First Commonwealth Financial Corp (FCF) 2011 Q4 法說會逐字稿

Good day and welcome to the First Commonwealth Financial Corporation fourth quarter 2011 earnings conference call and webcast. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Rich Stimel, Communications Manager. Mr. Stimel, 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 have 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 Mike Price, interim President and CEO of First Commonwealth Financial Corporation, Bob Rout, Executive Vice President and Chief Financial Officer and Bob Emmerich, Executive Vice President and Chief Credit 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 Mark Lopushansky, our Chief Treasury Officer.

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 Mike Price.

Thanks, Rich. Good afternoon and thanks for joining us on today's call. I'd like to begin by saying that I feel privileged to have worked closely with our former CEO, John Dolan, these last four years. He cares deeply about this Company and the employees that he worked alongside throughout a fruitful and dedicated 35-year career. I'm honored to be serving as the Interim CEO following John's retirement and I'm genuinely excited about First Commonwealth's prospects for the future. As Rich mentioned, joining me today are Bob Rout our CFO, and Bob Emmerich our Chief Credit Officer, both of whom will be speaking to you in a few minutes.

Looking back at 2011, we are obviously disappointed in our performance that culminated in a fourth quarter loss of some $0.05 per share and full-year earnings of only $0.15 per share. Elevated credit costs coupled with really a lack of loan growth that did not get on track until the fourth quarter, tell the story. Besides the $9.5 million markdown of $23 million in three loans held for sale, there was some other credit, I would call them cuts and bruises that Bob and Bob will enumerate in just a few minutes. Despite the pain, there are at least two encouraging storylines that I'd like to focus on.

First, we feel we are getting our arms around credit, criticized and adversely classified loans have fallen significantly over the last year to $292 million, and $192 million decreases of 44% and 47%, respectively. And now nonperforming assets are starting to follow. In fact, we have several large NPAs that are nearing resolution, one large $11 million nonperforming asset paid off on Friday. We also expect the inflow of problem loans to slow, based upon the favorable trends in our level of classified assets. In short, we need to decisively move beyond the credit issues that have clouded our story and created uncertainty over the last several years.

Second, despite these credit challenges, First Commonwealth has evolved into an increasingly competitive community bank with both loans and deposits now moving in the right direction. New loan volumes have continually risen over the last five quarters, culminating in significant fourth-quarter loan growth. Our commercial loan production in the last two quarters has really been at 2.5 year highs. However, the transaction here is broad based and the growth that you see is really about 2/3 on the consumer side and about 1/3 on the commercial side. Core deposits are also strong. We have linked our retail bank to our corporate bank through a WorkSmart banking program that now accounts for well over 10% of our new checking accounts.

Both loans and deposits are also benefiting from our traction in the Marcellus shale and as you might expect with these signs, consumer and small business household growth has been encouraging. Importantly and as it relates to competitiveness as well, our objective measures of customer satisfaction and brand are moving in the right direction and have been for the last few years. So again, we feel like we have solid traction in healing our credit problems and also, too, becoming increasingly competitive.

As we look ahead to the remainder of 2012, I would just focus on a few key themes. First, the continued focus on reducing our nonperforming assets. Second, thoughtfully managing our strong capital position in a way that ensures stability and growth but ultimately benefits shareholders as our credit issues recede and our earnings return and strengthen. Third, we need to consistently deliver a superior customer experience and capture business clients and their employees. In the new normal of an increasing regulatory burden and muted economic prospects, winning a business client we feel will be doubly important. Fourth, we need to develop a culture of operating excellence with sharp focus on our net interest margin, becoming increasingly efficient in core loan and deposit growth. Our expectations are high and I believe that we have never been better positioned to win and compete in the marketplace. With that, I'd like to turn the call over to Bob Rout to discuss our fourth quarter results and dig into the important details a little more. Bob?

Thank you, Mike, and good afternoon, everyone. As Mike just mentioned, our fourth quarter results were dominated by credit issues as we got a little more aggressive trying to pull down nonperforming asset numbers. As Bob Emmerich will be discussing in his upcoming presentation, the impact of nonperforming assets was significant but still not yet where we intend to be.

I'll start out my discussion by saying that we are pleased with the performance in our net interest margin under the shadow of the Federal Reserve's Operation Twist strategy to reduce long-term rates. The net interest margin contracted slightly by 3 basis points on a link quarter and 8 basis points year over year. We had started to get aggressive on deposit rates even before the Fed announced this new strategy, especially on those special, above-market rate pricing exceptions for large depositors that tend to build up in all organizations over time, and also for those single-service CD relationships where we try to expand the cross-sale relationships or they eventually go elsewhere. We believe that we still have some room on the deposit rates, both in core and with $634 million of CDs maturing in 2012 at an average rate of 1.29%. BDA and other transactional accounts continue to grow nicely. Some of that growth can be attributed to general depositor apathy or inertia, since rates on alternative deposit products are not all that attractive. But real progress is being made, expanding and generating new relationships in both the consumer and the corporate cash management lines.

Loan pricing is stiff for the good deals but the market, I believe, remains rational. As I mentioned before, we will negotiate price for the right relationship but not credit structure and as this quarter's loan growth indicates, we are winning more than our share in the market. We have been replacing maturities and even slightly adding to the investment portfolio in order to slightly extend the portfolio duration for what looks like an extended period of low interest rates. We are also trying to utilize some excess liquidity in the balance sheet until long growth ramps up consistently. These purchases were primarily mortgage-backed securities.

The average duration in the investment portfolio, not including our TRuPs is approximately 2.4 years and 3.2 years if you do include that TRuP portfolio. We expect this current interest rate investment is going to pressure all banks net interest margins until after the November presidential elections unless something dramatic happens along the way with respect to inflationary pressures or local loan demand. We have worked real hard getting the balance sheet and interest rate risk position where it is currently and we believe it's prudently positioned to respond to any changes in any direction.

There's a lot of noise in our non-interest income this quarter and also for the year's that includes swap write-downs for a troubled commercial relationship. We also had some gains this year from municipal security sales an equity position in a local bank that was acquired, an equity position in a joint venture and some gains on OREO and nonperforming loan cells. Some other noise in non-interest income would include an OREO that is currently generating $1 million of rental income each quarter. Now that seems like a good thing, but we are also incurring a similar amount for operating cost on that property that gets classified in our non-interest expense. We believe this property is priced appropriately for sale in what is a very tough market for distressed real estate.

In the recurring core non-interest income items there's no doubt that revised NSFP regulations and changes in consumer behavior have had a profound effect on this revenue stream for all banks. But we are getting steady growing performance and debit fees as we open new DDA accounts and as the usage preference by customers expands for this particular payment product. Our WorkSmart program, that Mike mentioned earlier, that provides special offers to employees of our commercial customers, has been extremely effective in this area. And we continue to get some traction in our wealth management, particularly with our ongoing Marcellus Shale and also Women In Business forums that are working very well for us.

Turning to non-interest expense, again, a lot of restructuring noise in the year and the quarter, including OREO write-downs, elevated loan collection costs and also severance payments. This quarter, along those lines, we had $4.5 million of OREO write-downs, the big piece being a $4.2 million valuation change on a particular property that has been an ongoing, lingering problem over several years. We believe that current price on this property is going to expedite a sale. Executive severance and CEO search cost of $1.1 million this quarter; some increases in unfunded commitment reserves of $700,000; and some additional costs in our BOLI split dollar program for retired executives that were part of some previous acquisitions; and we also had some additional costs related to dealer reserves as activity in that particular product line improves.

All of these unusual issues masked the progress we were making to get more efficient and also getting the right people in the right places. Reducing full-time equivalent staff by 123 or 8% this past year represents real progress. But what these raw numbers do not show is the heavy talent investment that we have been making in our lending and wealth management relationship officer staff, particularly in the middle market lending segment where we are already seeing some nice growth opportunities. We always get a lot of questions from the investment community about our capital levels being so significantly higher than peer. We tell them that those capital levels allow us to rationally work through the legacy credit issues. Once we are sure that those issues are clearly in the rearview mirror, then all capital management strategies are on the table including dividends and stock buybacks and we are getting close to that comfort zone.

We also get a lot of questions about effective tax rates. Ours for the year ending December 31, 2011 was a negative 3%, due to level of tax benefits that reduced the Company's tax rate below the 35% statutory rate, and coupled with relatively low level of annual pretax income. That effective tax rate is expected to stabilize as the Company returns to the more normalized earning levels and we are currently projecting in 2012 that effective tax rate to be in the mid-20ps. So with that, I will turn over the presentation to Bob Emmerich for a detailed credit discussion. Thank you.

Thank you, Bob. First Commonwealth showed a marked improvement in asset quality in the fourth quarter of 2011. Total classified loans dropped $88 million in the quarter from $280 million to $192 million, or 27% of risk based capital. This is down from its peak in the first quarter of 2010 when they were 57% of risk-based capital. Nonperforming loans declined from 4.07% at 9/30 to 2.76% of total loans at year-end. Nonperforming assets as a percentage of loans and OREO declined from 4.87% at 9/30 to 3.84% at year-end. A large portion of the decline in NPAs came from charge-offs and OREO write-downs. Charge-offs totaled $37 million for the quarter and OREO write-downs were another $4.5 million.

Let me summarize the charge-offs. The largest relationship the bank has is a real estate developer in eastern Pennsylvania. We have discussed this name previously. The remaining relationship consists primarily of two apartment projects and three lot development projects. The aggregate unpaid principal balance of this relationship stands at $49.6 million, down from$ 63 million at 9/30.

One of the apartment projects remains on accrual status. The loans to this project are current and the project has a positive cash flow. The second apartment project was over-leveraged. In the fourth quarter the bank did an AB loan split on two of the loans for the project and structured two A loans that conformed to the Bank's standard underwriting guidelines. The two B notes represent the over-leveraged portion of the exposure. The two B notes were charged off.

There is potential for some of this, of the part of those notes to be repaid over time from excess cash flow. All of the lot development loans have been made nonaccrual. One had a charge-off taken in the third quarter and the balance was moved into OREO in the fourth quarter. The Bank elected to take charge-offs on the other two lot development loans in the fourth quarter, writing them down to the as-is value of the appraisal. Total charge-offs on this relationship in the fourth quarter were $9.7 million.

The second large component of the fourth quarter charge-offs were marking to market three nonperforming loans that were transferred to held-for-sale. As you are aware, the Bank's strategy for resolution of nonperforming loans has been to work them out ourselves over time as we felt this provided the best economic outcome for our shareholders. However, the level of NPLs, the management attention they consume and the potential for future collateral deterioration has made us adjust this strategy. We decided to more actively look at the sale of distressed assets as a resolution. To that end we moved three loans with unpaid principal balance of $23 million into held-for-sale, taking a charge of $9.5 million to mark them to market.

The other large charge-offs in the fourth quarter included a write-down of $6.6 million on the student housing loan in eastern Pennsylvania. That write-down included the existing reserve assessment on the property and an additional $1.3 million charge to reflect the receipt of an updated appraisal as the property was being moved to OREO status. A write-down of $3 million on a land acquisition loan in Nevada. That write-down included the existing reserve and an additional $670,000 assessment for an updated appraisal. A charge-off for $1.4 million for a western Pennsylvania manufacturer that had previously filed bankruptcy. This charge was mostly provided for in previous quarters and was taken in the fourth quarter with the approval of the bankruptcy plan. Finally, a $1.2 million write-down on a western Pennsylvania supplier to the telecommunications industry.

The Bank's consumer and business banking losses were $3.2 million, which is in line with our expectations. In addition to the $37 million in charge-offs taken in the fourth quarter, nonperforming assets were reduced by a $4.2 million write-down on the food processing plant in central Pennsylvania; this plant has been in OREO since March of 2009. You will recall that the bank auctioned off the equipment at this plant in September. We had the plant reappraised in the fourth quarter without the equipment and the write-down reflects that reappraisal.

Aside from the charge-offs and the write-downs, nonperforming assets were reduced by the following transactions. A $4.8 million loan classified as a TDR was refinanced by a new loan that included new collateral with additional cash flow. A $5.1 million loan classified as a TDR was paid off from the sale of the office building that secured the loan. First Commonwealth financed this new transaction to a new borrower. In December the bank sold the land that it had in OREO in West Palm Beach. The proceeds of that sale exceeded the bank's current carrying balance by $1.3 million.

In the last earnings call we said that we had expectation that two other nonperforming assets would be coming off the books, an $11 million loan to a landfill that had been in nonaccrual and was then a TDR, and an office building in downtown Pittsburgh that was in OREO that was under contract for sale. The sale of the landfill was delayed by permitting issues, but it did close on January 20 and the Bank was paid in full. The sale of the office building fell through and the Bank has begun to remarket the property.

Provision expense for the quarter was $25.9 million. The major components of the higher provision were first the higher loss factors in our ALLL model for our various portfolio segments due to the impact of the fourth quarter charge-offs on our loss history, the additional reserves taken on the loans moved to held-for-sale. This is about $5.5 million in excess of the specific reserves these loans were carrying, and continued collateral deterioration on our legacy problem real estate loans. This accounted for about $3.2 million. At year-end the loan loss reserve was $61.2 million or 1.51% of total loans. That compares to $72.1 million or 1.81% of total loans at 9/30.

Nonperforming loan coverage stood at 62%, compared to 45% at September 30. Specific reserves for the nonperforming loans amounted to $13.5 million or just over 12% of the $112 million balance. This may seem like a low coverage ratio. However, it is important to keep in mind that the NPLs have had $66 million in prior charge-offs. The remaining general reserve of $47.7 million represents about 1.21% of the performing portfolio. We feel the level of reserve at year-end is appropriate for the risk in the portfolio. We normally share with you the aggregate exposure on credits that exceed $15 million. At year-end that exposure was $402 million or 58% of the Bank's risk based capital. This is an increase of $21 million over the balance at September 30 when the ratio was 55%.

During the quarter we did not remove any borrowers from this list. We did add three names. A $5 million increase to $20 million for a western Pennsylvania manufacturer, a $20 million new exposure for a West Virginia pharmaceutical company, a $5 million increase to $16.8 million for an Ohio natural resource company. The Bank remains committed to carefully managing its exposure to larger credits. It must of course balance this risk with prudently supporting the needs of existing customers and taking advantage of good opportunities for new loans.

In sum, First Commonwealth has been actively addressing the asset quality problems that have hampered the banks in the last three years. We believe we are close to the point where asset quality will be in line with peer banks. I will now turn the call back to Mike.

Thank you, Bob. With that, we would now like to open the line and answer your questions.

Yes, sir. We will now begin the question-and-answer session. (Operator instructions) Bob Ramsey, FBR.

Hello, good afternoon, guys. I was wondering if you could tell me what the amount of new nonperforming loan inflows was this quarter, and then maybe how that compares to the third quarter or recent quarters?

The new nonperforming inflow was about $15 million, and that included one loan that was already -- that actually -- that is the increase in nonaccruals, but that includes a loan that was previously listed as a TDR.

Okay.

So, in terms of the actual new inflow of nonperforming, it would be probably more around $10 million, in that range, $9 million or $10 million.

And then how does that compare with recent quarters?

It's -- you know, the third quarter was unusual. We had a large jump-up in nonaccruals with the large relationship of the real estate developer that we talked about. And we had a large increase in June with the one shared national credit that went into nonaccrual. But I would say it's probably -- it's down from what it has been.

Okay. I guess that's really what I was trying to get at is, are we seeing a slowing of sort of new problem loans? And it sounds like we are.

We are. We look at the migration in and out of [to] criticize and substandard list, and the inflow of problem loans has been getting smaller.

Okay. Great. And I know you all also mentioned, in introductory comments, thoughts on capital saying that all options are on the table as you all get more comfortable with credit quality and that some of these issues may behind you, and suggested we are getting close to that point. Does that mean you all could be looking at these options in the first half of the year, or is it still too early to kind of pinpoint a timeline?

No, I think the driving catalyst for that is that we are sure that these actions here that we have done over the -- just the past quarter are effective. So, yes, that could be the first half, could be the second half.

Okay. That's helpful. I'll pop back out now. Thank you.

Thanks, Bob. Next question?

Mike Shafir of Sterne, Agee.

Good afternoon. I was just wondering, certainly there's a pretty detailed list here of different charge-offs. But I guess what I'm trying to figure out is, as you guys are moving things off the balance sheet in terms of selling it and so forth, what's kind of the average additional haircut that you're having to take from where you originally mark the loans as you bring them over into nonaccrual?

Bob Emmerich?

Well, when we take things into nonaccrual, Mike, we would do an impairment analysis and we would look at the appraisal and we would order a new appraisal. And we would take them in fairly consistently at whatever the new appraised value would be, less cost to sell. When we move things into OREO, we generally take a discount against that, and would be taking them in less than the appraised value.

Okay. So, as you're moving things out of OREO and -- what have you experienced as the additional haircut to that to actually move it off your balance sheet?

I would say it was a mixed bag.

It is kind of a mixed bag.

Each one's unique.

Well, let's just take for instance some of the stuff that got moved off the balance sheet this quarter, pretty significant decline in NPAs, a lot of it was charged off, some of it was sold. On the things that occurred this quarter, what would you say, is it another 10% haircut or to actually move it versus being held in OREO?

We are generally dealing with a handful of properties, and they all tend to be unique. The one property that we sold out of OREO this quarter was the land in West Palm Beach, and we had that written down to $3.9 million and we sold it for a little over $5 million. So, there was a gain over where we were carrying it at, I think $1.3 million. And I don't think we had any other properties, larger properties in OREO that were sold. We have a lot of houses we would repossess or kind of small business properties, but that was the only significant OREO asset that was -- .

Okay. And then just as we are moving forward on some of this credit resolution, last quarter you guys outlined several credits that were kind of near some kind of resolution, and I think you commented on some of those including the $11 million loan, which was just recently sold. Is there anything else that's kind of in contract or on the horizon that we can expect to see moving out in the first quarter?

The food processing plant in central Pennsylvania where we took the write-down, we do have an offer to purchase that. There would be potential that could close in the first quarter.

Okay. And then the offer that's pending, I guess for lack of a better term, is that consistent with where you have the loan currently marked?

It's above where we have it marked.

Okay. And then just, clearly, it seems like the mentality has changed just a little bit in terms of trying to expedite the process on troubled loan disposition. Has there been any attempts or have you guys thought about doing something on a larger scale? And speaking to the capital that you guys have, is there a possibility to move things in bulk?

You know, we've looked at all the assets. When we looked at the three that we moved to held-for-sale, we picked the three that would be the most saleable. And we have really only a handful of maybe a dozen other nonperforming loans that are over $1 million, and one is the $20 million unsecured loans of the real estate developer that's under a forbearance agreement. We've got another two years to run on that. That would not be one we would be looking to sell. The other is the C&I loan to a computer processing company that is a participation and we wouldn't look to sell that. We have carefully looked at what would be appropriate to sell, and we have felt these three made the most sense.

Thanks a lot, guys. I appreciate all that detail.

Thanks, Mike. Next question.

Damon DelMonte, KBW.

Hi, good afternoon, guys, how are you? This is probably best for Bob Rout regarding the securities portfolio. Could you just give us a little perspective as to how we should think about future purchases in upcoming quarters?

Yes. We added some securities on, as I mentioned in my comments. We will continue to add, but what's really going to dictate that, of course, is the loan growth. We'd much rather put these funds into loans and relationships rather than securities. If we see loan growth begin to stall, you will see us adding to that portfolio. If loan growth continues at the clip that we had here in the fourth quarter, we will probably hold where we are at currently.

And these purchases and securities are being funded primarily from short-term borrowings; is that correct?

I would say the last couple purchases were, yes.

Okay.

Or the most recent.

Okay. Great.

And maturities.

With respect to the expenses this quarter, you went through a lot of detail. There seems to be a lot -- you said a lot of noise, a lot of one-time items. From a modeling perspective, if we look at the $48.6 million that was reported this quarter, what would you estimate we would back out on a go-forward basis?

Well, I mean the big piece is $4.5 million write-downs on OREOs. Hopefully that's done. We had some special adjustments to the severance accruals. On severance, we had some recruiting costs related to executive search. So, those would be the big ones.

Okay, so if we want to quantify that, we would say roughly call it $5 million or $6 million?

Yes, $6 million-plus.

At least.

Yes. I would say closer to $7 million.

Okay. That's helpful. Thank you. And then, lastly, you mentioned the $402 million or 58% of risk-based capital represent loans that are greater than $15 million, and you identified three names that were added this quarter. I caught the last two -- the $20 million one in West Virginia, a $16 million one in Ohio. What was the first one again?

It was an increase of $5 million to $20 million for a western Pennsylvania manufacturer.

Western PA, okay. And then, do you guys consider West Virginia and Ohio as in-market relationships?

The West Virginia was Morgantown and -- .

We do a fair amount of calling in kind of northern Ohio, and we also do some calling in kind of the Philadelphia, Baltimore corridor as well.

I would say it would be in-market for commercial real estate or investment real estate, and also our corporate finance-type activities.

Yes.

Maybe on a small business, middle market business.

But these are loans that are being sourced by First Commonwealth? You're not doing syndicate deals or participations necessarily?

No. It would be a combination. But it would be probably more syndications than it would be directly sourced.

Okay. That's all I had for now. Thank you.

Thanks, Damon.

Collyn Gilbert, Stifel Nicolaus.

Just actually a follow-up to that point. And maybe this sort of ties it all together -- because it looks as if your out-of-market purchase syndicated credits were up year-over-year. So, given, Bob, what you said, I mean, could we see continued growth in out-of-state loan participations again?

That's one of the, I guess, legs of the stool. We want to grow our small business and direct lending, we want to grow our student loans, and we are focused on middle market direct lending in western Pennsylvania. We have done a lot of hires on that, and we expect that will start bearing fruit. And we've got a syndications portfolio that we would want to manage well, and if there's good opportunities, take advantage of them.

What would that be, good opportunities? Just trying to understand the benefits of doing an out-of-market syndicated portfolio? Where do you see the benefits?

Well, we have good relationships with a handful of banks, small handful of banks, and would participate in club deals with them if they looked like they were attractive assets.

And do you see that just as an alternative, I guess, to sort of putting it in securities or -- I mean, can you get good structures credit? Because I would think pricing would probably be low. Again, just trying to understand sort of the overall return on that type of pursuit.

Well, this is Mike. When I think about that portfolio, which is roughly $0.5 billion of $4 billion, it carries with it a lot of fees, and generally pretty rational pricing. And so from time to time we will do a transaction like that, with a trusted partner, and those tend to be our highest-rated credits.

Okay.

And still, probably two-thirds of that book is in western Pennsylvania.

Yes. Actually, it's more than that, about 70% of the names there in the corporate finance are western PA, and we agent two credits here in the fourth quarter.

Okay.

Anything else?

No. That was it. Thank you, guys.

Thank you. Next question?

Frank Barkocy of Mendon Capital.

Hi, guys. Could you give me a little bit better prospective regarding the NIM for 2012? It looks like you have some room to bring down the cost of funds a bit more, but you're -- at the same time, you've been growing your securities portfolio, which is the lower yielding relative to loans. Are we likely to see a further contraction albeit modest to moderate type of decline?

Hi, Frank, Bob Rout here. Couple parts to your question. Yes, we do have more room on the deposit side. With $600-plus million of CDs maturing at 1.29%, there's some room there. Still a little bit of room in the core deposits. From time to time, we run special rates for our money markets in order to attract DDA balances, and some of those will run off as well as they have moved onto more normal pricings.

But I think the real key to stabilizing or keeping that margin stable is going to be dictated by what type of loans we are getting on the -- or what type of yields we are getting on the loans. So, you're absolutely right -- the more funds that we put into the security portfolios, the greater the pressure on the NIM, and the more we can put on loan growth, the greater benefit for that. So, rather than give you projections, I would tell you it's going to be our focus to put more loans on than securities.

And Frank, the other area where we've had some success is just our mix of our deposits, and with our small business and cash management efforts to improve the funding mix to lower cost, obviously noninterest bearing and low cost savings. And we feel like we've had good traction there through our retail bank and our business banking efforts.

Just a follow-up. What drove the loan growth in the fourth quarter, and do you feel optimistic that trend witnessed in the quarter can be carried over into 2012?

Yes, this is Mike. The growth really stemmed from about two-thirds of the $80 million-plus was really on the retail side, kind of split between just your basic branch second mortgage HELOC lending kind of grassroots kind of stuff. Also we had a good quarter in indirect auto, and that portfolio has been very clean through the years. In fact, we saw our credit quality on our FICO scores there go up. So, two-thirds of the action was retail, the other one-third was corporate banking, and it was a good quarter. I don't know that we can maintain that, but we feel like we can continue to grow it over the course of the next year.

Thank you.

Matt Schultheis, Boenning and Scattergood.

Good afternoon, gentlemen. Actually most of my questions have been answered, but I do want to ask you, with regard to loans that were resolved this year, that had gone south at some point in the past, but loans that were resolved in 2011, whether it was a sale of OREO or a partial repayment and the rest was charged off, what was your loss severity for those, overall in aggregate?

Boy, I don't know that I have a figure, a number on that, and I'd have to get back to you. And there is -- the severity on the, particularly the construction loans and the -- and a lot of the investment real estate, the severity has been high. But again, we just probably have to get back to you. I wouldn't want to give you a number off the top of my head without doing some research on it.

Okay.

Yes, this is Mike. I mean, you look at the loan portfolio, and on page 6 of the supplemental deck, that $76 million left in construction was above [$450 million] just a couple years ago, and the severity of loss there would be pretty high, but I think on the other stuff it would be markedly different. So, we will get back to you with kind of a blended figure.

Okay. Thank you very much.

Bob Ramsey, FBR.

Hello, thanks for taking the follow-up. You all mentioned in your comments that the unallocated reserve is about 1.2% of your performing loan portfolio. Do you have that figure last quarter, just as a point of comparison?

0.96%. It's a range between 0.96% and 1.22% over the last, maybe, eight or nine quarters.

Okay. And then, I was wondering if you could also maybe provide some sort of update about the timeline to be expected for the CEO search, and I guess maybe when the Board will make a final decision on staying internal or external.

Yes, this is Mike. They have engaged Korn/Ferry, and expect that to conclude in March, April time frame.

Okay. Great. Thank you very much.

Thank you.

Gentlemen, actually we are showing no further questions at this time.

Well, thank you. We appreciate your questions, and please don't hesitate to call Bob, Bob or I, and we will be more than happy with any follow-up. Thank you so much.

And we thank you gentlemen for your time. This concludes today's conference call. We thank you all for attending today's presentation. At this time, you may disconnect your lines. Thank you.