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Operator
Before we begin today's call, I'd like to remind you that this presentation contains forward-looking statements within the provisions of the Private Securities Litigation Reform Act of 1995 that are based on current expectations, estimates, and projections about the industry, market, and economic environment in which the Company operates. Such statements involve risks and uncertainties that could cause actual results to differ materially from the results discussed in these statements. These risks are detailed in the Company's annual report and Form 10-K filed with the Securities and Exchange Commission.
And now I would like to introduce today's call leaders, Mr. Mark Tryniski, President and Chief Executive Officer and Mr. Scott Kingsley, Executive Vice President and Chief Financial Officer of Community Bank System. Gentlemen, you may begin.
Mark Tryniski - President & CEO
Thank you, Betty, very much. Good morning, everyone, and thank you for joining our third-quarter conference call.
I'll start out by stating that I continue to be pleased with our earnings trends and our third quarter and year-to-date operating and financial performance. We increased earnings per share slightly over 2006 and over the first and second quarters of 2007 as well, despite the $0.24 per-share impact of lower net interest margins year to date. Similar to the first two quarters, we overcame the margin headwinds with organic and acquired growth, continued expansion of our non-interest revenue lines and exceptional asset quality.
An important trend in the third quarter that we are hopeful will continue is the slight but meaningful improvement in our core banking net interest margin, the first such improvement we have achieved since 2005. Loan yields continue to expand while deposit costs declined for the first time in 13 quarters. Core deposit growth remains strong with checking deposits up nearly $30 million in the quarter and up 9% organically over the trailing 12 months. Declines in time deposits and public funds in the quarter contributed to lower funding costs and an improved deposit mix.
Loan generation was mixed for the quarter after a strong second quarter for all our portfolios. We were able to grow our consumer lines, including mortgage and installment, by a 9% annualized rate over the second quarter, while business lending was down as a result of several large and unexpected paydowns.
We generated particularly strong non-interest revenues for the quarter, which were up 28% over 2006 with solid growth in banking fees and services, wealth management, and benefits administration consulting. Our benefits administration and consulting revenue alone was up nearly 70% due to both our May acquisition of Hand Benefits & Trust as well as 17% organic growth.
Asset quality continues to be at historically exceptional levels, resulting in reduced credit costs. I'll repeat what I said last quarter, which is that we believe this is partially due to a favorable economic and interest rate cycle, but also due to the substantial improvements we've made to our credit function over the past several years. We believe the structural strengthening of credit quality will continue to be evident even as the credit cycle turns downward. I would also add again that we have no exposure to sub-prime, Alt-A, option ARMs or any other higher-risk mortgage products, and that holds true for both our loan portfolio and our investment book.
On a related note, an August 22nd article in Business Week's online edition quoted our opinion that smaller banks like ours are legitimate value investment opportunities in the wake of the well-publicized mortgage lending crisis that has affected many of the nation's larger urban markets.
Our two recent acquisitions, Tupper Lake National Bank, which closed in June and Hand benefits & Trust, which closed in May, are both performing at or above expectations. For the third quarter, Tupper Lake delivered growth in nonpublic deposits and growth in commercial and home equity lending. Strong business development efforts are underway in those markets that we expect will continue to produce growth. Hand Benefits & Trust, based in Houston and part of our benefits administration business, is performing tremendously well with growing revenues, reduced operating costs and expected contribution to earnings of $0.02 to $0.03 per share in 2008. As we stated in the past, high-value acquisitions in both our banking and our financial services businesses continue to be an important element of our growth strategy, which has been further affirmed as a result of recent long-term strategic planning by our Board of Directors.
With that, Mr. Kingsley will give us a more detailed review of our third-quarter financial performance. Scott?
Scott Kingsley - EVP & CFO
Thank you, Mark, and good morning, everyone. Our third-quarter earnings of $11.03 million or $0.37 per share were $0.03 above the $0.34 reported in the second quarter of 2007 and $0.01 above the third quarter of 2006's results. Cash earnings per share, which exclude the after-tax effect of intangible asset amortization and acquisition-related market value adjustments, were $0.41 per share in the third quarter or $0.04 above GAAP reported results.
Year to date, cash earnings per share were $1.16, a meaningful $0.14 or 14% above GAAP results. Third-quarter results also included a full quarter impact of two acquisitions completed during the second quarter, Hand Benefits & Trust acquired in May and Tupper Lake National Bank acquired on June 1st.
As Mark mentioned, our acquired and organic balance sheet growth improved non-interest income generation, and exceptional asset quality more than offset the net interest margin contraction, resulting in improved earnings over last year's third quarter.
I'll first discuss the balance sheet. We improved our average earning assets to $4.22 billion, up $377 million from the third quarter of 2006 or 9.8% and $141 million higher than the second quarter of 2007. We grew average loans by $217 million from last year, including $83 million in business lending, $101 million in consumer mortgages and $33 million in consumer installment products. Our average investments were $[150] million above the prior year, demonstrating our current level of liquidity and an incremental short-term investment leverage strategy.
We increased average deposits to $3.32 billion for the quarter, up 7.2% from the prior year and $44 million above the second quarter. Our primary deposit gathering strategies continue to focus on core checking products. Average borrowings of $844 million increased $99 million from the second quarter, again reflecting the short-term investment leverage strategy initiated during the quarter. In addition, we continued to analyze the economic value of early redeeming all or a portion of our $50 million of variable-rate trust preferred securities issued in 2001 with interest rates above current market conditions. However, given the tumultuous credit market conditions experienced during the quarter, we have not made a final decision and will continue to evaluate this opportunity going forward.
On a linked quarter basis, we grew loans nearly $25 million or nearly 4% annualized. Organic consumer lending growth was 2.3% from the end of the second quarter or 9.3% annualized. Business lending outstandings declined $16.5 million from the end of the second quarter due to several unscheduled payouts and line paydowns. However, the risk profile of this portfolio actually improved quarter over quarter.
Our capital levels remain strong. Tier 1 leverage ratio stood at 7.67% at quarter end and our tangible equity ratio remained consistent with the end of the second quarter at 4.66% despite adding over $200 million in assets since June 30th. We also repurchased 233,000 shares during the quarter and have just over a million shares still available under our existing authorizations through December 2008.
Shifting to the income statement, our reported net interest margin for the third quarter was 3.56%, down 8 basis points from the second quarter and 31 basis points from the 3.87% in last year's third quarter. However, excluding the $200 million short-term investment leverage strategy just discussed, our net interest margin actually improved 5 basis points over the prior quarter to 3.69%. Margin results also included the impact of the three bank acquisitions we've completed since last August, which had generally lower net interest margin attributes than our historical averages.
Including the leverage strategy, earning asset yields were down 8 basis points from the second quarter of 2007 and the cost of funds remained at 2.99%. The short-term investment strategy not only produced positive net interest income and added to capital, but it also served to demonstrate our ability to freely access liquidity sources despite tightened credit market conditions.
Our loan loss provision for the quarter was $0.5 million compared to $0.4 million in the second quarter of 2007 and $1.3 million in last year's third quarter. Charge-offs for the quarter were $753,000, a favorable comparison to the $1.1 million reported in the third quarter of last year and consistent with the very favorable results experienced in the first two quarters of 2007.
Our loan loss allowance to total loans outstanding stood at 1.31% at quarter end versus 1.33% a year ago. This small decline in coverage ratio is due to the improved underlying credit profile of our portfolios and also includes the lower coverage ratios on our acquired portfolios. In addition, our coverage ratio of non-performing loans increased to 388% at quarter end because of meaningful reductions in non-performing assets.
Quarter-end non-performing loans to total loans outstanding were at 0.34%, an improvement from the 0.47% level reported at the end of last year's third quarter. This favorable and stable asset quality profile is primarily the result of our credit risk management programs and continued emphasis on and adherence to disciplined underwriting standards.
Non-interest income was up 28% over the prior year. Our employee benefits administration and consulting businesses increased revenues by 68% over the last year's third quarter, including acquired and organic growth. Deposit service fees and other banking revenues increased 14% over last year, driven by additional account relationships and growing debit card related revenues. Our wealth management businesses, including our property and casualty insurance agency, grew revenues by 20% over the third quarter of 2006.
Operating expenses, excluding special charges and acquisition expenses, increased 15% above the third quarter of 2006, mainly because of the four acquisitions completed since last August. Other increases in operating expenses reflect our continued investments in strategic technology and business development initiatives.
Our effective tax rate was 24.3%, consistent with the 24.4% reported in the third quarter of 2007. The proportion of tax-exempt income to total income continues to be the primary planning vehicle affecting our tax rate. I will now ask Betty to open the lines for any questions.
Operator
(OPERATOR INSTRUCTIONS). Damon DelMonte.
Damon DelMonte - Analyst
I was wondering if you could provide a little insight as to what your thought process was with the short-term leverage program. I know we have had a somewhat normal sloping yield curve, but with the actions taken by the bank over the last call it six to eight quarters of improving your interest rate position, kind of what you guys were thinking when you put on this $200 million program.
Scott Kingsley - EVP & CFO
That's a reasonable question, David. I think what -- the first part of it in the first part of your question, which was if you think about where we were in and around the end of July, there was actually some noticeable slope to the yield curve. So we thought that there was an opportunity to leverage the capital, and quite frankly, we knew where we were in terms of organic balance sheet growth at that point in time because there was an opportunity to put some additional assets on the books with a meaningful impact to both earnings and capital. And, quite frankly, do that with short-term investments, effectively for us, discounted agency notes were the investment vehicle we went into. And that was funded by some six-month non-call paper, where we thought that there was at least 100 basis points of opportunity.
Given where current interest rates are, we currently would think that that is a short-term strategy, in other words, that that strategy could roll off the books as early as early January. But from a practical purpose, if at the end of the day we ended up with some of that funding for a longer-term, Damon, we didn't think we would be disadvantaged with 4% funding going out a little ways.
Damon DelMonte - Analyst
Okay. And is there any type of lockups if you go to unwind this position?
Scott Kingsley - EVP & CFO
No, there's no penalties. It's effectively, Damon, I think a ten-year non-call six-month instrument, is the debt position. So if rates happen to be below where our boring rates were, in theory they would probably not be called, but I don't think we quite frankly understand all the dynamics that lead to whether that's actually a called security or not. So we feel pretty comfortable, again, that if indeed it was not called in January, we have opportunities to redeploy that positively.
Damon DelMonte - Analyst
Okay, and was the impact of the margin the entire 13 basis points? You reported 356 I believe and you had said the organic margin would have been 369?
Scott Kingsley - EVP & CFO
Right, and I think in Mark's comments, we got a little bit of lift from "core asset yields" actually did continue to improve in the quarter. And we actually had a small decline in the cost of deposits in the quarter.
Damon DelMonte - Analyst
Okay, and how much of this quarter's earnings can you attribute directly to the program?
Scott Kingsley - EVP & CFO
Less than $0.015.
Damon DelMonte - Analyst
Less than $0.015? Is that what you said?
Scott Kingsley - EVP & CFO
Correct.
Damon DelMonte - Analyst
And just two more quick questions. The loan loss reserve that you mentioned, came down to I think it was 1.31%. Do you guys have a target for that, just to kind of help frame the provision level going forward?
Scott Kingsley - EVP & CFO
David, I don't know that we have a target in terms of a pure number. I think we've had a pretty consistent track of sort of being in and around that 1.30% level. I think any time we've seen a movement when we've acquired some of these small banks, we typically inherit coverage ratios that are a little lower than what our core numbers have historically been. But I think in terms of in and around that 1.30% level is not a bad "targeting rate" for purposes of a model. But at the same point in time, I will say this, despite the fact that the coverage ratio went down, we added dollars to our unallocated reserves in the quarter. That's the impact of the underlying credit profile improvement.
Damon DelMonte - Analyst
Okay. And one final question. In the non-interest expense categories, actually the other non-interest expense, that number was $9.7 million this quarter. Anything one-time in nature we could exclude from our models or is that a good run rate going forward?
Scott Kingsley - EVP & CFO
Well, Damon, I think that there are some small things because of the transition with Tupper Lake National Bank and Hand, where we are spending some money, system improvements and some things that we are doing all at once that on the standard core business we would probably spread those out over a full year. But I don't think it's terribly significant in terms of trying to project on a going forward basis for modeling purposes.
Damon DelMonte - Analyst
Okay, great.
Mark Tryniski - President & CEO
I would add I think if you look at the growth there relative to the prior years, there's two things that if you get more granular about it, jump out. One is the technology lines. We've made some investments in technology over the last few years, the last couple of years -- branch technology, image capture technology, a new lending platform, and I think we just felt we had a little catch-up to play maybe in terms of current technology. We've made that investment so our run rate in terms of the technology in the related processing cost is running a bit higher than it was 12 months ago.
The other is sales and marketing and business development costs are also running higher than they were 12 months back, about probably 600,000 a quarter higher. A lot of that is the investment in the core deposit growth initiative that we undertook in 2006, which is certainly paying dividends and achieving our expectations. As I said, our core deposit -- our checking -- just our checking -- non-interest-bearing and interest-bearing checking balances are up 9% organically in our markets over the trailing 12 months. So we fully believe that that investment has achieved the desired result and the value that we expected from it. And so that really accounts for the -- what would appear to be a higher run rate than what you might expect if you look back 12 months in the other operating cost line.
Damon DelMonte - Analyst
Okay, great. Thank you very much.
Operator
(OPERATOR INSTRUCTIONS). David Darst.
David Darst - Analyst
Mark, when you are discussing the expenses, do you feel like you've got some more cost savings that you can get out of Tupper Lake or the investments that you're making going to offset those?
Mark Tryniski - President & CEO
Tupper Lake was $100 million acquisition, David. And the only employees remaining there are tellers, branch managers and lenders. There is one individual who is in operations that took a position with us in operations; it was an open position. So we've effectively taken out the costs out of that acquisition that we expected to take out.
Scott Kingsley - EVP & CFO
David, I will make a comment too that as the benefits administration business continues to be a bit more profound piece of our non-interest income generation, that comes with typically higher operating expenses than maybe the core banking environment. And let me give you a little bit more flavor for that.
To the extent that the financial services businesses for us probably average an efficiency ratio of 76, 77%, in fairness, we will take as much as that revenue at that sort of 23 to 25% margin as we can get because, as you appreciate, it comes with very, very little capital outlay. And because quite frankly there's very little assets involved. And so that -- I think we're going to start to see is, from a granularity standpoint, we will probably have to start explaining to people the difference between "the core banking efficiency" and what we are actually seeing on some of these non--banking businesses.
Mark Tryniski - President & CEO
You look at those revenues now at 31% of total revenues, it's gotten significantly sizable that going forward we've discussed breaking out the efficiency ratio between banking and financial services for that exact reason. I think we haven't broken it out this quarter in the release, but I think that the banking efficiency ratio is 58%, Scott is that right?
Scott Kingsley - EVP & CFO
Right.
Mark Tryniski - President & CEO
And so there's a sizable distinction there, an impact, that because of the growing significance, this financial services is blank. So we probably will break that out going forward.
Scott Kingsley - EVP & CFO
And David, I will add this just in terms of some modeling purposes for you guys, that our FTEs from the end of last September, full-time equivalent employees, are actually up 115, completely related to the acquisitions. Actually to the extent that we've had incremental adds to our financial services businesses, we've actually found offsets in the core banking business. So when one plays into effect the impact of the three acquisitions that closed since the end of last September, you can anoint all of the headcount change to those three deals.
David Darst - Analyst
Okay, thanks. How do you feel about your banking -- your pipeline and economic growth in your markets? And I know everybody is focused on credit quality. That's been a positive trend for you, but maybe if you could just give us a little more detail about the economic growth and the economic market, economic aspects of your market.
Mark Tryniski - President & CEO
Sure. I think as I said, the last several quarters have been pretty strong for us in terms of our consumer lines, the mortgage business has been strong. The home equity business has been strong. The consumer installment business has been strong. I think the commercial lines is where we've had to do more work to get traction. And we did have some sizable unexpected, paydowns as Scott and I, I think, both mentioned that portfolio in the third quarter. So that the pipeline wasn't bad coming into the third quarter in terms of new business opportunities that were effectively converted, but there were some paydowns that were just unexpected.
And frankly some of those were third-party equity takeouts of substandard loans. So that's also, to get back to the earlier question that Damon had relative to asset quality, it actually improved the credit risk profile of the commercial portfolio.
So that's where we're trying to put a little bit more emphasis in terms of business development efforts. We are looking at some technology, some additional resources in certain markets to try to capture greater market share there. So the consumer lines have continued to do well. The commercial lines have been where we focused more effort.
I think in terms of the market opportunity and economics, I think they continue to remain reasonably favorable. We think we have opportunity. We think we're doing a decent job in some of our markets, in some of our business lines, capitalizing on those opportunities. As everyone knows, our markets are not as volatile as other markets. And so it's lower growth, but it's steady growth and we think we've gotten our share of that, particularly on the deposit side. As I said, 9% organic growth in checking balances. So I think when we focused our efforts on achieving results, we've been successful in our markets despite the moderate growth opportunities that exist.
One thing I will say relative to the Tupper Lake acquisition, Tupper Lake has two branches in Plattsburgh, New York, which is in the very northern, northeast corner of New York State. There's a lot of economic activity there. We put a couple of lenders on the ground there. We've put in place a very what I think is high-powered advisory board of local community and business and political leaders that's helping us to go after the market there. So we think we're doing all the right things in those markets and we think we have some good opportunity, David.
The pipeline is actually pretty good going into the third quarter. I think actually the third quarter -- I don't have it in front of me, but I think the third-quarter pipeline is larger than the second-quarter pipeline, which is good news. So I think we continue to have those kind of opportunities on that scale but nothing that's going to be a double-digit kind of opportunity for us just given the Northeast markets that we are in.
David Darst - Analyst
Okay, thanks. And how about your [eloquent] acquisitions, are they -- do you think you will get a couple more done in the next 12 months or are you going to slow down for awhile?
Mark Tryniski - President & CEO
Well we continue to look at opportunities, David. We've also determined to be a little bit more proactive in terms of identifying more specifically those opportunities that would be the right fit for us and being a bit more as I said proactive and aggressive in maybe pursuing some of those opportunities.
But we think the market is pretty good. As you know, everyone looks at the earnings releases; the environment is not an easy one right now. The credit quality cycle seems to be turning a bit, as evident in the earnings releases of a lot of our peers, particularly the big banks. But the margin headwinds that we always refer to continue to blow reasonably strong, although, as I said, this quarter was the first time in a long time that we got expansion in our core margin. So I think there continue to be opportunities. We continue to see opportunities. We continue to pursue those opportunities. I do think they need to be high value. We're not going to do an acquisition that doesn't make good sense for us. We think our track record over the last several years has been very good in terms of the accretive impact of the acquisitions.
We're going to continue to look also at the financial services businesses, in particular the benefits administration business, which has very strong and has had I think 15% growth rate for the past nine or 10 years or so. We expect to continue to get actually a growth rate like that organically into the future. We'll probably look for additional opportunities in that business to expand our presence similar to the way we did with the Hand Benefits & Trust transaction.
Scott Kingsley - EVP & CFO
And Dave, we're getting opportunities because of that transaction. And because I think we're now showing up on some people's screens relative to a potential acquirer. Whether they be benefit administration companies like Hand that had a couple different service lines or they would just be straight TPA opportunities, we're seeing a little bit more of that. In other words, we're getting some inquiries from people who I don't think had us on their list of likely candidates in the vest.
Mark Tryniski - President & CEO
I think the other thing I will say about that business line is that it's right now a -- what's the run rate on that business, Scott, annualized?
Scott Kingsley - EVP & CFO
24.
Mark Tryniski - President & CEO
Pushing 25 million. It's gotten sufficiently sizable and not just the revenue stream, but also the depth and the breadth of the service offerings that we are now getting opportunities in that business to look at customers and clients that are kind of the next level up, larger client opportunities, larger revenue opportunities. So we think that's a good thing as well.
And, in fact, the Hand Benefits & Trust, we think that the backing of a well capitalized, well performing New York stock exchange traded bank has added some credibility in terms of their ability in the marketplace to go out and capture new business. So that's a business that we like a great deal; has performed very well for us historically and we will continue to pursue growth in that space as well.
David Darst - Analyst
Okay, thanks.
Operator
John Stewart.
John Stewart - Analyst
You guys have both referenced a couple of times large commercial prepays in the quarter. I guess I'm just curious if you could help kind of help us understand the magnitude of those prepays. And then in addition to the equity takeouts of the substandard loans, kind of what you think is driving some of that?
Scott Kingsley - EVP & CFO
John, just in terms of the size scenario, we had actually done a little bit of some summaries on a handful or a little more than a handful of credits that paid off because the company was either sold or there was an equity infusion. That added up to about $15 million across a handful of credits.
And I will say this, that about $6.5 million of that 15 came at a credit profile that quite frankly we were not that disappointed when we were taken out of the transaction or when we were taken out of the capital portion of those people's balance sheets. And quite frankly, as Mark mentioned, some of that equity infusion was because it was, quite frankly, a credit situation that had been difficult or challenging for our customer.
In several of those cases, we are still quote -- they are still customers of the bank; they just aren't quite as large a borrowing customer as they were six months ago or three months ago.
Mark Tryniski - President & CEO
Yes, and as I look at that list, there's a couple that make the top five that are continued customers in the construction business, for example, to look at one customer, and it's just seasonality of cash flows. In fact, some of those have already -- in the first two weeks of the fourth quarter, already gotten back into their lines.
So I just wanted to make sure that you understood that some of that 15 million that Scott quoted was also ongoing customers, and they were just the seasonality of paydowns, but it was more than we expected. And as I said, the pipeline was pretty good coming into the third quarter. We did have some good new business generation and we got some surprises on a number of fronts that were unexpected.
Scott Kingsley - EVP & CFO
John, we're really not seeing new participants in our market in terms of new money entering the market. As a matter fact, I think the general consensus is that some of the non-banking enterprises that had been a little bit more aggressive in our marketplaces have found that they don't have the same level of liquidity they had six months ago, so their participation, if anything, is probably in a downward trend. I think we've had isolated instances, where we think some of our smaller competitors have stepped a little deep from a structural standpoint, but I don't think that that's an overriding consideration or those impacts weren't that profound.
John Stewart - Analyst
Okay. And then just as a follow-up to that, in terms of what you would classify as more than expected, what would be the associated prepayment penalty fees or interest-free capture or whatever it is that flowed through NII this quarter?
Scott Kingsley - EVP & CFO
It's a reasonable question. I don't think it was enough to -- it certainly was not something that we would measure at the $0.015 per share level. And in fairness to the extent that some of these were business relationships where there was an equity infusion in lots of cases we probably didn't achieve much in terms of prepayment penalty.
John Stewart - Analyst
Okay.
Scott Kingsley - EVP & CFO
A lot of times the prepayment penalties tend to be targeted more toward a straight takeout by another financial institution as opposed to an equity infusion or an ownership change.
John Stewart - Analyst
Okay, so there was no material amount --?
Mark Tryniski - President & CEO
No, certainly not material.
John Stewart - Analyst
Okay, great. Thank you.
Operator
(OPERATOR INSTRUCTIONS). Rick Weiss.
Rick Weiss - Analyst
Good morning. Just to look at, follow up on the asset quality -- has there been any changes on the internal watch-list for you?
Scott Kingsley - EVP & CFO
In terms of our credit scoring, in terms of our risk-grading mechanics, certainly no changes. I think it's pretty evident during the quarter that we had a couple loans that were to the higher level of risk acuity that are no longer in the institution at the end of the quarter, so we probably did "benefit" on the credit cost side from some of those actually not being there. But other than that, Rick, I think we, again, we just took the improvements that we put in over the last two or three years are still showing up in our results.
Rick Weiss - Analyst
That sounds great. And just because I've probably asked this every quarter, any major differences between your Pennsylvania and your New York markets?
Mark Tryniski - President & CEO
Well, I think there's some fundamental market differences in terms of just the size of the markets. The two biggest markets we're in are Scranton and Wilkes-Barre in Pennsylvania. Those are the two largest markets we're an across our footprint. So there are still differences that are created just by virtue of difference in geography and the size of those markets.
I would say in terms of demand, they are reasonably similar. There are certain markets in New York which have great opportunity for us and have been very robust. There's others that haven't had the same opportunity. I would say the same thing holds true in Pennsylvania as well. I will say, Rick, that I think because the markets are bigger, the average size of the opportunities tend to be correspondingly larger as well, which is what you'd expect when you're doing business in towns of varying sizes. But beyond that, I think the economic environment is reasonably similar and I think we've proven that we can generate assets and generate core deposits in both of those markets.
Scott Kingsley - EVP & CFO
Rick, I'll go back, if you let me, to your first question, just in terms of a little bit more granularity or transparency here for you. In all of 2007, we've had 15 residential foreclosures -- 15 with a total value of under $850,000 in total. That compares to 26 residential foreclosures in all of 2006. We've had two, two, home equity charge-offs in 2007, totaling under $70,000. And currently we're managing 16 ORE properties, of which only six of those came from residential real estate foreclosure. So in fairness, that activity has been phenomenal for us and the results have been so -- have trended so well for us that we believe that there is probably a little bit of momentum still left in that business.
Mark Tryniski - President & CEO
I think that the watch-list question, Rick, was a sense of the future. If you look at the charge-off and the declining charge-off ratios over the last couple of quarter -- couple of years, last eight quarters or so and you look at the non-performers also coming down, as you know, the non-performing trend tends to be a leading indicator to charge-offs and our non-performers actually continue to decline. So we are very satisfied with our asset quality and very satisfied with what we see into the, at least foreseeable future.
Rick Weiss - Analyst
Okay. Thank you very much.
Operator
(OPERATOR INSTRUCTIONS). David Darst.
David Darst - Analyst
Just one more quick question. What are your thoughts on additional leverage strategies? And what would you do to your capital level or tangible equity to try and achieve those?
Scott Kingsley - EVP & CFO
David, I think that historically, and I say this over multiple interest rate cycles, I think we've demonstrated that we have a pretty high acumen on the investment side. So if it's been -- if there's been an opportunity to leverage the balance sheet in low rate environments, in high rate environments or mid environments, we've been pretty successful at doing that.
I also think we made the comment that the tangible equity ratio for us at the mid 4's, although that may be slightly lower than some of our peers, does not feel like for us that there's any negative associated with that at all. That being said, I don't think we would go to great lengths to take that tangible equity ratio down significantly just for the purpose of investment leverage, although I think we've said out loud before if the right banking transaction came along, we would not be inclined to not look at something because it had a relatively robust impact on the tangible equity ratio.
Because again, I think we've said this a couple different times, the tangible equity ratio for us is just a measurement item that a lot of people like to measure. As more purchase accounting transactions take place, I think that's going to become less meaningful. And quite frankly, as everybody knows, it's not a regulatory ratio of any substance. And quite frankly, we never seem to get a question about our tangible equity ratio when it comes to capital raising efforts. So I think we think it is what it is, David. I think we will continue to look at that -- the yield curve and whether that's going to actually steepen a little bit more and continue to analyze whether there's opportunities there to be fully utilizing the capital.
David Darst - Analyst
Okay, thanks.
Operator
Damon DelMonte.
Damon DelMonte - Analyst
Just one quick follow-up question. Scott, could you tell me what the stock option expense was for the quarter?
Scott Kingsley - EVP & CFO
I could. Ask Mark something else while I'm looking.
Damon DelMonte - Analyst
How's the weather up there?
Mark Tryniski - President & CEO
Same as always, 80 and sunny.
Scott Kingsley - EVP & CFO
Bear with me. David, it looks like FAS 123 expense for the quarter, about $450,000.
Damon DelMonte - Analyst
Great. Thanks a lot.
Operator
Thank you. (OPERATOR INSTRUCTIONS). It appears we have no other questions.
Mark Tryniski - President & CEO
Very good. Thank you, Betty, and thank you all for joining us and we will see you again next quarter. Thank you.
Operator
That concludes today's conference. Thank you for participating. You may now disconnect.