使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主
Operator
The following 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, markets 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.
Today's presenters are Mark Tryniski, President and Chief Executive Officer, and Scott Kingsley, Executive Vice President and Chief Financial Officer of Community Bank System. Gentlemen, you may begin.
Mark Tryniski - President and CEO
Thank you, Betty. Good morning, everyone. Thank you all for joining our fourth quarter conference call. Scott will discuss fourth quarter results, so I will comment first on 2009 as a whole and ask Scott to give some more detailed financial results; and then I'll follow up with some thoughts on 2010.
For fiscal 2009, excluding the increased FDIC costs and non-operating charges that Scott will discuss further, operating earnings were up $0.01 per share. That's not so bad a core performance in a declining economic environment, but we were hoping to do a bit better against the $0.16 per share increase in FDIC deposit costs.
Excess liquidity was a drag on margin and our Wealth Management Benefits Administration businesses were down $0.05 a share. Asset quality held up quite well throughout the year, but the underlying metrics trended downward, consistent with economic conditions. We originated a record volume of home mortgages in 2009, and our business banking portfolio was up over $20 million, so it was a better year for loan generation than we expected at this time last year.
Core deposits grew by 22%, with time deposits declining 19%, further improving our funding profile. The performance of the former Citizens branches in northern New York acquired at the end of 2008 was very strong, with growth in both core deposits and loans since the date of acquisition.
Beyond the numbers, we were ranked for the third straight year by JD Power and Associates as one of the top 10 banks in the country in customer satisfaction. We were also recently recognized by Forbes magazine as the seventh best-performing bank in the country, over $5 billion in assets, based on operating performance, asset quality and capital levels. We are pleased with this recognition and with our 2009 performance, all of which we believe reflects the underlying discipline of our operating model and financial strength of the Company. Scott?
Scott Kingsley - EVP and CFO
Thank you, Mark, and good morning, everyone. I'd like to make a few remarks on the fourth quarter as a follow-up to the items Mark just covered.
First, as mentioned in our release, the Company's fourth quarter results included two special charges which, together, reduced reported earnings by $0.10 per share. We recorded a $3.1 million non-cash goodwill impairment charge, or $0.07 per share, in our Wealth Management businesses, a result of continued compression on asset management fees and the result of [and expected] impact on operating margins.
After the charge, remaining goodwill in the affected reporting unit is approximately $2.5 million. We also recorded a $1.4 million or $0.03 a share charge related to the planned early termination of our existing core banking system services contract. As we've mentioned before, we expect to complete the implementation of a new core system and its related suite of products by the end of the third quarter of 2010.
Our fourth quarter of 2008 also included three atypical items which combined to reduce last year's earnings by a net of $0.02 a share. Excluding these items from both year's fourth quarter results, produces an operating result of $0.38 per share in both 2009 and 2008. However, the Company's FDIC insurance assessments in the fourth quarter of 2009 of $1.5 million were $0.02 a share greater than the expense incurred in the fourth quarter of 2008.
On a full-year basis, excluding the fourth quarter items previously mentioned, and the additional $0.16 a share of FDIC insurance costs, 2009 results were $0.01 per share above both fiscal 2008. Cash earnings per share, which excludes the after-tax effect of the amortization of intangible assets, acquisition-related adjustments and goodwill impairment, were $1.53 a share for the year, a full $0.27 per share above GAAP reported results. This differential should continue to be a meaningful value driver for our Company, especially at a time when valuations seem to be so focused around tangible common equity ratios.
I'll now discuss some balance sheet items. Our business lending portfolio increased $14.3 million in the fourth quarter or 5.2% annualized, despite generally soft market demand characteristics. While acknowledging some additional increases in nonperforming loans, this portfolio's overall asset quality results remain solid. Fourth quarter and full-year business lending net charge-offs were at 0.28% of total business loans.
Our consumer mortgage portfolio was up $11.7 million from September but still down $34.1 million from last December, reflective of our continuing decision not to portfolio lower rate longer-term assets, and instead, sell $176 million of our originations in 2009 to Fannie Mae. Asset quality results continue to be very favorable in this portfolio, with total net charge-offs in 2009 of $470,000 or under 5 basis points of loss.
Our home equity portfolio of approximately $319 million declined by approximately $16 million in 2009 and was also likely influenced by low long-term mortgage rates. In addition, we did again experience lower line utilization in the fourth quarter, indicative of our customers' desire to continue to delever, despite the low rate environment. Asset quality results continue to be very favorable from this portfolio also, with very low loss rates consistent with our consumer mortgage portfolio.
Our consumer indirect portfolio of nearly $527 million was also down slightly from September, and reflected another difficult quarter for most participants in the automotive industry, as well as the expected seasonal slowdown in demand in our markets. A byproduct of very low new-car vehicle sales has been an improvement in used-car valuations, where the largest majority of our lending is concentrated.
Net charge-offs for the last six quarters have been around 57 basis points, which is higher than we experienced for the six quarters ended June 30, 2008, but still reasonable and manageable levels. With our bias towards A&D paper grades, yields have remained very consistent.
Quarter-end deposits were up $36 million from September, comprised of $133 million increase in core accounts and a $97 million reduction in time deposits. Core accounts now represent nearly 70% of total deposits at December 31, 2009, a continuation of a very favorable funding mix change we work diligently at. Quarter-end investment assets increased just $6 million from the end of the third quarter, while invested cash equivalents of $258 million were up $13 million from September 30, remaining at levels noticeably above historic norms.
Our capital levels in the fourth quarter remained strong. The tier 1 leverage ratio stood at 7.39% at quarter-end, and tangible equity to net tangible assets was 5.20% at quarter-end, a 46 basis point improvement from last December. Net unrealized gains in our investment portfolio at quarter-end were $13 million, despite the carrying value of our Level 3 investment assets, which is almost entirely comprised of pooled trust preferred securities, being nearly $27 million below book value.
The valuation of these assets continue to reflect marketed interest rate volatility as well as the absence of an active market for these types of securities. Despite continued increases in the interest, deferral and default rates of collateral and [R pools] in 2009, our holdings, which are super-senior, continued to fully perform.
Shifting to the income statement, our reported net interest margin for the fourth quarter was 3.86%, up 8 basis points from the third quarter of 2009, and even with the fourth quarter of 2008. Proactive management of funding costs continue to have a positive effect on results; but as we have previously mentioned, quarterly earning asset yields were again constrained by our hard level of net liquidity.
Fourth quarter non-interest income was up 15.4% over the prior year. Deposit service fees increased 18% over last year, derived from the branch acquisition completed last November and our organic core deposit growth over the last several quarters. Mortgage banking revenues were above the third quarter of 2009, but were lower than those generated from the very robust secondary market activities experienced in the first two quarters of the year.
Our Employee Benefits Administration and Consulting business posted an 8.8% increase in revenue over the fourth quarter of 2008, a combination of new client generation and favorable year-over-year comparisons in asset-based fees. Fourth quarter Wealth Management revenues increased 23.5% from a weak fourth quarter of 2008, reflective of favorable market comparisons and generally improving conditions.
Operating expenses, excluding goodwill impairment, and acquisition expenses and special charges of $45.7 million, included an additional $0.9 million of FDIC insurance assessments compared to the fourth quarter of 2008 or $0.02 per share. Excluding the higher assessments, operating expenses increased 9.7% over the fourth quarter of 2008, reflective of the operating costs of the 18 branches purchased last November; higher pension costs related to the unfavorable investment performance of underlying assets in 2008; as well as some fixed asset write-downs related to certain consolidation activities.
On a linked quarter basis, operating expenses, excluding the aforementioned special charges, increased $1.6 million and included nearly $700,000 of fixed asset-related charges and write-downs; higher OREO-related costs related to the timing of some required property tax payments, as well as the existence of a reasonable size recovery in the third quarter; and over $200,000 of activity costs related to our core systems' implementation projects.
Our effective tax rate in 2009 was 21.9%, reflective of our current mix of non-taxable and fully taxable securities, compared to a full year rate of 19.0% in 2008, which included a $1.7 million, or $0.05 per share, fourth quarter benefit related to settlement of certain previously unrecognized tax positions.
I'll now turn it back over to Mark for some closing comments.
Mark Tryniski - President and CEO
Thank you, Scott. Looking forward, 2010 will be a year of managing known opportunities and challenges. Economic position, although decidedly better in our markets than most regions of the country, will continue to be a headwind against asset quality and loan generation.
The unfavorable impact of Federal Reserve regulations regarding overdraft programs that take effect July 1 will require active effort to mitigate -- an effort we're already engaged in. We're also fully immersed in the effort to convert our core banking systems effective early September, which will require a tremendous amount of time and attention on the part of our leadership team and others across the Company for the remainder of 2010.
Despite these challenges, we're well-positioned for a strong 2010. We expect some margin improvement resulting from lower funding costs and liquidity deployment, part of which has been affected over the past month and a half. Our asset-sensitive balance sheet is positioned for any rate increases which may develop in 2010. We expect a flat or better cost structure resulting from a $5 million to $6 million cost reduction program substantially implemented over the past quarter.
Our Wealth Management and Benefits Administration businesses should show considerable improvement in 2010, as foreshadowed, we hope, by their very strong fourth quarter performance. Overall, 2010 will be a year of managing known challenges and capitalizing on known opportunities, and we remain well-positioned to continue generating value for our shareholders.
And we would be happy to take any and all questions.
Operator
(Operator Instructions). David Darst.
David Darst - Analyst
Could you tell us which acquisition the [middle] impairment charge was related to?
Mark Tryniski - President and CEO
It was Nottingham Advisors, which was acquired in 1999, I believe.
David Darst - Analyst
Okay. Was a portion of Nottingham -- did they have any benefits BPA Administration business, if at all?
Mark Tryniski - President and CEO
No. It's a pure institutional wealth management business, David.
David Darst - Analyst
Okay. Got it. And then you indicated that over the past, I guess, month and a half, you were making some changes. Was any of that done on the investment portfolio side? Or was it all on the deposit funding side?
Mark Tryniski - President and CEO
No, we've made some investments over the past month and a half that I referred to on the investment security side as well. A lot of it's in the treasury markets in the seven-year maturity range, and it's in the $150 million or so range at this point, David.
With that said, there's also been some runoff in the portfolio, so the net growth in that particular earning asset is less than that. But we have started to deploy that excess liquidity -- in fact, in an opportunistic point in the market here within the past month. And the market's backed down a bit, so we'll wait for the right time to strike again; but we've started that exercise.
David Darst - Analyst
Okay. So would that -- would those yields be in the mid-3's?
Scott Kingsley - EVP and CFO
Pretty close, David. Maybe a little bit below that. (multiple speakers) We're pretty close.
Mark Tryniski - President and CEO
Right.
David Darst - Analyst
Okay. What would be or what do you consider your liquidity balance then today? If we take the $150 million out of the $360 million?
Scott Kingsley - EVP and CFO
David, you're pretty close on the math; we're pretty close to $200 million -- which, again, for us historically, because we've always been basically a small [net forward] at the end of the day, that's a position that's a bit higher. Again, to Mark's point, I think we'll look for some other opportunistic times.
We like that asset class, David; sort of, you know, we like it for its risk weightings but we sort of like it for its duration. And we've also been able to look at that and project out where we will be from cash flows in the portfolio in its entirety over the next one to three years. And we feel pretty comfortable we could deploy a pretty good piece of that in that treasury security assets in that five to seven-year maturity window and be comfortable with the outcome.
We've also tried, David, on the liquidity front to push down deposit rates pretty aggressively to try to prevent a buildup of that surplus liquidity. And our -- I think we've been relatively aggressive. If you look at our deposit -- our cost of deposit funding for the fourth quarter was 97 basis points. So we've -- I think we've done a pretty good job of pushing rates down yet the core deposits continue to grow -- which is not a bad thing.
I mean, we're certainly going to like that in an environment where interest rates are rising and we've got an asset-sensitive balance sheet. So that's why I say I think we are well-positioned in terms of our balance sheet as we can be at this point.
David Darst - Analyst
Okay. So then how should we incorporate this into a rate view? I mean, do you think we're going to see some modest lift in the intermediate and the long portion of the curve early in the year and that's all? Or do you -- would you -- or do you have a view that maybe you should hold more liquidity? Or do you have some maturities in the late of 2010 that you would like to keep investing?
Mark Tryniski - President and CEO
Well, the question about where do we think rates are going, I have little answer to that. It's -- that's going to be difficult to judge. I think we've clearly been in an environment here because of the economics, and the political support of the economy in different ways through interest rates and through quantitative easing and the like. So it's difficult to predict when and where the rates might go.
I think what we've done is try to position our balance sheet through the gathering of core deposits over the last several years for a return to an environment where you've got a more historically normalized interest rate environment.
David Darst - Analyst
Okay. And then what's the amount of deposits or borrowings or CDs and borrowings you'd have maturing over the next six months?
Scott Kingsley - EVP and CFO
David, after the call, we could probably get you our expected CD maturities over the next six months. But needless to say, there are no long-term instruments in the CD portfolio either. I mean, over the last couple of years, I would guess that the average CD, to the extent that we're even renewing CDs, is in the 12 to 15 month range on average, so.
David Darst - Analyst
Okay. So you've gotten as much benefit there as you can?
Scott Kingsley - EVP and CFO
I think so. I think we'll probably see some continued benefit for the next two quarters, David, but it will be much more modest in the sort of the 10 to 12 basis points we've been getting every quarter this year.
David Darst - Analyst
Okay, thank you.
Operator
Jason O'Donnell.
Jason O'Donnell - Analyst
Nice quarter. I just wanted to touch on a couple of things here. It looks like your cost of deposits came down about 14 basis points relative to the third quarter. I'm just wondering what product classes are giving you the benefit and do you think this trend is sustainable into the first quarter?
Scott Kingsley - EVP and CFO
Yes, Jason, almost the entirety came out of the CD portfolio to the point that we previously made to David. There's certainly not as much opportunity for the next two or three quarters going into 2010 just because the expiring rates aren't as high as they were for most of 2009 compared to what the new rates are.
I think the opportunity will continue to be that the consumers think about the rate structure of the CDs being low enough to where they continue to have excess liquidity themselves, and leave it in money market arrangements or savings or checking arrangements. So that would be -- in my mind, that would be more of a lift opportunity for us; because, in fairness, in most of our marketplaces, you have to search high and low to find an attractive CD product.
Jason O'Donnell - Analyst
No, that makes sense. Okay, great. And just real quick on the securities book, can you give us what the average duration or maturity is on your securities portfolio?
Scott Kingsley - EVP and CFO
Yes, it's just over four years.
Jason O'Donnell - Analyst
Okay. And is a portion of that attributable to the trust preferred exposure?
Scott Kingsley - EVP and CFO
That would be a little longer than four, Jason.
Jason O'Donnell - Analyst
But ex the true-ups, it's probably something closer to three or --?
Scott Kingsley - EVP and CFO
No, Jason, actually, it doesn't move the needle because remember the true-ups are being carried at $50 million on a $1.5 billion portfolio so it hardly moves the needle.
Jason O'Donnell - Analyst
Okay. And those are all pooled? There are no single issue?
Scott Kingsley - EVP and CFO
No single issue.
Jason O'Donnell - Analyst
Okay, thanks. And then, finally, I guess, mortgage banking revenues, it's a smaller piece but they were up noticeably on a linked quarter basis. I'm just wondering that kind of runs counter to the industry trend that we're seeing. Can you just give us an update on what's driving that and what your resi mortgage strategy is, more generally?
Scott Kingsley - EVP and CFO
Sure. You're exactly right. That was a little bit higher than even probably we had been forecasting. I think that generally in the field we did a pretty good job closing up the year from an origination standpoint.
The part of the public that we service in our marketplaces -- some of the tax programs out there for $8,000 new home buyer, $6,500 on a change -- are very meaningful when your average size mortgage is $110,000 or $115,000. So we think our people pushed a lot through the system to finish up the year. I think that's probably a little bit higher number than we've projected on a quarterly basis for 2010, Jason.
Our strategy continues to be selling most of the 30-year originations unless there's a rate point where it looks attractive to put them back on. We'll retain most at 15 and under as long as the handle can be above 5%. That's probably sort of the tactical approach we're at right now.
Jason O'Donnell - Analyst
Okay, great.
Mark Tryniski - President and CEO
We did, Jason, as I said, have a record year in the mortgage originations. We sold $170 million or $180 million worth of mortgages with servicing retained. So you've got the future revenue benefit of getting paid to service those mortgages. So that number will likely be a bit higher on an ongoing basis. But the magnitude of the activity in the mortgage market for us over 2009 is what drove that number higher.
Jason O'Donnell - Analyst
Okay, great. Thanks a lot.
Operator
(Operator Instructions). [Ben Tarantino].
Ben Tarantino - Analyst
Congratulations on a good quarter. My question is just a general question. Given that the current earnings capacity, how comfortable do you feel with the current dividend?
Mark Tryniski - President and CEO
That's a fair question, [Vince], and one that we field with some degree of reasonable frequency. I think if you look at our earnings capacity right now and projected into the future, you look at our capital levels, you look at our asset quality, I will say we are highly comfortable with where our dividend is at this point, and our ability to continue to pay a dividend at that level, which -- remember, we're throwing off $0.27 at least for 2009 -- $0.27 a year in cash earnings that don't hit the P&L. So that creates -- effectively, that's over one quarter's worth of dividend that we can pay just out of cash flow that doesn't even hit the P&L.
So, we look at the dividend payout ratio. I think, on a GAAP basis, it's 65% or somewhere in that neighborhood. I think if you look at it on a cash earnings basis, it's about 55%. So we're fully comfortable with our ability to continue paying a dividend at least at the level we're currently paying it at.
Ben Tarantino - Analyst
Great. Thanks, guys. Stay warm in upstate New York.
Operator
Damon DelMonte.
Damon DelMonte - Analyst
I'm wondering if you could talk a little bit more about the expenses. Mark, I think you had mentioned that you're expecting $5 million to $6 million of annual savings to be realized in 2010. Is that correct?
Mark Tryniski - President and CEO
That's what's we're shooting for, Damon. The majority of that effort has been put into place already at this point. The ultimate effect on our core operating expenses for 2010 would be to deliver a flat or lower operating expense structure in 2010 versus 2009.
I mean, there are going to be other categories that we're not going to be able to work down the -- certain technology costs associated with customer process, the accounts. Our debit card penetration has escalated dramatically and so have the revenues, but the expenses have as well. There's other expense categories that we're not going to be able to drive lower. So, all in, what we are shooting for is a flat or lower expense structure in 2010 and 2009.
Damon DelMonte - Analyst
Okay, great. And then if we look at this quarter's results, was there anything -- you may have mentioned this and I might have missed this -- is there anything in the other non-interest expense line item that led to that figure this quarter?
Scott Kingsley - EVP and CFO
Yes, there is, David. And I'll go back to a couple of my comments. We had about $700,000 of fixed asset related write-downs; principally from where we've had excess facilities over the course of the last year or so. And it's gotten to the point where our full utilization of those is over. In other words, we've done some branch consolidations and some other operating unit consolidations.
We also had some higher OREO-related costs on a linked quarter basis. In the third quarter, we had actually had a modest recovery in that cost category. We had some -- the timing of certain property tax payments and some of those assets we're holding led to higher results. And then we did have a couple hundred thousand dollars of sheer just people and other related activity costs in this course systems implementation project.
Damon DelMonte - Analyst
Okay, great. And then I guess lastly, could you just give a little overview of what you're seeing across your upstate New York footprint? Your asset quality continues to be rock solid. You guys are probably the second or third or fourth company that I cover in that region that's come out -- and trends remain very favorable. Just kind of wondering what your thoughts are with the elevated unemployment rate and kind of just borrower demand, I guess.
Mark Tryniski - President and CEO
Sure. I think, overall, our market, as everyone knows, has been less affected by the economic downturn than most other regions in the country. I think you can see that in our numbers, as you referred to; a lot of other banks that operate in our markets as well.
But the assets -- as the -- I'll use the unemployment rate as a starting point. I think the unemployment rate in our markets generally lags just a little bit behind the national level but not a lot. It seems to kind of move in a similar direction and magnitude. So we're still hanging nearly around kind of that double-digit level in unemployment in most of our markets.
The asset quality metrics to the MPAs have increased a little bit. The delinquencies from last year have trended a little bit more unfavorable. But still, as you characterize and I would agree overall, pretty rock-solid asset quality metrics. So there's nothing that's really, right now, keeping us up at night in terms of asset quality.
Regionally, I will say the upstate New York and northern New York market has been quite strong in terms of asset quality. Where we've seen a little bit more deterioration is in the Northeast Pennsylvania markets. But overall, we're highly satisfied with asset quality performance.
In terms of demand in the markets, interestingly enough the consumer mortgage demand has been very strong. A lot of that, as we talked about, the direct originations, a lot of that was refinancing because of what the government was doing to keep rates low. So a lot of that was refinancing. As Scott said, we didn't want to keep those assets on our books.
But we also actually had growth in our commercial banking business, our business banking portfolio, over the past 12 months. And the majority of that came in the fourth quarter, which is seasonally slow for us. The majority of that also came in upstate New York.
And -- but we also in the fourth -- we had a very strong fourth quarter in Pennsylvania. So we're starting to see demand come back in northeast Pennsylvania. Demand was reasonably good in upstate New York for the majority of the year, actually. Really not a home run, but in this environment where I think the FDIC's numbers in the banking industry, whole commercial banking was down about 8% last year. So it's deliver a 1.5%, 2.5% increase in commercial business banking is a pretty decent performance.
Again, a lot of that came in the fourth quarter which is seasonally slow for us so I think that [honors] well, we hope, for 2010 also.
In terms of where that credit growth came from in this business banking portfolio, for the most part, it was the larger -- which is always, I guess, a question of perspective but larger for us -- credit relationships. They were kind of the middle-market type opportunities. Not as much in the small business category. That still continues to be a challenge. I know you hear a lot about that in the financial media relative to small businesses and the availability of credit.
I will say for us, it's clearly not the availability of credit in our markets. It's -- there are a lot of banks -- lot of healthy banks in our markets, they are lending; competition is still pretty good for good credit. It's clearly the demand that's softened in our markets for the small business lending; as I said, on the next leg up in terms of some of the middle market type opportunities, there's a bit more activity and that's where we've had a bit more success. But the strength we had in the fourth quarter we hope carries on into 2010 as well.
Damon DelMonte - Analyst
Okay, great. That's very helpful. Thank you. And then just lastly on -- Scott, could you give a little color on the tax rate for your expectations for the upcoming year?
Scott Kingsley - EVP and CFO
Yes, I think, given that we're probably not likely to materially add to our tax exempt portfolio, at least out of the chute here in 2010, I would expect that achieving the 22% is probably going to be difficult for us. And as well as some of the demands that are likely to come out of New York State relative to budget-related issues, Damon, I'm moving back up closer to, say, 23.5%, 24%.
Damon DelMonte - Analyst
Okay, great. Thank you very much, guys.
Operator
(Operator Instructions). Rick Weiss.
Rick Weiss - Analyst
Let me ask you, I guess, a question about acquisition opportunities, since it's been quiet these guys for a little while -- not like you. What do you see coming forward in 2010?
Mark Tryniski - President and CEO
Well, it has been a bit quiet for us although it's only been, what, 13 months. I think the market overall has been pretty quiet, as everyone understands. There hasn't been a lot of opportunities, I think. Management teams and Boards are kind of hunkering down, trying to deal with their own issues and opportunities.
I do think you're going to see more activity in 2010. I think that there's -- the opportunities will evolve in some of our markets. I think we're starting to look at everything that's transpiring in Pennsylvania and think that there is opportunity or will be opportunity in Pennsylvania for us in 2010.
Likely to be less opportunity, I suspect, in upstate New York, but I think Pennsylvania is where we will likely be focusing our attention and where there will also likely to be some opportunities, Rick.
Rick Weiss - Analyst
Okay. Would you still be interested in banks that, I guess, are outside of the major metropolitan areas? Or would that be still your focus, the rural areas?
Mark Tryniski - President and CEO
I think that probably would continue to be our focus. I don't believe we are going to be running down to Philadelphia or Pittsburgh proper any time soon. We'd certainly be interested in northeast Pennsylvania, the upper northern corridor of Pennsylvania down into the Lehigh Valley, those kinds of markets that are still non-metropolitan by most standards.
Rick Weiss - Analyst
Okay, and another question. I guess, with regard to capital, that -- would you happen to have on-hand -- I know you gave the leverage ratio -- what the Tier 1 risk-based ratio is?
Scott Kingsley - EVP and CFO
Rick, I did not bring that in with me. I know that we have that, but my sense is, is it's north of 12%.
Rick Weiss - Analyst
Okay. And do you expect any kind of changes from the regulators? I know there's no concrete answers out there, but I just wondered what your opinion is -- what the regulators may do?
Mark Tryniski - President and CEO
There is a lot of speculation. It just strikes me that given the magnitude of what we've been through and continue to try to work past in the financial and capital markets, I would be surprised if there wasn't some call for higher capital standards at some level.
Whether that trickles down to affect banks like us that aren't involved in the capital markets activities and off-balance sheet things, and securitizations and derivatives, and proprietary trading and those kinds of things, I don't know. But it certainly -- it's not beyond reason that there could be, out of all of this, higher capital ratios to emerge.
Rick Weiss - Analyst
Okay, thanks. I was just wanting to get your general opinion rather than put you on the spot with respect to CBO. Thank you very much.
Operator
(Operator Instructions). Adam Klauber.
Adam Klauber - Analyst
Just to follow-up on acquisitions. Have you seen some FDIC deals that you're more interested in? And have you actually bid on any in the last three, six months?
Scott Kingsley - EVP and CFO
I'm not going to comment, Adam, on any specific transactions or specific opportunities. I think we try to keep our focus on a broad variety of geographic markets, both in our current market footprint and contiguous to that in -- not just New York and Pennsylvania, but also eastern Ohio, Vermont.
So I think we try to keep our eyes and ears open to what's evolving in different markets. But I wouldn't comment on specific opportunities -- other than I think we will see more of those in 2010 than we did in 2009. And that's not just in our markets.
I think that's just the sense I get from all of the inputs around where we are in the crisis and what's evolving, and where we stand in terms of an industry in raising capital. And I think you're seeing management and Boards -- I think some are battle-weary. And I just think that the natural evolution of the crisis we just went through will lead us to a higher level of opportunity, which I think will start to open up in 2010.
Adam Klauber - Analyst
Okay, that's helpful. On credit quality, the -- again, still very strong. The increase in non-accruals was pretty close to a decrease in 90-day. Was it pretty much migration from one to the other?
Scott Kingsley - EVP and CFO
There was a little bit of that, Adam, but not completely. If you remember at the end of the third quarter, we actually had a reasonably sized larger relationship that had spilled into 90-days. And during this quarter, a portion of that, maybe half of that, moved into a non-accrual status where actually the other half, the more performing half of that relationship, went back into a current status.
So we did have a couple incremental commercial relationships or business lending relationships that made their way to nonaccrual. And they wouldn't have been actually in a past 90-due status as of the end of the third quarter. So little bit of a mix and match on that. Generally, as you would expect, the lion's share of the increase came in the business lending portfolio because that tends to be where the denominations are a little bit larger.
That being said, Adam, just as a reference point, we still only have, I believe, seven credits that we actually have to go through a specific impairment analysis on. So it's certainly not very large in terms of the number we're dealing with.
Adam Klauber - Analyst
Okay. And to the extent you can comment, was there much movement in your watch list during the quarter?
Scott Kingsley - EVP and CFO
No, I think maybe a little bit of an erosion, sort of a little bit of a move to the right in terms of total risk weighting, but not unexpected; and quite frankly, not actually material to the outcome.
Adam Klauber - Analyst
Okay. And how's the economy treating some of your small business customers in Pennsylvania? Is that still sort of a tougher area?
Mark Tryniski - President and CEO
Well, I think it has been in terms of our experience relative to the asset quality metrics over the course of the past year. And as I said, I think on the demand side, it's clearly been not at the small business banking level; it's been at the middle-market kind of level, where we've seen the opportunities.
Adam Klauber - Analyst
Okay, thanks very much.
Operator
(Operator Instructions). [Whitney Young].
Whitney Young - Analyst
Okay, so most of my questions regarding acquisitions are already answered. But if I could just ask you a very general question of looking at your history and how you've traditionally grown the Bank, there's been a lot of branch and non-bank acquisitions as well as bank acquisitions. How do you see that going forward, even just -- even two years out or longer?
And where do you see generally the mix of organic growth versus acquisitions? And even the breakout of the loan portfolio, do you see that changing? So, essentially, where do you see the opportunities longer-term? Thanks.
Mark Tryniski - President and CEO
Thanks, Whitney. I mean, I'll answer your second question first relative to the composition of the loan portfolio.
We like it the way it is. It's kind of a third business lending; it's a third consumer mortgage lending; and it's a third consumer installment lending. So we kind of like that mix. We think it lowers the risk a bit. And so we'll probably continue to look for -- as we grow organically and through acquisitions, try to maintain somewhat of a level mix of the loan portfolio, as I just outlined.
In terms of the mix between organic and acquired growth, I think, historically, we've always been active in the M&A environment, trying to create opportunities through M&A. We will continue with that strategy as well into the future, but have also, over the last several years, focused to a much greater degree on executing better in our existing markets with respect to organic growth and business development opportunities. And I think we've really improved our ability to grow organically in our markets and the outlying regions around our markets.
So I think there will be probably a greater mix of organic growth going forward, I would expect, but we'll continue to look for M&A opportunities that fit our profile. We're not likely to go out and do a $2 billion or $3 billion or $4 billion kind of acquisition. I'm not going to rule that out; I'm just saying that's not strategically where we're focusing. We'll look at things that are within or contiguous to our market footprint that are less than $1 billion and generally not highly troubled.
We'll continue to look for non-bank acquisitions that, again, fit the right profile for us. We don't want to be good at everything in that space, but we think we're good at a couple of things. We continue to look for the right kind of acquisitions in the Wealth Management and particularly the Benefits Administration businesses, as well.
So it'll continue to be a mix of both going forward, Whitney. I think when we do our look-backs on our acquisitions, which we do, post-acquisition performance analysis, there's no question that organic growth creates higher returns on equity than acquired growth. So we needed to improve our game in terms of organic growth, and we have. And we think that's going to be a stronger component of our return potential going forward.
Whitney Young - Analyst
Thanks. That's helpful. And just one more question. I know that the opportunity for FDIC-assisted deals is somewhat limited. And you said that you think a lot of the banks' CEOs and Boards are sort of hunkered down. But do you see more potential for deals with a bank that potentially has an ongoing concern or isn't necessarily headed towards failure, but is trying to decide between selling the bank and raising equity? Do you see more opportunity there?
Mark Tryniski - President and CEO
I expect we will. As I said, I think if you look at what has transpired over the past year in certain markets in northeast Pennsylvania, for example, there's been a greater than average kind of decline in asset quality metrics in certain quarters. And I think a lot of that is just kind of what happened in the -- the greater Philadelphia market has moved north.
And so we're starting to see some of that risk kind of manifest itself in different ways in the operating performance of institutions in northeast Pennsylvania. So, I think that institutions that are having a difficult time in terms of performance certainly are looking to what now is a pretty standard template for an FDIC transaction. And probably saying we need to avoid that.
So -- and we've actually even seen that in a couple of cases where some institutions have tried to avoid the FDIC resolution and have gone the sale route before that point. So I think we will likely see more of those over 2010.
Scott Kingsley - EVP and CFO
And Whitney, I would agree with that too, because I think what the other instances and sort of using that -- a couple of small transactions in Pennsylvania as your marker there, is that some of the smaller institutions have unfortunately found out how expensive incremental capital really is in this environment; that the market has been absolutely punishing when it looked like they were trying to support capital levels for potential downside risk on their balance sheet.
So we would think that that would prompt certain management teams and Boards to be looking at alternatives for affiliating with somebody, as opposed to be going to the Street for very expensive and dilutive capital.
Whitney Young - Analyst
Right, right. That makes sense. And it seems like you're saying that you're really seeing more of those opportunities in northeastern Pennsylvania as opposed to New York, right?
Mark Tryniski - President and CEO
We haven't necessarily seen them yet but I think that that's more likely to allow over 2010 in northeast Pennsylvania than it is in upstate New York.
Whitney Young - Analyst
Okay, great. Thanks so much.
Operator
(Operator Instructions). And it appears we have no other questions.
Mark Tryniski - President and CEO
Very good. Thank you, Betty. Thanks, everyone, for joining on the call and we will talk to you next quarter. Thank you.
Operator
That concludes today's conference. Thank you for participating. You may now disconnect.