Atlantic Union Bankshares Corp (AUB) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the StellarOne Corporation earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would like to introduce our host for today, Ms. Jennifer Knighting, Advertising and Communications Manager. Ma'am, please go ahead.

Thank you, Karen. Today we have with us O.R. Ed Bahram, Junior, President and Chief Executive Officer of StellarOne Corporation, and Jeffrey W. Farrar, Executive Vice President and Chief Financial Officer. Mr. Bahram and Mr. Farrar will review results for the fourth quarter of 2011. After we hear comments from Ed and Jeff we will 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 Bahram Ed Barham?

Thank you, Jennifer, and good morning and welcome to everyone and to the fourth-quarter earnings call for StellarOne Corporation. As we have done on prior earnings calls, I will begin today's comments with a brief overview of the Company's fourth-quarter financial results, followed by more specific comments on asset quality. Jeff Farrar, Executive Vice President and CFO for the Corporation, will follow with detailed commentary on balance sheet and income statement matters. We will at the conclusion of our call invite questions.

Let me first say that we are generally pleased with the fourth-quarter results and with the progress made throughout all of 2011. Fourth quarter saw a continuation of improving asset quality and earnings growth. We are well positioned from a balance sheet perspective, enhanced internal risk-management processes, human capital, product offerings, and renewed focus on strategic growth initiatives.

Of particular note is our accomplishment of repaying our $30 million in TARP in full in 2011 and doing so without having to raise additional capital. This accomplishment speaks to the strength of our Company and our focus on doing what is right for our shareholders.

With the elimination of TARP our shareholders will benefit from reduced earnings dilution, roughly $0.03 per share, and the potential for increased dividends in the coming quarters. We are also better positioned to take advantage of strategic opportunities.

Clearly, I believe 2011 marks a turning point for our Company. It is the first time in over the last four years that we can again spend the majority of our time on growth initiatives. This has been our goal, to be ready as the economy begins to heal.

Highlights for the fourth-quarter 2011 were as follows. StellarOne earned $4.8 million for the fourth-quarter 2011. Net income available to shareholders, net of dividends and discount accretion on preferred stock, was $3.8 million or $0.17 diluted common share.

These results compare favorably to the $2.4 million or $0.10 per diluted share earned a year ago for the same period. In fact, this represents a 61.1% increase over last year at the same time.

Fourth-quarter results for 2011 showed a slight decrease of 3.2% to third quarter's 2011 $3.9 million of net income available to shareholders, or $0.17 per share. Jeff will share more detail on the fourth-quarter revenue and expenses.

Net income available to common shareholders for the 12-month period amounted to $13.4 million or $0.59 per diluted common share, up 70% compared to $7.9 million or $0.35 per diluted common share for the prior-year period.

Additional fourth-quarter highlights included -- core revenues remained stable with net interest margin expanding slightly, and mortgage revenue growth offsetting some decreases in other non-interest revenue streams. Nonperforming assets as a percentage of total assets decreased 7.3% on a sequential quarter basis to 1.64%. Accruing TDRs decreased $9.2 million when compared to the same period in the prior year and declined $1.8 million on a sequential basis.

Debt interest margin expanded slightly to 3.79% from 3.77% in the third quarter of 2011 due to reduced deposit costs. Divestiture of the wholesale mortgage line of business was completed in the month of December.

Let me further address the aforementioned areas pertaining to asset quality at this time. Jeff will cover the remaining highlighted areas in his later remarks.

As to the decline in TDRs, you will recall that the majority of our TDRs -- 78.2%, to be exact -- are residential consumer real estate loans made under an in-house mortgage modification program. This program began roughly three years ago to help struggling homeowners remain in their homes.

This consumer mortgage modification program modified loans by way of a rate reduction, or extension of term, or both, but not principal forgiveness. Most mods were done as three-year ARMs.

Many are now maturing, and we are able to put many back into normalized status because of their seasoned payment history. In fact, we anticipate a quarterly reduction in these existing TDRs to be approximately $1 million to $2 million per quarter going forward.

One additional point. Total TDRs stood at $38.6 million as of December 31, 2011, of which $30.5 million are accruing TDRs. Total TDRs September 30, 2011, for comparison were $40.7 million.

Nonperforming assets totaled $47.7 million at December 31, 2011, or a 9% sequential reduction from $52.5 million at September 30, 2011. The ratio of nonperforming assets as a percentage of total assets decreased as stated earlier to 1.64%, compared to 1.77% as of September 30, 2011, and 1.85% a year ago this same time.

Nonperforming loans decreased $4.3 million or 9.9% to $39.2 million December 31, 2011, as compared to $43.5 million for both September and December 2010. It is worth noting that of the $39.2 million nonperforming loans, only $8.3 million or 21.3% is related to construction and development. This is a significant reduction over the last couple of years, and obviously a lowered risk profile from an asset-quality perspective.

The largest category of nonperforming loans now is commercial real estate at $15.1 million or 38%; followed by one-to four-family real estate at $14.6 million. C&I completes the only other major category at 2.9% or $1.1 million. Total $8.6 million at December 31, 2011, also down when compared to September 30, 2011's level of $9 million and $10.9 million one year ago this same period.

A further indicator of improving asset-quality metrics was seen in the reduction of past due and matured loans between 30 and 89 days, which were down by $8.9 million or 20.5% from the September 30, 2000 (sic) level of $43.3 million.

Finally, loan loss provisioning for the fourth quarter of 2011 was $1.8 million, a $1.5 million decrease compared to the $3.3 million recorded third-quarter 2011, and a decrease of $3.5 million when compared to the fourth-quarter 2010. The allowance as a percentage of nonperforming loans increased to 83.2% at December 31, 2011, are up 2.1% when compared to 81.1% at September 30, 2011.

The fourth-quarter 2011 provision compares to net charge-offs of $4.4 million, resulting in an allowance for loan losses of $32.6 million at December 31, 2011, a decrease of $2.7 million when compared -- this is a decrease of $2.7 million when compared to $35.3 million at September 30, 2011. The allowance as a percentage of total loans now stands at 1.60% at December 31, 2011, compared to 1.74% at September 30, 2011.

Some general comments relative to looking ahead. As one can see, StellarOne finished the year on a positive trend. Despite this, we realize our need to grow revenue.

We should continue to enjoy enhanced earnings from lower provisioning cost, and we will also benefit from lower interest expense. But we also know that these contributors have a finite and declining trend line.

We must grow top-line revenue. Let me assure you we as a Company have a new focus to this cause.

Loan demand as measured by our pipeline reports continues to be good. This clearly could be seen in December when we added roughly $22 million in new outstandings. The real news was that total for December stood at around $43 million.

Deleveraging is still occurring with borrowers, but it appears at a much slower rate. But competition is only intensifying, so we must have a new sense of deliberate urgency.

We are continuing on an organic basis to infill our retail presence with our newest so-called Branch of the Future to be opened in Charlottesville this April, with another facility, our first to be opened in the Richmond market, sometime in June. We have already, as you well know from earlier calls, had a very positive impact in the Richmond market on the commercial lending front through our LPO.

In our newest market, Virginia Beach, we should have a contract signed within a few days for a full-service office. Opening of that office has not been finalized, but it is on the fast track; and by the time we are open for business we should have several loans on our books already.

Expense reduction is also a continued focus for us, and Jeff will share more on this topic. Suffice it to say evidence of our efforts on the expense side can be seen in the continued reduction of FTEs; our recently announced branch closings; and, as mentioned earlier, our divestiture of our wholesale mortgage operation.

I will stop at this point and ask Jeff to offer some additional insight.

Thank you, Ed, and good morning, everyone. Thank you for joining us. I have several topics I would like to cover today including revenue trends, net interest margin, and non-interest expenses. I will also touch on balance sheet trends, capital, and line of business results.

Let's start with a look at revenue for the quarter. Gross revenues came in at $32.7 million. And while only modestly higher than last quarter, we were pleased to see some growth in net interest income; a slight improvement in net interest margin; and excluding OREO losses, some meaningful growth in non-interest income.

We experienced some accelerated improvement in the cost of interest-bearing deposits, in line with our prior quarter comments, driven by repricing of core nonmaturity deposits and continued CD repricing. We would expect to see continuing improvement here in the coming quarters, although the pace is expected to slow somewhat.

The net interest margin improved to 3.79% for the quarter and 3.8% for the year. A 5 basis point decrease in loan yields coupled with a 35 basis point drop in yields on securities continued to put some pressure on the net interest margin during the quarter.

We are still projecting some modest margin compression this year, whereas the improvement in cost of funds is again expected to moderate, and pricing pressures on the loan side remain fierce. This margin pressure will be reduced if we can turn the corner on loan growth. We did experience a modest period-end increase in loan outstandings for the quarter and are modeling some loan growth for 2012.

Non-interest revenues on an operating basis were $7.9 million, up slightly compared to third quarter, and growth of $771,000 or 10.9% from same quarter prior year.

Mortgage banking was the big news here with revenue growth of $656,000 sequentially. Prior-year fourth-quarter results were impacted by $854,000 of losses associated with mortgage indemnifications, which were essentially nonexistent in the fourth quarter of 2011.

As noted last year, we were able to settle a substantial portion of our make-whole and repurchase claims associated with some older wholesale mortgage production last year and eliminate some of the risk associated with potential future claims. We have also now divested of the business segment entirely, which should further improve the risk profile. In addition, there are some carryover revenue streams from that segment that should support profitability in our mortgage segment in the first quarter.

On the retail banking front, while interchange fees and other fee income were down slightly, we are encouraged with new account openings and fee income sustainability during the quarter. For the year our Company added approximately 10,000 new households, representing a solid increase of over 10%. We continue to see measurable improvements in debit card penetration, credit card issuance, and the use of e-banking services.

Let's now look at non-interest expense. A somewhat noisy quarter for us on the overhead front, with non-interest expenses amounting to $24.6 million, a $1.2 million increase representing 5.3% over the third quarter, and up $639,000 or 3.7% over same quarter in 2010.

Primary drivers for this increase linked quarter included increases associated with comp and benefit cost and professional fees. As noted in our earnings release, there was about $175,000 in nonrecurring compensation-related costs for the quarter; another $245,000 associated with increased incentive costs, reflecting improved profitability in the second half of the year as well as measurement to goal performance. On the professional fee front, another $271,000 in nonrecurring costs and a heavy quarter for professional fees associated with a high number of workouts.

We have seen an uptick over the last couple of quarters related to workouts associated with consumer debt issues, which appeared later in the credit cycle. The good news here is the delinquencies were down significantly in the quarter in this sector, and a good number of our more significant workouts were resolved during the quarter. Thus we are hopeful that we will realize some reduced costs associated with the professional fees for this activity going forward.

With only a slight revenue growth for the quarter, our efficiency ratio climbed to just over 72% on those increased expenses. Normalizing for the nonrecurring costs mentioned earlier, that ratio would have been at 70%, which is still slightly higher than the previous two quarters. We continue to work hard with an equal emphasis on revenue creation and cost management to improve this measure.

FTEs came in at 811 versus 838 one year ago and were down 1% from last quarter. We did have some increases in FTE this quarter associated with the hiring of revenue producers in Wealth Management, Mortgage, and Commercial Banking segments. We are expecting some further reduction in FTE for the first quarter associated with the wholesale divestiture and three additional branch consolidations.

A couple of comments on the balance sheet. Capital levels remain strong after the TARP repayment. Tier 1 and total risk-based capital ratios came in at 15.17% and 16.42%, respectively. Tangible common equity was 10.52% at year end, with tangible book value of $12.90 per common share.

Average deposits were $2.4 billion, down slightly compared to third quarter. For the year, average non-maturity deposits were up $46.3 million or 3% over 2010 reflecting some continued deposit mix improvement. Average securities were $466.6 million for the quarter, representing an increase of $20.2 million or 4.5% over the third quarter on increased investment activities.

From a business segment perspective, our Commercial Banking segment earned $15.9 million for 2011, an increase of $5.8 million or 57.5% over the $10.1 million in 2010. Our Mortgage Banking segment earned $945,000 for 2011, an increase of $76,000 or 41.3% over the $669,000 in 2010. Our Wealth Management segment earned $452,000, a decrease of $96,000 or 17.5% compared to the $548,000 in 2010.

In conclusion, while we will continue to have challenges in this environment, we are optimistic for continued profitability improvement in 2012. I will now turn it back to Jennifer for the Q&A discussion.

Thank you, gentlemen. Now we will move to the question-and-answer portion of this conference call. At this time I will ask the operator to open the call for your questions. Karen?

(Operator Instructions) Catherine Mealor, KBW.

Good morning, everyone. First of all, congrats on the TARP repay.

Thank you.

Thank you.

On that note, can you talk about your updated thoughts on M&A and strategic hires, now that you're out of TARP and I am sure able to think a little bit more offensively?

Well, certainly it gives us more clarity. It is less complicated for us, and that is a biggie from both the acquirer and the seller side.

So we are very pleased to have the TARP out of the way, and we are certainly giving more time to discussion relative to strategic initiatives, which do include acquisitions. So hopefully something of a -- some result may have come of that at some proper time, and at the proper time, and if it's the right situation for us.

I would just add to that --

Okay, thanks, and --

I'm sorry, Catherine, this is Jeff. I would just add that I think currency obviously is something that is going to be important to that equation. And just getting our valuation on our stock moving in the right direction so that we have a little more, if you will, currency to offer is certainly an important as well.

Yes.

Yes, thank you. Maybe switching a little bit to expenses, you talked a little about your expense initiatives; and Jeff, you mentioned your efficiency ratio is now 70% ex the noise in the quarter, and you are working on moving that ratio down.

How do you think about the timing of some of these cost savings coming in this year and where you are targeting that efficiency ratio to go for 2012?

Well, I would tell you that we certainly expect some notable improvement in the first quarter on the overhead side, given some of the activities that will evolve here over the next 90 days. So I am certainly hopeful that we will see the needle move, if you will, in the first quarter and possibly into the second quarter from some of those discussed initiatives.

Obviously an important component of this is revenue lift. With the margin compression we have got right now, it is going to be difficult to have significant movement in that regard. But we do anticipate that we will get some lift on the revenue side, we will continue to hold the line on the overhead, and that we will see some improvement.

We don't offer guidance in terms of how much that is going to be, but certainly we think we can move the needle down and it can be more than just an insignificant component or insignificant percentage relative to the run rate in 2011.

I'd want to add some more color on it. Both Jeff and I are -- in terms of measurement on our goals and incentive potential, efficiency ratio is one of the things that gets examined, and so it is very near and dear to our heart.

Great. Thanks for the color.

Jennifer Demba, SunTrust Robinson.

Thank you. I am following up on Catherine's question about efficiency. Specifically what is your efficiency goal in terms of your own incentive plan?

It's tied to budget, Jennifer, and that is not really something we discuss; but certainly an improvement from where we are standing right now.

Would you envision more branch closings as part of those efforts?

The potential exists for that, yes. And those branches, we have an idea of where those are, if we decide to go there. But right now three are announced, and they should make a nice movement toward gaining some better efficiency numbers for us in the first six months of the year.

Okay, thank you.

William Wallace, Raymond James.

Morning, gentlemen. A couple questions on the expense side. You've referenced some further headcount reductions in the first quarter. What level of severance costs should we expect to see in the number in the first quarter?

Very nominal. The severance costs for the wholesale division, really other than some stay bonuses to keep those folks in place until we divested, have already been incurred, already been recognized.

Three branch consolidations, just in terms of the level of comp within those branches, you wouldn't expect to see a significant component associated with severance. So I would say nominal.

Okay. Then last quarter during the conference call, I believe you highlighted a stated goal of $2 million to $2.5 million of net cost saves. Is that still a target?

It is. I don't think that number has moved significantly.

Okay. Then as it relates to the increase in professional fees in the quarter, in the press release you cite strategic initiatives. Would you be willing to provide any more specifics around some of those initiatives? Or would that maybe be like you looked at a deal or something in the quarter?

That could be a component. We had some, I guess, capital planning activities that included or had some expense associated with them, as we strategized on TARP repay. As you know, we had some reorganization of leadership within the Company; there were some expenses associated with that.

There were some professional fees associated with the TARP repay itself. Those all are kind of bucketed in that strategic initiatives component.

Okay, fair enough. Then as it relates to your de novo strategy in Richmond, you said that it looks like you are going to have one office hopefully opening in June.

I know you had targeted three. What is the status of the other two that you are looking to open?

They are still online, but will be coming on later than June.

Okay, okay. My last question as it relates to credit, can you give us an update on the large, the multifamily credit that went non-accrual last quarter?

Absolutely. We still have that and are glad to tell you that it is continuing to lease up at a very good rate. We believe that by the end of second quarter we have a good opportunity to move it out of here.

I believe -- and I may be wrong on this, so just take it for what it's worth, but I am not off too far. I think it's at a 70% lease-up rate now, if I remember my numbers correctly, which gives you an indication of the strength of the income off the property.

Our plan was to let up and let it stabilize, and we felt good about that. It is in fact happening, and we actually do have buyers showing up unsolicited as such. So I feel very confident that when we go to market with it to find a buyer that we will be able to do so and get rid of it rather quickly.

Okay. Very good.

I wish all our other problem credits were this nice.

That's all I have, guys. I appreciate your time.

David West, Davenport & Company.

Hey, good morning. Wondering, you noted in an encouraging tone that you started to see some increased loan demand in December. Could you talk about maybe specific geographies and loan types, C&I or CRE, that you started to see some strength in?

I would tell you it is C&I and commercial real estates, both. It is a mix. Not much on the consumer front.

I would tell you that oddly enough, the volume we saw in December for the most part didn't come out of the markets we typically have seen some growth coming out of, which has been Richmond for us. It was in some of our legacy markets, which is encouraging because that is always a positive when we can get more lift out of our existing markets.

But we have -- I've spent some time in the Hampton Roads market. I am very encouraged by a couple of days I stayed in that market last week, by the reception we are getting and the opportunities that we actually had some discussion on last week. So we are feeling pretty optimistic about that.

Any specific legacy markets? Charlottesville, Culpeper, the Valley?

Roanoke. Roanoke.

Okay. Okay, great. And your efforts in Hampton Roads, is that initially going to be an LPO or a full-service branch?

We're attempting to go as a full-service rather than an LPO, but the commercial lending will obviously show up first. We're not going to wait to get all the pieces in place before we open the door. We will -- in fact, as I alluded to earlier, I think we will actually have some loans booked before we get the doors open on the facility there.

So we are going to just keep pushing to get it all in place as soon as possible, but we're open for business.

I would also add that we are likely to have mortgage up and running prior to retail as well.

Yes.

Very good. Switching gears, and I know this may be a question that is still quite subjective, but given the improving asset quality and maybe starting to see some stirrings of loan growth, is there any minimum level that you want to keep the reserve as a percentage of loans?

You're at a 1.6% now. Do you get a feel in the current regulatory environment that 1.5%-ish is maybe the level that we need to maintain that reserve at?

No, I don't think there is any predefined level that we would consider a sweet spot for minimum. I think it all kind of comes back to staying with your process relative to how you evaluate your allowance. As we continue to see improvement in asset quality, the factors that go into that calculation will continue to come in line, and we will react accordingly.

I think the other one we keep our eyes on, obviously, is the coverage on the nonperforming loans and nonperforming assets in general. So we'd look to make sure that we had a good strong coverage on that as we move forward.

Very good. You do still anticipate, though, reserve releases probably being of a lower magnitude in 2012?

Relative to fourth quarter?

Relative to 2011.

Hard to say. I would be more comfortable in saying that I wouldn't expect the same release that we saw in fourth quarter for the next quarter. But hard to project it out for the year.

Okay. Very good. Lastly, you did -- you noted interchange was down a little bit. The retail service charges declined a little bit sequentially. How much of that was related to the branch consolidation and/or the general macro environment?

It was more the latter, just the general macro environment, just the level of activity that we are seeing relative to consumer activity, not regulation. I'm not really seeing any regulatory impact at this point. But really just consumer behavior more than anything.

All right. Very good. Thanks so much.

David Peppard, Janney.

Hello, guys. How are you? There's just two topics I wanted to cover. The first was the dividend. Now that you are out of TARP do you have any target for a payout ratio? And if you do, how soon can we get it there?

Well, let me just say that obviously with the repayment of TARP a lot more discussion has been had relative to dividend. And that is all I will say at this point.

Okay. The last thing I want to --

I will add one comment. We still, I guess as a long-term strategy, see a 35% to 40% payout.

Yes, that has historically been the case.

So if you look at it in terms of historical corporate goal, corporate policy, I think that is still out there. When we get there remains to be seen at this point.

And looking backing in your history it appears that you have made most of your dividend moves in the first quarter. Is that a trend that we could see going forward?

Hard to say, but possible, I guess. Anything is possible.

Okay. I just wanted to touch upon the margin real quick. Could you maybe talk about any leverage you have on the funding side that could alleviate some of the pressure?

When you say leverage on the funding side, are you referring to just additional lift relative to what we are seeing in repricing?

Yes.

Help me out. Did you say yes?

Yes. Yes.

Yes. Well, let's see how I can do this. The one piece that I guess I am most familiar with would be just what we're seeing on the CD side. What I would tell you there is that we are still experiencing anywhere from 50 to 60 basis points of improvement on repricing month-to-month relative to the CD portfolio from what they are coming off at and what they are going back on for.

So, that is the one that stands out the most in my mind. We have got about $110 million in CDs repricing in the first quarter, as a gauge for you.

On the non-maturity side, we were aggressive in some pricing -- repricing if you will -- I guess late third quarter, early fourth quarter, and you saw a lift associated with that. Probably a little room to move the needle there, particularly in the money market arena, but not at the same rate.

On the investment securities side, do you have any large batches coming in at any point this year that would be a significant repricing?

No, we have got it laddered pretty well, David. So I would tell you we feel pretty good about that.

The portfolio has got a duration of roughly 3.6 years. Average yield on it right now is about 3.35%. So obviously with that duration and that level of yield coming off, we're going to continue to have some compression there. But no bubbles that I am aware of.

Okay, thank you.

Brad Evans, Heartland.

Good morning and thank you for taking the call. First question is just regarding the fourth quarter. If you adjust back the TARP repayment charge, the $628,000, and tax-effect that, so your normalized or a clean number would be closer to $0.22 or $0.23. Is that correct?

I think it is more like $0.20 based on how we would calculate it, but certainly there is some addback there.

Yes.

Were there any other unusual items that we would pull out of the non-interest expense line item that would be nonrecurring?

Nothing that we haven't already talked about.

Okay. Could you just talk about net interest margin's linearity through the quarter? What was the December net interest margin?

The December net interest margin was 3.75%, and I would tell you that we had a little heavier hit associated with a swap that we did to fix the interest on our TruPS. It kicked in on is there in December, so that really is the reason that December was less. I think if you normalize for that, you're a lot closer to the 3.79% that we recorded for the quarter.

We did a full commitment on that swap. We've got -- for the sake of the rest of the group about $32 million in trust preferred outstanding, and we did a forward commitment to lock that rate in at 4% for the next couple of years.

Unfortunately, as everybody is aware, rates moved down on us over the course of the last year. So we saw that cost increase somewhat to that 4%. So that is a little color around the December result.

So, based on remixing of a little bit of loan growth, some benefits on the funding cost side, would you hope to be in that 3.75%, 3.80% for the first half of the year? Is that a good mosaic to build?

I don't think that is outside of the realm of a reasonable range. I do -- would anticipate it being more to the low end of that, given where we finished fourth quarter and our comments around compression. But having said that, I mean I don't think you are too far off there.

Then taking into consideration the expense savings, we should be looking at -- what? $23 million to $23.5 million a quarter of non-interest expense? Is that correct?

If you normalize for some of the nonrecurring, and then also consider the other cost-saving initiatives that we have talked about, that doesn't sound outside of the range either. I really haven't -- really am not comfortable laying that out as the expectation. But I think if you, again, factor in some of the items that we talked about, we would expect that needle, if you will, to move down from what we experienced there in the fourth quarter.

Okay. One more P&L question and then I have something else on M&A. Effective tax rate going forward should be -- what should we be using for a go-forward tax rate?

Well, I think we were at 25% for the fourth quarter, and that certainly moved up some on us, as earnings have begun to normalize. I would tell you that as we continue to see normalization of our earnings, we would expect that rate to move closer to 30%, given the level of permanent differences that we have between book and tax.

So it is really somewhat linear to what you would consider to be a normalized level of earnings. So it will be somewhere between that 25% and 30% range if we do continue to see some lift in profitability.

Okay. Ed, I appreciate your desire to grow. I just -- we saw a transaction yesterday of a bank in Indiana that had TARP that went out at 1.20% at tangible book value. So if you afforded StellarOne, which is arguably a very clean and well-run institution, you afford that multiple to our Bank and shareholders would see about a 35% premium to where the stock is currently trading. You don't have a currency. You are trading below tangible book value.

I just don't understand the -- I am trying to circle the square here in terms of trying to understand why it is in shareholders' best interest that we go out and try to grow inorganically as opposed to maybe being more aggressive in returning capital to shareholders, and maybe perhaps even exploring whether StellarOne should become part of a larger organization itself.

We certainly have the best interests of shareholders at heart, and we certainly aren't going to go out and do something that we don't think is in the best interests of shareholders. So that doesn't omit the fact that we do have strategic and acquisition opportunities coming at us all the time, and that we are evaluating them. But clearly we will do them only if they make sense for us and are of the caliber and accretion that we are looking for.

So it makes sense for who? For management and the Board, or for shareholders? I mean --

Shareholders.

For shareholders?

Yes.

I mean, you talk about trying to get the valuation of the bank to reflect its true underlying intrinsic value. How do you intend on doing that?

Well, I can't sit here and answer that question just off the cuff, thanks. But clearly that is why we go out and examine all the opportunities in front of us to see if there is any way that we can do that. There is a lot of variations of that, and we have to examine them to see if there is any merit to any of them.

I wonder whether our interests are fully aligned in terms of the magnitude of ownership by management and the Board. I wonder whether your financial -- your net worths and financial wherewithal are exposed to bad decisions you may make in terms of trying to grow inorganically through acquisitions, especially when the stock price and the value of the Bank in the marketplace is so depressed relative to, again, intrinsic value, which is probably 35% to 50% higher than where the stock is currently trading.

So yes, I would urge you to perhaps explore alternatives and maybe perhaps become part of a larger organization. Or at least see what might occur if you went down that road. Thank you.

Thank you, sir. I see no further questions in the queue at this time.

Everyone, thank you for joining us and for your questions today. We appreciate your participation. This concludes today's teleconference.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a good day.