,000, or 6.6%, compared to the second quarter of this year, reflecting some contraction in revenues associated with our mortgage line of business. This line originated, for the quarter, $132.9 million in volume and sold $138.4 million of loans, generating almost $1.8 million in revenue for the quarter.

Pipelines, however, are down roughly 35% from midyear peaks. This line has reacted to this by taking a look at its overhead structure, has improved its spreads through the course of the year, and is managing this pretty well.

Retail banking revenue experienced some continued growth for the quarter, with revenues of $4.3 million for the quarter, up 5.3%. We also have scheduled a price increase on NSF beginning December 1 to align us with market rates, which will generate another roughly $1 million of additional annual revenues for this unit. Wealth management revenues remain flat quarter-to-quarter, and the line of business continues to provide a modest earnings contribution.

We also recorded some losses associated with some past-due investments that are in tax credit partnerships that impacted other operating income, as you compare it to the prior quarter and the same quarter last year.

Let's now talk a little more about the net interest margin. We saw some slight contraction in net interest margin this quarter, experiencing a compression of 4 basis points sequentially, to 330 from 334 for the second quarter. I will note that we have discontinued our discussion of purchase accounting adjustments, given the fact that these adjustments have now become immaterial to this calculation.

We expect to see some modest expansion in the fourth quarter, as the benefit of heavy CD re-pricing continues to improve the cost [to carry our] earning assets. This re-pricing continues to be elevated until the first quarter of 2010. And in fact, we've got $304 million of CDs re-pricing in the fourth quarter, which is almost 29% of the total CD portfolio outstanding.

The compression in asset yields improved this quarter as well, with yields down 18 basis points compared to second quarter. And that compares to a contraction of 30 basis points when you compare second quarter to first quarter. Other impacts on asset yield include the $61.3 million in non-accrual loans, which are essentially nonearning, as well as continued high levels of short-term liquidity that are expected to fund down in the next 90 to 120 days.

If we can shift gears to non-interest expense -- we continue to see some success in driving efficiency and reduced overhead for our company. Excluding the special FDIC assessment expensed in the second quarter, overhead was flat at $22.7 million. FTEs came in at 825 versus 831 on a linked-quarter basis.

Efficiency -- it gets a lot of attention around here. We have incorporated $2.8 million in combined revenue and cost-saves from our internal cost-save initiatives that we mentioned last quarter, incorporated that into our 2010 budget for tracking, and have initiated many of the suggested initiatives.

One of the most significant initiatives that came out of this was better management and recovery of DDA charge-offs. We have been stung this year with over $1.3 million in charge-offs year-to-date, which is included in this non-interest expense. We continue to work on ways to improve that as we move through the next 12 months.

We will continue to work on our branch and franchise. We have now completed the sale of two branches. We will close on the first of the two announced branch sales next week, with the other one to occur in mid-January. And the sale of these two branches will generate roughly $1 million in gains between the two. This will make a total of seven branch consolidations or sales since mid-2008.

If I can now focus on the balance sheet -- despite some economic challenges, capital levels remained strong and absorbed the loss in dividend requirements for the quarter relatively well. Tier 1 capital came in at 13.14%. That's 11.95% without the TARP investment. Tangible common equity came in at 9.35%, and tangible book value came in at $11.96 per share.

We enjoyed again, for the third quarter in a row, some average deposit growth, with average deposits growing $21.2 million, or almost 1%, to $2.43 billion. Growth was predominantly in interest-bearing accounts. Average securities also grew to $344.2 million, representing an increase of $17 million, or roughly 5%; while cash and cash equivalents at quarter end amounted to $148.4 million.

Continue to have modest contraction on the loan portfolio, with average loans up $2.26 billion, versus $2.29 billion in the second quarter. We are seeing an uptick in opportunities for commercial industrial and commercial real estate resulting from competitor disruption in our markets, which we hope to convert into some loan growth.

In conclusion, while we will continue to have challenges on the asset quality front, we are cautiously optimistic for improvement as we wrap up this [fiscal] year and plan for 2010. We are pleased to be in the position we are relative to strong liquidity and capital but understand that the valuation driver is ultimately earnings. We will make every effort to return this company to a normalized earning stream as soon as we can.

With that, I'll turn it back to Linda for our Q&A discussion.

Thank you so much, gentlemen. Now we'll move to the question-and-answer portion of this Conference Call. At this time, I'll ask our operator, Misty, to open the call for your questions. Misty?

(Operator instructions) Allan Bach, Davenport & Company.

Hey, good morning, (inaudible).

Morning, Allan.

Good morning.

Clearly, cap rates are on the rise. But beyond that, could you talk a little bit, in general terms, about the cap rate environment and what you're seeing out there?

Be honest with you Allan, I am not close enough to that, just to be honest with you. I wouldn't want to even venture there. I would be misspeaking. So, just being honest with you.

Sure. Okay.

And Jeff, just a couple of modeling questions. Any thought on the effective tax rate in the fourth quarter, and what we should be looking for as far as compensation expenses in the fourth quarter?

With respect to the tax rate, I believe we came in at roughly 45% on the benefit for the quarter. Continues to be kind of a volatile number or rate, given the fact that the relative earnings to our permanent differences -- which you may recall are primarily related to tax-exempt interest on securities, and some tax credits on these partnership investments -- the relative amount, given that we've been kind of at a breakeven to slightly loss position through the course of the year, has kind of thrown that rate all around. But it has come down from levels that we experienced in the earlier part of the year. And as we get to more of a normalized earning stream, our historical effective rate has been in the 26% to 28% range.

So I would expect that as we begin to see normalization, you would begin to see that tax rate kind of come in line, if you will, with the historical rate.

Okay.

And then, any thoughts on the compensation in the fourth quarter?

Yes. I would tell you that we are seeing some reduction in commissions related to the mortgage activity, which certainly is helping. So I do think that will continue to kind of keep us in line with current run rates.

Okay.

We have added some headcount. We're getting ready to add some more headcount as it relates to our Special Assets Group, and some recovery efforts on some of the consumer debt. So I don't think we're going to continue to see a decrease. But I do hope that, with the relative reduction in commission expense in the mortgage arena, that it'll hold us in line.

Okay. Thank you very much.

You're welcome.

Catherine Mealor, KBW.

Good morning, guys.

Morning.

Morning.

Ed, can you give a little bit more color on the loan downgrades in the quarter that drove the reserve build?

What in particular, Catherine, would you -- a good part of it was Smith Mountain Lake. But what can I answer specifically? Give me a little more.

I guess, what kind of values are you seeing? Were these because of appraisals? And what level did the appraisals come in at?

Yes. Well, let me go there. A good portion of these -- I don't have the number right off the top of my head, though -- were obviously Smith Mountain Lake credits. And quite honestly, we're seeing perhaps $0.50 on the dollar scenario in that market. And given the sluggishness of the market and the unpredictability relative to when we might see recovery in those markets, again, we just felt it prudent -- go ahead and recognize it and move on, and hope for a better day, which will come when the market returns. But we figured that was the better direction to take, rather than to continue to sit and hold those.

But I would say in general, that percentage is a very broad percentage. Some of them are higher that we've seen; some are lower. But let me just say that we haven't seen perhaps as much deterioration now as we did see in the first part of the year. I've often referred to the Smith Mountain Lake as our tsunami. It hit us early, it hit us hard, and there was quite a steep decline in those values, market values there, more than most of the market, and any other market I'm familiar with, that we serve. And it has flattened out.

But we figured again, when would we be able to get our money back out? When is the market going to return? That's really the big question. I think it's a long-term situation, a long-term workout. Hence, we just went ahead and took our shots.

Do you have the loan balance of the amount of loans that you downgraded in the quarter? Just specifically to the Smith Mountain Lake group that you're talking about?

The only number that I would be willing to quote was the number of downgrades. And I think it was in the neighborhood of 25 --

Yes.

-- relationships that we downgraded. And those were various types of downgrades relative to classification -- special mention, substandard, what have you. But the number was roughly 25 relationships.

Okay. Thanks.

And one follow-up -- do you all have -- and I think, Ed, you may have mentioned a past-due number. I'm not sure if you were quoting the commercial real estate past-due number or the total portfolios --

Yes.

-- past-due. But do you have loans 30-89 days past-due for the quarter? And also, do you have the number of troubled debt restructurings in the quarter?

Well, Jeff's got that number. But let me -- before you answer -- the question you've asked me -- the number I quoted was just commercial real estate.

Okay.

That 1.27% was for the year, average for the year-to-date. For the month of September, for comparison , just for the month of September alone, it was 67 basis points, less than 1%. I think Jeff's got some other numbers here relative to 30-60 days.

Okay, great, thank you.

Yes. Catherine, a couple things. First of all, overall past-dues came in for September at 1.59%.

Yes.

And then, for the -- in terms of dollars in buckets, the 30-to-90-day past-dues is roughly $33 million. And of that, it's split pretty evenly between 30-to-59 and 60-to-89 days, with $16.2 million in 30-to-59 and $16.8 million in 60-to-89. We did have some deterioration or migration from 30-to-60 to 60-to-90. I will tell you, of that deterioration, about $5 million of it was administrative maturities of credits that we're kind of working through the underwriting arm that we actually feel pretty good about. But those are the amounts for the past-dues by bucket.

Okay, thanks. And do you have troubled debt restructurings available yet?

Yes, ma'am, yes, ma'am.

We do.

Troubled debt restructurings of roughly $12 million at the end of September.

And are these mostly residentials?

They are.

Yes.

Okay, thank you.

Steve Moss, Janney Montgomery Scott.

Good morning, guys.

Good morning.

Hey.

I guess starting off with -- what are your total special mention watch list and substandard loans as of quarter end?

I don't think I do.

We may have to get back to you with that. I don't know. Let me look at what we've got here.

That's okay, I can always get back on --

Yes, we have to get back.

(inaudible)

I don't -- I think we'd rather check it out than give you something that wouldn't be right.

Okay.

And then, just a little color on the construction loan balances here -- basically flat quarter-over-quarter. And considering where charge-offs were in the summer selling season, I guess I was looking for a little bit of decline. What are your expectations, and what was going on in the quarter as well?

Relative to decline, whether we are going to anticipate further decline in that category?

Yes. I was just looking quarter-over-quarter -- balances were essentially [flattened]. I was expecting a bit more significant decline, if you will.

Well, I'm looking at a report here that, while it may not be a huge amount, it was in decline and has shown some fairly consistent decline. I was looking -- we started out the first of the year, January -- all the way back to January, at about $355 million figure on the real estate construction. Even last -- starting in July, it was $313 million; August, $305 million; and $296 million per my numbers in September.

So we're down about 22% from our peak, this time last year, on A&D.

And we continue to see that drop. We'll expect it to continue to drop. And we do have some projects, obviously, that we've got committed funds to, and we're still funding.

Okay.

So I suspect that has something to do with the sequential quarter comparison.

(inaudible) I was looking at that.

And then, also, commercial real estate balances were up quite a bit here. Was wondering, were there any re-classes, or was that just a lot of good growth?

Hopefully, what we're seeing is some opportunity on the commercial front. And that's what most of that is is we're focusing more on non-real estate opportunities. And as Jeff alluded to earlier, we're getting to see some of that because of the dislocation of some of the larger banks. So yes, most of that is positive, good growth.

Not aware of any significant re-classes --

Okay.

-- Steve.

Okay. Thank you very much.

You're welcome.

Michael Rose, Raymond James.

Hey, good morning, guys.

Good morning.

Hey.

Quick question -- I don't think anybody's asked this yet, but can you give some more color around possible TARP repayment? Obviously, capital's pretty strong and built a little bit this quarter. So can you give us an update there?

Yes. Nothing's changed. And for the immediate future, I don't really have anything to tell you. I think we're just going to sit tight with what we have for now, and get a better feel for where the economy's going and where everything is headed. Just take a little bit of a conservative approach and make a determination, maybe a little more toward the first of the year, where we may be with it.

Got you.

And then, just secondarily, can you give some color around -- there's been a lot of banks this quarter that have -- around the deferred tax asset issue. Can you address that, and if you -- if that's going to be an issue for you at all?

I don't believe it is. Looking -- as we look forward to 2010, and kind of where we think we're going to be, don't anticipate any realization issue with our deferred tax asset at this point.

Okay. That's helpful. Thanks, guys.

Bet.

You're welcome.

Avi Barak, Sandler O'Neill.

Good morning, guys.

Yes, good morning.

Morning.

If I could just start with a general question on credit that it seems like you've sort of touched on with each of the previous callers -- just looking at last quarter, we saw declining growth rate in nonperformers. And this quarter, obviously, the nonperforming balance declined. I'm just curious if you can just tell us, how confident are you that this improving trend can continue moving in the right direction?

Oh, I wouldn't go there. I'm just not that brave a person. I've -- to be honest with you, Avi, we are optimistic -- cautiously optimistic that we will continue to see improvement. But who knows? As we've alluded to, there are a lot of people who believe commercial real estate is the next big bugaboo. And we don't see it yet. So we're just sitting and watching, and staying with as much capital as we can, to see where the economy does go.

Other thing I would say to you, again -- unemployment holds the key, in my opinion, to everything relative to deterioration. Because I think our exposure is primarily in the consumer portfolio, more than even commercial. Because we have a significant consumer portfolio. And so that's concerning me most of all. But again, we have better unemployment rates, as I alluded to earlier -- the lowest in the country. And in most markets, we're operating in fairly attractive unemployment markets.

So all that gives me optimism. But I'm not a predictor of the future.

Okay, fair enough.

Secondly, if I understood your previous comments correctly regarding the provision on a go-forward run rate, we should expect something closer to what you provided in the first and second quarter, not what we saw in this third quarter? Or something in between the two?

There were certainly some unusual characteristics of the most recent quarter with respect to acceleration of some charge-off activity that obviously had some impact. So I think that certainly, we look at the third quarter as a spike. I think we'll continue to have some elevation of provisioning. But certainly, I would look at third quarter as a higher level than what we would anticipate going forward.

I would agree with what Jeff says. And I -- well, I'll just leave it at that. I think that's a correct assessment.

Okay. Thank you.

And then thirdly, as you also noted in your previous comments, you've been conducting some auctions and some bulk sales of the stuff over at Smith Mountain Lake. Are those continuing? How successful have those auctions been? Could you comment a little bit on the pricing of those auctions? Things like that?

Well, they've been overall successful, Avi. What we're attempting to do here is right our ship. We're positioning ourselves for, hopefully, 2010 to be a much better situation. So we've been pretty active on auctions, as you've indicated. They've been overall successful for us.

I would tell you that we hopefully will have our hands around some more property, especially in the Smith Mountain Lake area, in the first half of the year, if not the first quarter of the year, which -- as we all know, you can't really deal with anything till you have your arms around it and you're able to control it. And I suspect again, even though that's a slow market in terms of potential buyers, there are large investors that -- on some of the tracks we're holding, are very attractive, quality projects that we think -- having some conversations with the right parties -- could yield some pretty significant results to us in the first quarter.

So we're going to be very active on it. We've been pleased with them so far.

Okay. Thank you very much.

Yes.

Bryce Rowe, Robert W. Baird.

Thanks. Good morning, gentlemen.

Good morning.

Good morning.

Hey, Jeff, I understand your comment about closing the discussion on purchase accounting. But was wondering if there was a purchase accounting adjustment in the quarter.

You mean, relative to impact on the margin?

Yes.

Yes. We continue to have pretty small levels of amortization coming through now. So if you're looking for basis points, it was about 7 BPS, I believe, to the quarter. That should trail off nicely over the fourth quarter and first quarter. I think the amortization for the fourth quarter is expected to be about $300,000, and then dropping to $150,000 in the first quarter. So felt that that was insignificant enough to warrant little discussion.

Sure, I understand. I guess the reason I ask is our previous discussions about loan yields, and seeing some pressure there, especially as it relates to the former First National Bank portfolio. Are you seeing some -- I guess, some better pricing opportunities there? Or are you still seeing a little bit of pressure?

Well, we're -- the environment is one of pressure on pricing, I can tell you that. And it doesn't really reflect any particular part of our franchise. It's across the whole franchise.

I do feel better from the standpoint that I think we're getting better pricing. I think we're focused on better pricing. We're having a lot of discussion about risk-adjusted pricing in situations where we've got a borrower that is experiencing some difficulties, not necessarily nonperforming, but experiencing some difficulties.

We have a pricing model that we're kind of forcing all that to run through, which is ROE-driven. So from that standpoint, I do feel better about pricing. It could always be better. But I do think we've made some strides there and will continue to do so.

I would go back to a comment Jeff made earlier, too. I think some of the big pickup we may have may be more on the liability side, with the price of the CDs that you referred to -- 300 and some million over the next -- I forgot what period of time, but it's a fairly compressed period where we'll see some benefit from that.

Okay. Thanks, guys.

Jennifer Demba, SunTrust Robinson Humphrey.

Hi. Just a couple of questions on your commercial real estate portfolio -- can you tell us kind of -- can you tell us about kind of the buckets in that portfolio by type -- retail, multifamily, et cetera; and also the maturity schedule?

I don't have that much detail --

LTVs you may have?

Yes, I don't have that much detail, Jennifer. We can get it for you, but I don't have it with me.

One thing I would tell you -- commercial real estate -- I'd just make a general comment, which would have some, I think, color to what we have -- you get a lot of comment about commercial real estate. There's commercial real estate, and then there's -- what we have is more of a community bank, which is not high-rises, not megamalls, and all that sort of thing, which -- that gets thrown into the whole nomenclature of commercial real estate. We're more typical neighborhood strip centers with barbershops in them, grocery store, that sort of thing.

So I think that explains a little bit -- at least up until now, and hopefully going forward -- why our past-dues are -- and why that's historically been such a good performer for us, and past-dues have been at such low levels. But we'll have to get some more detail around the commercial piece for you. I just don't have it at my fingertips.

Thank you.

(Operator instructions) Carter Bundy, Stifel Nicolaus.

Good morning, Ed and Jeff.

Morning.

Morning.

Jeff, could you remind me of the amount of OREO that you all have under contract right now? I didn't catch all that when you first said that.

It's roughly $2.5 million under contract, with another $1 million, $1.5 million under negotiation right now, with potential other buyers before the end of the quarter.

Okay.

And on another note, do you all have your total shared national credit exposure? And then, if you could also give us an update on the Richmond shared national credit exposure?

I don't have a total on the shared national credit in front of me. Certainly can give you an update on the Richmond situation. Continue to work pretty closely with the group, in trying to work through that particular relationship. We did take some additional charge-offs during the quarter associated with it.

I think we're encouraged by a pretty -- what we think is a pretty viable plan on the part of the borrower to exit bankruptcy. So we've had some positive events, and we've had some negative events during the quarter, but certainly continue to work hard to kind of, if you will, work through that credit.

Yes, I think the best news is it's coming to some resolution as to where it needs to be, and the best it can be, as we go forward now. It shouldn't hopefully be much more of a pain and agony to us.

We only have a handful of shared national credit. I just don't have the dollar amount for you, Carter.

But it's not meaningful?

No, it's not a material number to us.

Okay. So what is the Richmond exposure left at right now? What is it being valued at?

That particular relationship?

Yes.

Is your question related to how much have we written it down, or --

Yes, that would be the first question. And then, could you tell us what the charge-offs were in the quarter, and then sort of what your outlook is, what kind of potential additional loss content you see there?

Well, I'll tell you that the initial charge-off on this particular relationship was around 12%. And I believe the second wave, which occurred this quarter, was roughly another 10%. So we've written off roughly 20% of the relationship at this point. Ed, is --

Yes, book balance right now -- what we're carrying it for is about $6.5 million.

Oh, okay.

And with no further questions in queue, I'd like to turn it back over to your hosts for any additional comments and closing remarks.

Thank you, Misty. And everyone, thank you for joining us and for your questions today. We appreciate your participation. This concludes today's Tele-Conference.

That does conclude today's presentation. Thank you for your participation.