First Commonwealth Financial Corp (FCF) 2010 Q3 法說會逐字稿

Good afternoon and welcome to the First Commonwealth third-quarter 2010 earnings conference call. (Operator Instructions). Please note this event is being recorded. At this time, I would like to turn the conference over to Rich Stimel, Communications Manager at First Commonwealth. Please go ahead, sir.

Thank you. As a reminder, a copy of today's earnings release can be accessed by logging onto fcbanking.com and selecting the Investor Relations link at the top of the page, and then selecting News on the left side of the page. We've also included a slide presentation on our Investor Relations page with supplemental financial information that we will reference throughout today's call.

With me in the room today are John Dolan, President and CEO of First Commonwealth Financial Corporation; Mike Price, President of First Commonwealth Bank; and Bob Rout, Executive Vice President and Chief Financial Officer.

After brief comments from management, we will open the call to your questions. For that portion of the call, we will be joined by Bob Emmerich, our Chief Credit Officer, and John Previte, our Senior Vice President of Investments.

Before we begin, I'd like to caution listeners that this conference call will contain forward-looking statements about First Commonwealth, its business, strategies and prospects. Please refer to our forward-looking statements disclaimer on page 2 of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.

Now, I'd like to turn the call over to John Dolan.

Thank you and good afternoon, everyone. Thanks for joining us on today's call.

This morning, we released our financial results for the third quarter, and we are pleased to announce net income of $10.7 million compared to a loss of $5 million in the third quarter of 2009. The revenue growth we've generated year to date has been largely driven by a combination of fee income and net interest margin expansion.

Net interest margin improved over both the last quarter and third quarter of 2009. Our gains in net interest margin are a product of more effective deposit mix and the deleveraging of our balance sheet.

The market share we are continuing to win in consumer and small business segments has enhanced our low-cost deposit base. Looking at the year-over-year comparison, our low-cost savings and DDA deposits increased 13%, while time deposits decreased 8%.

Throughout 2010, we've continued to execute on the strategy to reduce our balance sheet leverage. We sold three-quarters of our municipal investment portfolio and sold or participated eight of our 62 credit commercial relationships that were loan commitments of $15 million or over.

The common stock offering we completed in the third quarter helps us solidify our strong capital base. This will position us well as the economic recovery begins to gain traction and as we continue to build on the momentum of our organic growth.

But all this is taking place in an environment of tremendous economic and political uncertainty, which will require an ongoing focus on improving credit quality and prudent capital management. We will continue our strategic focus of reducing problem assets and mitigating our exposure to large credits. But I'll say we expect more favorable asset quality trends going forward.

Mike Price will speak to the details around credit quality, but overall, our provision for credit losses was $4.5 million for the third quarter compared to $4 million last quarter and $23 million in the third quarter of last year.

Our nonperforming loans decreased 7% in the third quarter, and they are down 26% since their peak in the first quarter of this year. Again, Mike will delve into these details a little later.

In the third quarter, we realized a $4.3 million OTTI charge compared to a $2.1 million charge in the previous quarter and an $11.9 million charge in the third quarter of last year. Impairment charges in the third quarter of this year were partially offset by $1.4 million in realized gains on the sale of the municipal securities.

We reduced our exposure on our municipal securities portfolio from $209 million at the end of 2009 to $53 million at the end of the third quarter of 2010. As 2011 rapidly approaches, we remain committed to growing our retail and small business market share and continuing to improve our funding mix. We also anticipate soft loan demand, but believe that genuine opportunity exists as we build our middle-market commercial lending infrastructure.

But all these things are taking place within an environment that I believe has fundamentally and permanently changed, and that means the way we do business must evolve to reflect these changes.

The new regulatory environment will infringe on our ability to generate revenues. At the same time, costs to comply with additional regulatory requirements will increase. With FDIC insurance premiums, credit cycle costs and added regulatory compliance, effectively managing our expenses takes on even greater significance.

Since we launched our cost savings initiative in January 2009, we've maintained good stability over our discretionary expenses, and we're pleased with our organization's cost control efforts. But there are still opportunities to improve processes and operating efficiencies. We will be paying particular attention to technology implementation and staffing efficiencies.

It's not about doing the same things at a lower cost; it's about doing things better. Whether it's managing expenses or building market share, the intention is to get closer to the customer and build deeper relationships to drive future growth and financial performance.

So to discuss the most recent financial results in greater detail, I'd like to introduce Bob Rout. Bob?

Thank you, John, and good afternoon, everyone. As John mentioned and as evidenced by our third-quarter results, we continued good progress getting the organization back on an improved performance track.

The credit issues were fairly well contained this quarter. However, these loans are large, complex relationships, many times involving multiple participants, and by their nature take a long time to work through. Economic conditions for distressed assets also complicates these efforts. And as Mike will speak to in his upcoming presentation, the progress is encouraging.

Walking through the financials, I want to start with the balance sheet. As you are aware, balance sheet restructuring and derisking has been a strategic focus over the last 18 months. During that time, we have significantly improved our funding mix with more transactional accounts and corporate cash management; reduced borrowings by almost $1 billion; diversified the loan portfolios with a better mix of small business, consumer, corporate finance and middle-market loans. Middle-market lending is an area that we believe presents good opportunity, particularly with the Marcellus Shale potential, and we're just now starting to scratch that surface.

We aggressively addressed the credit issues in both the loan and the trust-preferred portfolios. We reduced our exposure to municipal securities. And the last piece was shoring up our capital position, which we accomplished here in the third quarter with a common stock offering with net proceeds of $81 million.

Certainly more work remains cleaning up some troubled credits that were primarily out of market and in many cases inappropriately sized. Despite that ongoing cleanup activity, we believe the balance sheet is well positioned to move the organization forward.

In the net interest income area, the net interest margin has been on a fairly steep trend, currently at 3.9%. The change in the mix of deposits has been instrumental in that improvement. That trend is slowing somewhat as the balance sheet derisking activities take full effect.

Many of those out-of-market construction loans and municipal securities had fairly attractive yields, but we are certainly willing to make the trade-off for a less risky credit profile. In addition, like all banks, a flattening yield curve, if that forecast does in fact come to fruition, will not be helpful to that upward trend.

Net interest income growth has been slowed by deleveraging activities. Now, some of that deleveraging is by design, such as the reduction in loans beyond our in-house lending limits, a tighter loan geographic market, and reducing risk in the investment portfolios. And some of that deleveraging is involuntary, such as comes with weak loan demand generally.

We are certainly willing to negotiate price, but this is not the market to be stretching on credit terms. And I think our folks are doing a wonderful job of holding to newly established credit guidelines.

After three consecutive quarters of improvement in the trust-preferred portfolios, we had a slight uptick in defaults and deferrals, generating $4 million of other than temporary impairment this quarter. It is still too early to tell if this uptick is an anomaly.

And we are fortunate that the muni market continues to hold while we implement our portfolio reduction strategy. Sale of munis generated $1.4 million of realized gains in this third quarter.

Most areas of noninterest income continue upward trends except, of course, the NSF fees, which are impacted by new regulations. We had projected a monthly decrease of $200,000 per month in these fees as a result of those new regulations. The actual effects are coming in around $250,000 a month. We believe we have strategies to mitigate these effects. And of course, continuing the strong growth in our DDA households will also be a mitigator.

Noninterest expense is fairly well controlled, but we know that further improvements will be a critical performance factor. We believe ample opportunity is available to drive that efficiency number to a better performance level. That will be an important strategic focus for us going forward, and we believe that could be accomplished without hampering the market growth opportunities that we see developing.

So with that, I will turn the discussion over to Mike Price.

Thanks, Bob. The economic environment is still challenging, but we continue to make progress.

Starting with credit, the provision expense for the third quarter was $4.5 million versus $4 million last quarter and $23 million at this time last year. Total nonperforming loans decreased 7% on a linked quarter and now stand at $125 million -- $124 million or 2.9% of total loans.

Of the $9 million decrease in nonperforming loans this quarter, we reached a successful settlement with borrowers on a $12 million condo project in Missouri that resulted in the repayment of 82% of our principal, which freed up about $9 million in specific reserves. Also contributing to the reduction in nonperforming loan balances were a $3 million participation loan for a completed recreational project in Illinois and a $2 million loan located in Western PA for the purchase of a commercial building held as collateral. Both of those loans were transferred to OREO this quarter.

As far as significant additions to nonperforming goes, that included a $10 million Western Pennsylvania commercial real estate loan for tenant improvements on an office building located in downtown Pittsburgh. This was due to increased vacancy rates. We took about a $1.4 million specific reserve on this credit.

Some additional noise within our provision expense this quarter was the result of downgrades on a handful of performing credits, both to conform to the results of the annual Shared National Credit exam and due to deterioration in some commercial real estate loans within our investment real estate market area. We have also adjusted some cap rates used for our economic valuations of real estate credits. The aggregate impact of these adjustments was $8.1 million.

Our three largest nonperforming loans are a $44 million line of credit to a Western Pennsylvania real estate developer that was placed on nonaccrual status in the fourth quarter of 2009; a $10 million loan on a landfill located in Western PA; and a $10 million Western Pennsylvania loan for tenant improvements to the building held as collateral that was placed on nonaccrual status during this quarter. This totals $64 million and represents over half of the nonperforming loan portfolio.

Also note, the Pennsylvania landfill loan does not currently carry a specific reserve, so the remaining two combined carry a $25 million allocation.

Looking at the breakout of our total nonperforming loan portfolio -- and for your reference, that's on slide 8 in the supplemental deck -- at the end of the third quarter, the construction loan portfolio represented 21% of nonperforming loans, but represents only 7% of our total loan portfolio.

During the third quarter, we took an additional reserve of $1.3 million on a land loan in Nevada and an additional reserve of $720,000 on a hotel waterpark in Illinois, which were moved to OREO. The vast majority of our problem construction credits are located outside of our Pennsylvania market.

We believe that we have taken most of the costs on these and do not anticipate them to have much of an impact on our earnings going forward. However, because most of these assets are real estate secured, resolutions are painfully slow, and we must typically work through an agent bank and get consensus with participants.

While we are on the topic of settlements, we continue to make progress on restructuring of the $44 million remaining balance on the unsecured loan to a local developer. We've reached an agreement in principle on a restructuring of this debt and have commenced a formal documentation of that agreement. We anticipate a principal paydown on this note during the fourth quarter.

While our Western Pennsylvania footprint has weathered the current economic cycle relatively well, we would be naive to think the lack of economic growth in the national economy will not eventually affect our core Western PA portfolio.

A couple things -- the favorable gap between the Western PA unemployment rate and the national unemployment rate is shrinking. Loan demand for both retail and corporate banking has been soft, to say the least, as evidenced in our loan balance. Spreads are under pressure as banks seek to rebalance their portfolios out of commercial real estate and aggressively go after the few quality C&I opportunities that are out there. And although it is too soon to sound any alarms, vacancy rates for office space are increasing in the Pittsburgh market.

Defensively, we are managing down our large credit exposures. We are accelerating the workout process for remaining problem credits. And we are continuing to build our infrastructure in credit administration.

More importantly, offensively, we are focused on building and leveraging our lending, particularly in middle market and small business, and also our cash management capabilities, which really complements our deposit-gathering business.

As John mentioned earlier, we are still seeing favorable trends in substantially all areas of our community banking operations, absent the credit cycle. Bob discussed our positive results in net interest income, net interest margin, noninterest income and noninterest expense. Let me just expand on our balance sheet profile.

Regarding loans, as you can see on slides 5 and 7, total loans decreased $349 million or 8% from the year-ago results, with commercial loans declining $296 million or 10%, and consumer loans decreasing $53 million or 3%.

On the commercial side, most of the decrease is a function of three things -- one, reducing our large -- larger exposures, as John alluded to earlier; two, pruning and managing our investment real estate concentrations; and three, reduced line usage on our lines of credit in the commercial bank from about 52% a couple years ago to about 38% in the most recent quarter.

In retail banking, we exited the mortgage origination business about three years ago, and this portfolio continues to run off. We experienced runoff of about $90 million in the past 12 months. Excluding this runoff, consumer loans would have increased approximately $37 million or 2%.

As you can see on page 5, total deposits increased $231 million or 5% from September 30, 2009. Lower-costing transaction and savings deposits increased $363 million or 13% during the same timeframe. These lower-costing deposits represented 67% of total deposits at September 30, 2010, compared to 66% at June 30, 2010, and 63% at September 30, 2009, a continued positive shift in the mix of deposits. And this has helped our favorable results in the net interest margin in the past quarters.

The annual FDIC Summary of Deposit Report as of June 30, 2010, recently was released, and the following is a quick summary of the results. We saw double-digit growth in three of our counties year over year. In nine of the 15 counties, our deposit increase exceeded the market increase. Or in other words, we increased our market share.

And importantly, in Pittsburgh, the market we have been intently focused on as a result of the disruptions in the banking market, our deposit growth was 8% compared to 4.8% growth for the entire market year over year. Good operating results, and we hope they will continue to get better.

And I must qualify and say that over September year over year, when we look at our noninterest-bearing deposit mix as a percentage of the total, we are getting nice traction and have gone from about 13% to about 15%.

As Bob mentioned earlier, this deposit growth has also helped the bank in its deleveraging efforts. Going forward, we will continue to take advantage of the opportunities in the Pittsburgh market and in small business, which have fueled our growth in low-costing DDA and savings deposit.

We've really enhanced our sales and service culture at the bank, and we will continue our community banking focus and delivering locally and responsibly as a community bank.

I'd now like to turn the call back to the operator and open it up for questions.

(Operator Instructions). Andy Stapp, B. Riley & Co.

Could you talk about the loan pipeline and the prospects for loan growth over the next several quarters?

I think we -- this is Mike. We have some headwinds with the continued working down our exposures from 63 credits over $15 million down to 49, as we committed to at the end of the year. Nevertheless, on the consumer side, I believe we have momentum with our branch lending to slightly overcome the mortgage runoff, that liquidating portfolio.

On the commercial side, we have good traction in small business. I think we will have opportunities with corporate finance and some select in-market syndications.

Our middle-market business, we are really just ramping that up, and it is a nice complement to what we have already established and begun to do in Pittsburgh with our small business portfolio. And then selectively, within market investment real estate, we will look at quality transactions.

So I think the opportunity, we are going to kind of reach a trough and turn it around in 2011, probably in the first half of the year.

Okay. That's helpful. And do you plan to sell any more municipal securities?

Yes, that's on the table, Andy. This is Bob Rout.

Okay. Are you going to try to sell all of them?

That would be our intent.

That's your plan, okay. And other than that factor, should we expect the securities portfolio to remain fairly flat in this environment?

We will selectively add to that portfolio as opportunities -- I don't think you'll see us stretching too far in duration at this point. And it's not going to be anything out of the ordinary -- plain-vanilla agencies, treasuries, maybe some mortgage-backeds.

And what is the life of your securities portfolio, your duration?

About four years.

Okay. And do you happen to know what paydowns in Q3 were on that portfolio?

Not an exact number, no.

Okay. I have some other questions, but I will get back into the queue.

Mike Shafir, Sterne, Agee.

I was just wondering if you could just real quickly -- at the beginning of the presentation, you guys mentioned in terms of the resolution of some of these larger loans, participating them out. Could you just kind of go over some of that detail again?

Yes, I will just give you the high level and see if that's what you're looking for. We started out the year at 62 credits that were $15 million and over, or over $15 million, I guess it was. And then we've got that down to 54 credits.

Yes, Mike, some of that is just by encouraging bank -- or the customer to seek to finance other places. Some of it is -- and that's not just the whole relationship, but maybe the credits that over and above our limits. And it's not a number of accounts, but I think we made great progress in the overall exposure, bringing those down.

Mike, did you want to add some color to that?

Yes, Mike, this is Mike Price. As important as the numbers, the dollars of aggregate exposure that we've worked down since the beginning of the year is about $187 million, and just $50 million in the third quarter alone. Does that help?

Yes, absolutely. Thank you very much for that. And then, the largest kind of nonperforming credits, the Missouri loan is now off the books, right?

That's correct.

So now it's the $5 million left of that construction loan in Florida to which you guys charged off a big chunk of the previous quarter, the $44 million C&I loan, and then this new one is a $10 million commercial real estate project in Pittsburgh?

Right.

That's correct.

So I believe that you mentioned another loan. I think there was four in total, when you guys were speaking to this?

Mike, if you want to go to page 8 of our slide deck, I referred to that. There was actually four -- the $5 million Florida loan that you mentioned, the $44 million unsecured, again the Missouri one, and the third-largest one would be that commercial real estate that just went nonperforming this quarter.

Right. I'm sorry. I just thought there was four new ones versus the $13 million Missouri one, because that's gone now, right? That's the one that got mostly charged off this quarter?

It got paid off.

Right.

Mostly, yes.

Yes, so there's still only three there.

Oh, there's still only three. Okay, great. Then just where do we stand on that C&I loan in terms of potential resolution, and how is that working out?

This is Bob Emmerich. We've been negotiating on that loan for an extended period of time. There are three other banks involved. We are not a bank group, but we all have the same terms, so we've been negotiating as a group.

And we are very close -- as Mike had mentioned, we've reached the outline of terms for a restructuring, and that's in the process of being documented. And part of that will include a paydown that will occur in the fourth quarter.

And do you guys have any idea how much the paydown will be, or can you guys maybe speak to that?

We know how much the paydown will be.

But we are not prepared to disclose that at this point in time.

Okay. And then just in your press release, you guys mentioned a property that was meant for sale, but then the sales agreement fell through? Can you just discuss where that stands?

That's true. It was -- it's a property we have in OREO. It's a food-processing plant, and the terms called for us to deliver the plant by a certain date, and we had trouble evicting the tenants, so we couldn't meet that date. So we are still working through that process.

Okay. And then just one quick one. In terms of the margin, it seems like the securities portfolio, you guys, as you sold off your munis, is that -- that's the main reason why the tax rate went up a significant amount this quarter?

No, it's a little [more curious] than that, Mike. As you have losses in quarters like we had this first quarter, you go to a discrete method of calculating your income tax. And then, now that we are back into a profitable mode, we go back to the effective tax rate. So that caused an adjustment here in the third quarter. And we think probably going forward an average or a normal run rate for us would be 23%, 25%. Fourth quarter is going to be lower as we continue to go through that adjustment period.

I'm sorry, you say fourth quarter -- the fourth quarter was going to go back to that 23% to 25% range?

No, probably 2011 we are projecting the 23% to 25% range. Fourth quarter will probably be around 7%.

The tax rate?

Yes, effective tax rate.

Okay. All right, thank you very much, guys.

Damon DelMonte, KBW.

I was wondering, Bob, could you just give us a little bit more perspective on the margin kind of looking forward as you continue to try to derisk the balance sheet? Are we expecting to see much movement in the margin?

As you know, that's been on a very, very steep upward trend, Damon. And again, some of the derisking of our balance sheet is going to have some headwinds to that trend.

In addition, the interest rate forecast, as most banks are looking at it, for a flattening of the yield curve, that is going to have some headwind as well.

Now, offsetting that has been our growth in our deposit mix, and as well as we still think we have some room in our liability pricing. So that's a long-winded answer, trying not to give you an exact percentage, but those are the factors we are considering right now.

Okay. And kind of going back to Mike's question before about the effort to, I guess, divest some of those $15 million-plus credits -- you are down to 54 right now -- what's the aggregate amount of outstandings for those 54 credits?

Outstanding as opposed to commitments.

Just give us one second to recover that number, Mike.

The aggregate commitment amount is about $1.3 billion, and the aggregate outstanding is about $740 million.

Did you hear that, Mike?

Damon.

Or Damon?

Yes, I did. Yes, thank you. And is your goal to get all 54 of those below that $15 million -- or to get all 54 of those loans kind of out?

No, there will be some exceptions. And we are really looking at this as the aggregate excess exposure. We've mentioned the numbers, but rather than focusing on units, I think we want to look at the aggregate exposure and work it down.

We just had one of our credits that was renewed recently. We had a $35 million exposure in there, and we dropped it down to $25 million with that company. I think we are comfortable at that level. So we expected that there would be some exceptions to this for the major companies headquartered in Western Pennsylvania, where we feel comfortable with the risk, and for community institutions that we feel we should support.

Okay.

Damon, just as a point of reference, our lending limits in-house is $15 million per loan and $50 million for a relationship. However, our legal lending limit is in excess of $90 million, just to put a little perspective in what we're trying to do here.

Sure, okay.

And actually, for 42 of the 55 names, our exposure is under $30 million.

Okay, so said differently, 12 of those are greater than $30 million, right?

That would be the math, yes.

Okay. And then I guess just lastly, Bob, how do you feel about your reserve level here going forward? Can we expect the provision to match charge-offs, or do you think you're at a point now where you have a strong enough handle on the risk in the portfolio and then you can start to release some of the reserve from here?

You know, we just adhere -- we adhere to the methodology that we've got. We are comfortable with the reserve level that we've got and feel that the loans are adequately reserved right now. And hopefully, we are really not so much focused on the reserve, but the resolution of the problems and moving down the nonaccruals and moving out the problem loans. And the reserve level sort of falls out where it falls out, where it should be.

I should also mention, Damon, that it probably wouldn't be fair or accurate to equate provision expense to charge-offs for next year, considering some of the very heavy specific reserves we have on a couple of those credits. We won't necessarily replace that specific reserve if it in fact does lead to charge-offs.

Okay. Could you help us think about just from a provision perspective, then? I mean, the last few quarters were in the $4 million range, and the four quarters before that were three or four times that size. So are we kind of heading in the same direction that we've seen in the last couple of quarters?

Well, what you have to keep in mind in both of those quarters were some unexpected release of reserves that were previously established. So, no, that's not something you can count on every quarter going forward.

Okay, fair enough. Thank you very much, guys.

Rick Weiss, Janney Montgomery Scott.

I was wondering if you could talk a little bit about when would you expect to be comfortable enough to increase the dividend?

Yes, that's a good question. I think that the components that have to be considered is the capital levels, which I think we've taken care of capital levels. And we continue to add to those capital levels as we continue adding earnings.

But it's going to be really boiling down to the other two components, and that's consistent earnings and having some stability in the economy, and knowing that if you raise the dividend, you are never going to have to reduce it again.

So I can see that I would expect that we get to that point sometime in the year 2011, but I'm not prepared to predict exactly when that is.

If you were able to get -- say the crystal ball is working, you had, say, two more quarters like this one, then would you be comfortable?

It depends on the outlook for the economy. If the economy is a little more certain, I think that there would be a little more comfort level.

Okay, fair enough. And honestly, given your capital levels, John, how are you looking at M&A these days?

I'd look at transactions within footprint at this point in time, but I think that we are focused on getting a few things nailed down here at the home front. I would say probably in 2011 we can take a little more look at that as well.

Okay, thank you very much.

(Operator Instructions). Julienne Cassarino, Prospector Partners.

Did I hear you say you are selling your entire muni portfolio, all your muni securities?

It's something we are considering, yes.

All right. Can you tell us about why -- why are you doing that? What are you seeing in the muni world?

It's two issues. One is our current tax position with deferred taxes. And the second issue is our comfort levels with some of the credit issues going on and liquidity issues with those particular investments.

Julienne Cassarino How are your munis priced? Are they level 1, 2 or 3 securities?

Level 1.

And so these are getting priced every -- are you using some kind of index to price them?

A service.

Accounting service.

Yes.

I'm sorry?

A service we use to do that for us.

And they price each individual muni, or are they using an index as a benchmark?

No, individual instruments.

Okay, so these are ones that trade every day, or trade daily, or trade regularly?

I think regularly would be an accurate assessment. Whether they trade daily or not, I'm not sure.

What are the ones -- can you just go into a little more detail about what you're concerned about, the value? Like what kind of munis are we talking?

Why don't I turn the discussion over to our Treasurer, who is a little more knowledgeable on the details? This is John Previte.

Yes, as mentioned earlier, the portfolio was actually over $200 million at the beginning of the year. And we've disposed of about three-quarters of that. The remaining securities are very, very solid, general obligation-type issues. So the ones we have right now we are very comfortable with from a credit standpoint. But as Bob mentioned, there are other tax issues that we are also looking at relative to whether we continue to hold these or not.

I should also mention, it wasn't too long ago where the municipal market almost froze up on us, and we see some liquidity risks in those portfolios as well.

Yes, the remaining securities actually, from a pricing standpoint, have an unrealized gain of about $1.5 million in at the end of the quarter.

Okay, and --

Yes, just curious -- you said you are concerned about the market in general for munis.

Yes. If you've looked back historically, there have been some freezing up of those markets, affecting the liquidity on them.

Okay. How much of the munis of the original $200 million size portfolio were municipalities outside of Pennsylvania?

I don't know right off hand. The majority of them were Pennsy issues, but I can't give you that exact figure.

The other issue is, as we went through the reduction of that portfolio, we started with the ones that had the most credit concerns and got rid of them first. So the ones that we do have left are probably the stronger ones in that portfolio.

So we will assess it as the market changes and as our own financial position changes. And we will make a decision here over the next couple of quarters whether or not to retain the rest of that portfolio. So we are keeping ourselves flexible with it.

Okay, thanks.

This does conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Okay. Thanks, everyone, for joining us on today's call. I believe we are making consistent progress, and we appreciate your continued interest in First Commonwealth and look forward to speaking with you soon.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.