FNB Corp (FNB) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to today's FNB Corporation Second Quarter 2009 earnings conference call. At this time, all participants are in a listen only mode. Following the presentation we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. As a reminder today's conference is being recorded.

And now I would like to turn the conference over to Frank Milano, Investor Relations contact for FNB Corporation. Please go ahead, sir.

Thank you. Good morning everyone. This conference call and the reports FNB files with the Securities and Exchange Commission often contain forward-looking statements relating to present or future trends or factors affecting the banking industry and specifically, the financial operations, markets and products of FNB Corporation. These forward-looking statements involve certain risks and uncertainties. There are a number of important factors that could cause FNB Corporations future results to differ materially from historical performance or projected performance.

These factors include but are not limited to the significant increase in competitive pressures among financial institutions, changes in the interest rate environment that may reduce interest margins, changes in prepayment speeds, loan sale volumes, charge-offs and loan loss provisions, general economic conditions, legislative or regulatory changes that may adversely affect the businesses in which FNB Corporation is engaged, technological issues which may adversely affect FNB Corporations financial operations or customers, changes in the securities markets, or risk factors mentioned in the reports and registration statements FNB Corporation files with the Securities and Exchange Commission. FNB Corporation undertakes no obligation to revise these forward-looking statements or to reflect events or circumstances after the date of this call. As a reminder a replay of this call will be available from 11 a.m. Eastern time today until midnight on Friday, July 31. The replay can be accessed by dialing 888-203-1112. The confirmation number is 3068754. A transcript of this call will be posted to the shareholder and Investor Relations section of FNB Corporations website at www.fnbCorporation.com. It is now my pleasure to turn this call over to Mr. Steve Gurgovits, President and CEO of FNB Corporation. Steve?

Thank you, Frank. Good morning, everyone. It's a pleasure to welcome you to our Second Quarter earnings call. Joining me today on the call are Brian Lilly, our Chief Operating Officer; and Gary Guerrieri, our Chief Credit Officer.

The Second Quarter was a very active quarter for the Company. In June, the Board invited me to stay on indefinitely as CEO. I accepted their invitation and set about making separate organizational adjustments. Vince Delie who previously served as President of the banking group was promoted to Executive Vice President and Chief Revenue Officer of the Corporation. In addition, Vince was also named President of First National Bank of Pennsylvania. This move sharpens the focus and alignment on generating top line revenue growth. Brian Lilly, formerly CFO, was promoted to Executive Vice President and Chief Operating Officer. In his new role, which is expanded, Brian has responsibility for all support groups, as well as risk management including credit risk, Regency Finance will also support to Brian. Vince Calabrese formerly Corporate Controller was promoted to Corporate CFO replacing Brian. This team is very talented and energetic and it will be a pleasure for me to work with them in these new roles.

As a result of my new assignment I recommend the duties of Chairman and CEO be separated. I believe this to be consistent with best practices for corporate governance. At the reorganizational meeting of the Board, William Campbell was elected Chairman of the Board. Bill is an excellent choice. He is one of our longest serving Directors, is a member of the Executive Committee and has been serving as the lead Director. Also in June with the capital markets once again reopen to the financial sector, we decided to pursue a capital raise and we successfully completed a stock offering. Our rationale behind the capital raise was it positioned FNB to take advantage of profitable growth. The capital raise will also strengthen our tangible common equity ratio while providing new opportunity to consider repayment of $100 million of CPP funds by year-end, which because of the capital raise would automatically retire one half of the warrants associated with the CPP funds. We also believe coming out of this financial downturn will be consolidation opportunities. Pennsylvania continues to be one of the least consolidated banking states.

Now to the Second Quarter. This was another successful quarter for FNB. We met the Street consensus estimate with earnings of $0.10 per diluted share. We strengthened our balance sheet with the equity offering. We made solid progress managing our Florida loan portfolio, and operationally, we continue to have success in capturing market share during this period of competitive disruption in our core Pennsylvania market. Brian will address our Second Quarter performance in more detail later in his presentation and Gary will provide additional inside into our asset quality.

With respect to our balance sheet, the June equity offering raised nearly $126 million in net proceeds which increased shareholders equity to over $1.1 billion and increased tangible book value per common share to $4.25. Regarding our competitive position, you will recall that we experienced solid organic loan and deposit growth last year and we accelerated that growth with the Omega and Iron & Glass acquisitions. The momentum on Deposit and Treasury Management Group continued in the Second Quarter of 2009. I'm pleased to report that we grew total deposits and Treasury Management balances as 5.4% organically Second Quarter versus Second Quarter a year ago. Interestingly, Second Quarter year-over-year organic growth per transaction deposit was 9.1% and Treasury Management grew 17.8% year-over-year. CD balances declined 2.6% organically for the Second Quarter on a year-over-year basis which is by design as our strategy continues to be focused on new customer acquisition.

On the lending side, the slowdown in the overall economy kept commercial loan growth to just 0.3% on a Second Quarter year-over-year organic growth basis. Although existing business customers are not borrowing much at this time, we are well positioned in our markets and have a solid team on the ground actively cultivating new relationships so I am confident we're winning our share of the business. This is demonstrated to some extent by looking at Pennsylvania loan growth on a link quarter basis with our new business origination initiatives delivering close to 4% annualized growth.

Consumer loan growth continued to be driven by home equity lines of credit and indirect installment loans which grew 20% on a Second Quarter year-over-year organic basis. The growth in home equity lines reflects the continued solid execution of our core growth strategies while the growth in indirect loans has been opportunistic as we captured business that weaker lenders have forfeited in that segment. Recent growth in indirect lending has slowed by design and we are currently managing this portfolio for only slight growth from current levels. Partially offsetting growth in the above areas, declines in residential mortgage and direct installment loans on a Second Quarter year-over-year organic basis reflect the higher levels of refinance activity experienced this year. Our strategy is selling fixed rate residential mortgages in the secondary market to manage interest rate risk, generating gains on sale of more than double our recent run rate. In total we reported year-over-year organic loan growth of 1%.

Now I'd like to turn the presentation over to Gary for his remarks about asset quality and the progress we've made with the Florida portfolio. Gary?

Thank you, Steve, and good morning, everyone. In looking at the Second Quarter, we were able to execute on our plan to reduce exposure in our Florida portfolio while the Pennsylvania and Regency portfolios continued to perform as expected at levels consistent with the First Quarter. Once again I'll review each segment of our portfolio with you starting with Florida.

During the quarter, we were able to reduce our portfolio from $302 million to $274 million. More importantly, we reduced our Florida non-performing assets by $22.7 million with a little more than half of that being driven by pay-offs and pay downs related to our land and condo portfolio and $11.2 million in charges. We also moved $5.7 million into other real estate owned bringing our Florida OREO to $7.9 million. With these actions, we have reduced our Florida NPAs 24%.

Florida now represents 4.8% of FNB's total loan portfolio and is supported by an 8.5% reserve reflecting a 36% coverage ratio of non-performing loans, an improvement of 7 percentage points over the prior quarter. As it relates to the Florida portfolio composition, land and land development has been reduced to 46% or $126 million. Our income producing segment is at 30% and construction loans represent 20% of the portfolio with the condo piece of that now down to $6.4 million or only 2.3%. The remaining 4% continues to represent C&I and owner occupied. Unfunded commitments total $24 million of which 80% are related to existing construction projects. At quarter end, our weighted average loan to value ratio for the portfolio stands at 66%, a 5 percentage point improvement over the First Quarter.

As it relates to the land portfolio, our current outstanding balances are being carried at an average of 39% of the original appraised value post reserve, consistent with the First Quarter. While the market continues to be difficult, the elevated interest and activity that we experienced near the end of the First Quarter has continued into the Second Quarter. We are pleased with the Second Quarter results; however, we remain cautious given the continued weakness in the Florida economy.

Turning to Regency Finance. It continues to deliver credit quality metrics consistent with our expectations and remains well within historical asset quality levels. At quarter end, the portfolio stands at $157 million representing only 2.7% of our total loan portfolio. Net charge-offs were $1.5 million, 25 basis points better than the First Quarter, annualized at just under 4%. Our reserve position at 4.1% is consistent with the prior period.

Let's now focus your attention on our core portfolio in Pennsylvania. Our results represent metrics very consistent with those of the First Quarter reflecting that our portfolios continue to withstand the challenge of the current economic environment. At quarter end, the portfolio was a little over $5.3 billion representing 92% of total loans. Non-performing loans and OREO as a percentage of total loans in OREO improved 2 basis points from the prior quarter at 1.13% while delinquency was up slightly at 1.97%, still at good levels at this point in the economic cycle. Net charge-offs were $4.9 million or 36 basis points annualized and were impacted by a $2.1 million charge off related to a prior acquisition that was previously reserved for.

For the first six months, net charge-offs are 27 basis points annualized which we consider to be very good levels. Our reserve position at 1.31% of total loans improved by 1 basis point over the prior quarter and covers non-performing loans by 136%. At $2.9 billion or 50% of total loans our Pennsylvania commercial portfolio is well diversified and breaks down as follows. 31% C&I, 36% in owner occupied real estate, and 33% in non-owner occupied real estate, which is consistent with the prior quarter. As we've discussed in the past, our non-owner occupied CRE portfolio at just under $1 billion continues to be well diversified across industry segments as well as our geographic footprint. This portfolio has continued to perform well in light of the challenging environment with only $12 million in non-performing loans representing 1.2% of the CRE portfolio, basically unchanged from the prior quarter.

Total delinquency including non-performing is 1.6%, three-tenths of a percent better than the First Quarter. You'll recall that our construction and land development portfolio is small at $170 million with only $40 million of that related to residential construction and land development.

We continue to be pleased with the performance of our consumer related portfolios which represent nearly $2.4 billion or 42% of total loans. This portfolio is represented by $1.2 billion in branch originated home equity loans and lines of credit of which 52% carry a first mortgage position with an additional 24% carrying second positions to FNB first mortgages. Indirect installments of $520 million, mortgages are $550 million, and direct installments in lines of credit of $130 million. Delinquency and losses relating to the total consumer portfolio continue to perform well through the Second Quarter at 1.52% and 27 basis points respectively. We attribute this steady performance to our consistent and sound underwriting practices, a more stable real estate environment and our decision to stay clear of participating in the higher risk product lines and brokered business arena.

In summary we continue to be pleased with the performance of our Pennsylvania and Regency portfolios and the progress that we made in Florida during the quarter. While the economy continues to present challenges, our region has weathered the slowdown better than most and we feel that our consistent approach to underwriting, knowledge of our markets and attentive management of our portfolios will continue to serve us well. I'd now like to turn the call over to Brian Lilly, our Chief Operating Officer.

Thank you, Gary and good morning everyone. We have addressed many of the Second Quarter details between last nights earnings release and the comments provided by Steve and Gary. I will focus my remarks on a few additional highlights of our operating results and an update of our guidance. Let me start with loans.

We look to continue the Second Quarter of mid single digit commercial loan growth in Pennsylvania. Given the economic environment this growth is more a reflection of market share gains than expanding existing customer relationships. The pipelines continue to be healthy, though many companies have become more deliberate in their decision-making thereby keeping growth lower. We have also forecasted the continued exiting of Florida problem credits which is expected to partially offset the overall commercial loan growth. The consumer refinance activity will continue to reduce the mortgage and home equity installment loan portfolios while the home equity lines of credit will continue to show good growth in this environment. For total loans, we are reaffirming our prior guidance of flat to small increases going forward.

Looking ahead on the funding side we expect to continue our momentum in growing core transaction deposits and Treasury Management balances. Given our success in the first half of 2009, we are reaffirming the mid single digit growth with continued focus on adding new customer relationships and further enhancing the mix of deposits by focusing on growing a lower cost deposit product instead of the higher cost more price sensitive CDs. With our loan to deposit and Treasury Management balances ratio at a strong 86%, we're very well positioned to fund loan growth once demand picks up. We were pleased to hold the net interest margin at 3.7% for this quarter, after adjusting for the 3 basis points pick up on a few loans returning from non-accrual status. The yields on earning assets and rates paid on liabilities will continue to lower over the coming quarters given the current rate environment. These movements are expected to be closely matched resulting in a steady net interest margin. One caveat is that the increased liquidity from deposits exceeding loan growth may put pressure on the ability to maintain a flat margin in the short run.

Regarding non-interest income we saw nice increases in several categories. We did get the expected seasonal lift in service charge income as NSF, ATM fees and check card income contributed to the $1 million increase. We also realized higher gains of a sale of residential mortgage loans which more than doubled to $1.1 million for the Second Quarter. Our Wealth Management businesses of trust and security sales bounced back from a lower First Quarter revenues but they continue to be affected by the overall performance of the financial markets and interest rate levels when compared to last year. Other non-interest income did include approximately $800,000 in recovery related to prior acquisition accounting for loans. This amount was offset by the net $740,000 other than temporary impairment charge taken in the Second Quarter. The impairment charge was split $400,000 related to the bank stock holdings and $300,000 related to the credit component of one full trust preferred security. The remaining bank stock portfolio is comprised of 27 holdings totaling $2.9 million.. After taking this quarters OTTI charge the remaining portfolio is only $52,000 under water with the single largest unrealized loss of just $35,000.

Regarding the one pool trust preferred security impairment charge, the amount of actual and projected deferrals and defaults have pushed past the year-end assumptions to trigger the additional credit impairment charge. Recall that we have 13 pools with an original cost of $41 million and a book value of $31 million. Our assumptions per valuing credit impairment versus the actual deferrals and defaults have tightened up in the Second Quarter. We continue to have room in our substance for a prolonged economic weakness but we have seen certain pools perform worse than others.

While there are a lot of moving parts in the non-interest income, we expect low to mid single digit growth from our fee businesses with the exception of mortgage gains. The mortgage origination volume is still above average but it's slowing down given the recent increases in longer term rates.

As you know the link quarter expenses increased $5.3 million and was driven by a $4.7 million increase in the FDIC insurance and the netting of other seasonal expenses. We continue to focus on expense control but have made some investments in marketing and key hires to take advantage of the market opportunities. That said we have projected expense levels to be consistent with the Second Quarter excluding the special FDIC assessment.

Gary provided an excellent overview of the credit quality. We continue to expect elevated levels of non-performing assets, net charge-offs and provisioning for credit losses particularly as we continue to pursue opportunities to reduce our Florida exposure. The Second Quarter showed good progress in Florida and stability in the Pennsylvania portfolio; however we remain cautious. As you know, many of the assumptions are driven by the economy and could worsen with prolonged recession. You've certainly noted the capital rates positive impact on our capital ratios. Even with a buyback of the CPP preferred shares, the total risk-based capital would be a strong 13%. Steve, that completes my remarks.

Thank you, Brian. Let me close by saying how pleased I am with our Second Quarter accomplishments. I've been with FNB for well over 40 years and never have I been more optimistic or energized about FNB's market opportunity. We've built a very strong team of experienced bankers who live and work in the local communities, our offering of products and services I believe is very competitive. In spite of our recent success we feel most of the competitor customer disruption still lies ahead. We've begun a very focused media campaign which will play out over the next couple of quarters. This campaign will support direct marketing and individual calling efforts in an attempt to garner more new customers. Many households and businesses will be choosing a bank in the coming months. First National Bank is the right choice right here, right now.

I want to thank you for your interest and participation in today's call and I'd like to ask Stephanie to pole the audience for any questions.

Thank you, sir. (Operator Instructions) We'll take our first question from Damon DelMonte with KBW.

Hi, good morning guys.

Good morning.

Good. Thanks. With respect to the provision could you just repeat the comment that you made the very end of your comments, Brian, regarding your expectations going forward?

Well, I think we didn't give any specific guidance on the provision itself, but in total, we see the credit costs in this environment being elevated and so as you saw our provision cost for the first couple quarters are certainly above our historical run rate and I would say that we expect that to continue.

Okay. That's great, thank you, and Steve, I think at the end there you made a comment about, or maybe it was you Brian, I'm sorry, with the repayment of TARP of where your total capital ratio would be, given that level, where do you stand in the process of looking to repay TARP?

Well, Damon, to take you back, we took the $100 million of CPP funds as an insurance policy back and really made the decision in the Fourth Quarter last year based on our economic outlook for '09 and rising unemployment in kind of a soft economy which unfortunately all that has come to pass. We want to pay it back as soon as we feel comfortable that the worst of the economic climate is over and maybe we can start to see light at the end of the tunnel economically. It's our hope and we've been on record as saying this, it's our hope to be able to pay it back by year-end and we certainly have the liquidity to do so, but we're just, we wanted to look at the Second Quarter and each month that goes by would give us more confidence hopefully to go ahead and begin to process to repay.

Okay, great, thank you, and then just the last question as far as modeling purposes, what's a good tax rate we should be using?

Well, I think as long as the provision is high, our tax rate going to be in the mid 20s level going forward.

Okay, great. Thank you very much.

(Operator Instructions) And our next question comes from Andy Stapp with B. Riley & Company.

Good morning.

Good morning, Andy.

What is the remaining balance of your trust preferred securities and what's the overall margin on those?

Let me give it to you in pieces. Recall that we have about $55 million in total of original cost. If you break out the single names we have $14 million and we're carrying those at about $0.63 on the dollar through the OCI for the single names. Now if you go to the pooled securities we have an original cost of about $41 million and with the year-end and the small action that we took here, there's a net book value of $31 million, so $0.75 on the dollar is actually sitting in the equity accounts and on the records of the Company right now and if you look at what's actually marked through the OCI, there's an additional approximately 50%, so we're about $0.30 on the $1 from the original cost that we have at trust.

And could you refresh my memory what tranches are these pooled primarily in?

Yes, of our 13 tranches we have one that was AAA, and the others were all mezzanine.

Meaning BBB?

No, when they were written, they were A.

Okay. And you happened to have 30 to 89-delinquencies as well as the change in the -- link quarter change in the watch list?

In terms of the delinquencies, Andy, at the end of the Second Quarter they were $49 million, 30 to 89 and that breaks down 30 to 59 is $38 million and 60 to 89 is $11 million.

Okay.

Andy, we have, that was a new disclosure we put into our asset quality data when you get deep into the earnings release on the financial schedules you'll be able to see it there too. And the watch list is something that we just don't share that.

Okay. And in other non-interest income, was there any non-recurring items there or is that a good run rate?

In the other non-interest income?

Yes. Yes, the last line item.

I think the one item I tried to identify was we had about $800,000 of recovery from prior accounting on the loans and you'll recall that we also had about $800,000 last quarter, so although it looks relatively flat, that actually would be closer to $3.5 million.

Okay. And what are you seeing in terms of CRE? Are you seeing disturbing trends there?

Andy, we have not at this point. As I mentioned, our CRE delinquency is actually improved from the First Quarter. We're watching it very closely. We're monitoring the markets and while we are talking to some clients that there is a little pressure on rents, we are not seeing issues at this point at the end of the Second Quarter.

Okay, thank you.

Something that we're continuing to monitor very closely.

Okay, thanks. That's all I have.

Moving to our next question from Mac Hodgson with SunTrust Robinson and Humphrey.

Hi, good morning.

Good morning, Mac.

I didn't have many questions. I was just curious, if you give any color or if you had any insight on the good deposit flows and where you think it's coming from, do you think it's coming from smaller community banks or large banks or coming out of the stock market? Any color you might have on the successes there?

Well, I think it's a little bit of all that, with the market performance undoubtedly some of that has flowed back into bank deposits but what we're really excited about Mac is it's not in the CDs. It's really in the low cost core deposits and in a number of cases new relationships and we think that's coming from the disruption in the marketplace and the obvious one is the PNC deal and then the subsequent spinoff the First Niagara but there's still other issues with other competitors and that's starting to become a little more visible if you will. The customer impact is much, I think in the initial phase a lot of it was on some of the commercial accounts, but as we move through the Summer into the Fall I think you're going to see more of it from the consumer accounts, and I would suspect that the business accounts with annual renewals of lines and so forth again we will see opportunities to talk to new customers. In some cases these are the result of calls we're making and frankly, candidly in some cases the result of calls customer prospects have made to us and invited us in to talk about their credit arrangements and I think people now are looking around and shopping for new banks and that's where our marketing efforts I think will support the calling efforts that we're making that are along the lines of you're going to have to make a decision and you should consider FNB as an alternative.

Okay, great and I was wondering if you could also maybe walk through just from an M&A perspective how the Company identifies and vets acquisition opportunities.

Well, Mac, we're an record as saying post-spin that what we wanted to do in order to accomplish the EPS component of our total shareholder return, we needed some growth on our balance sheet, although modest growth, and we identified Pittsburgh and a move into Pennsylvania, initial phase was central Pennsylvania because the demographics are stronger, Pittsburgh because it's a large market and I think we've been true to our vision and our execution, we've concentrated on Pittsburgh, we have a great team on the field in Pittsburgh, we're doing a lot of the marketing work in Pittsburgh and the traction is starting to show in the numbers. If you'll recall last year most of our commercial loan growth came out of the Pittsburgh market and Pittsburgh remains active this year. Central PA with Legacy and Omega gave us a nice foundation there so we're continuing to look at building out Pittsburgh. We're continuing to look at building out Pittsburgh, we're continuing the focus and water the flowers if you will in Central and East and Southeast Pennsylvania again because the demographics are so strong.

Having said all of that, our immediate focus is on the disruption in the market and the chance to get this organic growth. I've been with this Company a long time but I've never seen the opportunities for organic growth like I see now, so that's our number one focus.

And what about lift out opportunities and you may have kind of just referenced that, but hiring teams of people maybe from the PNC and that city?

Yes, we're working on that. In fact we should have some good news to share with you probably within the week on a team that we were able to lift out and put together that's going to join us in the not too distant future.

Okay, great. Thanks for the detail.

Our next question comes from Mike Schaefer with Sterne Agee.

Good morning guys. I was just wondering as we think about the mortgage banking income and I know that it was almost double from the First Quarter, are we going to go back to levels similar to the First Quarter or are we still going to be, remain at elevated levels from there?

The pipeline continues to be elevated, if you will, from our run rate of the past and that will spill over into the third quarter. We did see a definite slowing of the volume with the rates that ticked up and I think as you know it's very sensitive to that, if rates were to come back down I think we would see another push up in that and so we're kind of in the same boat you are with the third quarter and guide you that it's not going to go back to the prior levels but I think eventually it does.

Okay, and then as we kind of think about that other other non-interest expense line, I mean, it seems like as a whole, that that line item is going to be elevated now moving forward as a function of just higher FDIC fees outside of the special assessment, would that be accurate?

Yes. Yes, that would be accurate. We had about a $700,000, if you think about it from First Quarter to Second Quarter, $4.7 million in total FDIC increase, $4 million is what we shared with you as a special assessment so there was the $700,000 increase from that. And plus we have seasonal expenses including marketing. Marketing was a net increase of about $900,000 from First Quarter to Second Quarter and that will be, that's our Spring campaigns and normal activities. That's not even throughout the year, so that will come back down towards the back half of the year, but I think in total what we tried to give you was the guidance that if you net out the FDIC expense that we're looking to maintain levels pretty close to that for the next number of quarters.

Okay and then just finally I was wondering is -- the diluted share count is probably going to go to around $114 million next quarter?

Yes.

Okay. Thanks a lot guys. Appreciate it.

Sure Mike.

Our next question comes from Jason O'Donnell with Boenning & Scattergood.

Good morning gentlemen.

Good morning, Jason.

Listen, just a couple questions. Wanted to put a finer point on the delinquency trends you're seeing. In terms of the Pennsylvania portfolio, what type of total delinquencies are you seeing on the residential mortgage portfolio?

The residential mortgage portfolio was right around 3% at the end of the quarter, Jason, and that's up about 6 basis points, six-tenths of a percentage point over the Second Quarter. It seemed to have stabilized near the end of the quarter and the group feels quite comfortable with it at this point. We are continuing to work that portfolio very aggressively and not seeing increases in losses in that portfolio at all. It's continuing to run true to form from that perspective.

Okay, great and what about on the commercial real estate side?

The commercial real estate, the non-owner occupied portfolio is running at 1.6% down three-tenths of a percent from the First Quarter, so it's holding very very well.

Okay. And the owner occupied?

The owner occupied is just slightly above that. It's running about 1.8%.

Okay, great. In terms of the strong growth you're seeing in consumer lines of credit, I'm just wondering how much of that was driven by new relationships versus increased line utilization?

It's a little bit of both, but I'd have to pull out a detail report but it is both, Jason, and utilization is up slightly but that's where we picked up. A lot of customers are going to the variable rate because it's even more attractive than some of the fixed rates that are out there if they're financially able to manage that and so we've been picking up some of the refinanced mortgages into our line of credit product with new relationships and new balances so it's not just the utilization.

Okay, great and in terms of are you seeing material changes in line utilization on the commercial side?

Nothing that is significant. In fact as we put on a number of newer relationships those percentages have gone down and if you look at our historical book pretty consistent to maybe slightly up.

Just an additional comment, the customers are being very diligent in managing their debt levels and they're actually reducing those lines pretty aggressively through this cycle.

But Jason, if I could just add-on to that, it's not bothering us now because as we put on these new relationships even though some of the line balances are zero or very small, we do believe when the economy picks up, not only our new customers but our existing commercial base obviously will have higher utilization as they begin to rebuild working assets.

Okay, great. Thank you.

(Operator Instructions Our next question will come from David Darst with FTN.

Good morning.

Good morning, David.

Hi, David.

How much of the TARP cash and then the cash from your common rates have you injected into the subsidiary bank?

As of quarter end, $38 million has actually been pushed into the bank, and what we had targeted was to put a total of $118 million down into the bank and we're going to use the other $80 million that's going to be a tax efficient internal trust preferred strategy and that will save us some capital stock, as you recall in Pennsylvania that's how we pay our income taxes through a capital stock tax so in total $118 million.

So the other $80 million, could you explain that again?

It's -- it will -- if you're familiar with internal trust preferred strategies, if your question is you're not familiar with that it's a little esoteric, but what you're allowed to do is get approval from the OCC to carry in essence the bank issuing trust preferred securities to the corporation. And it gets accounted for regulatory capital in the same ways that the Corporations do, but it saves Pennsylvania capital stock tax. So it's not shown as straight equity. As opposed to sticking $180 million in equity investment we split it up into the two to save some taxes.

Okay, and how much cash then would you have available to repay the TARP following if you inject essentially $200 million into the bank?

Well, it's a good question, if you think about it in total after the capital raise we were sitting on in excess of maybe about $280 million of total cash at the core and as we told you before, we stayed liquid in the $100 million of the regional TARP, raised $126 million and then had about $60 million of cash at the corp. And we're all done here assuming the payback, we're taking $118 million, stuck it down into the bank, paid back the $100 million of CPP, and then we would be sitting with a corp. Of about $60 million for corporate use which is equal to about a years of dividend and interest expense on our corporate trust.

Okay. And then could you give us your retail commercial real estate exposure?

In terms of the retail portfolio, that portfolio across our sector is $182 million in our CRE portfolio, David.

Okay, and then are you seeing changes in vacancy rates within your marks in the commercial real estate portfolio?

Generally speaking, there is slight pressure across the portfolio but no major reductions at this point. As I mentioned earlier we're continuing to monitor that CRE portfolio very very closely.

Okay, thank you.

Our next question comes from Frank Schiraldi with Sandler O'Neill.

Good morning guys.

Good morning, Frank.

Hi, Frank.

Most of my questions have been asked and answered. I just had, I think I missed one point, on the $10.5 million in charge-offs that came from the two credits, what were those loan balances prior to the charge-offs, the total loan balances of those two credits or relationships whichever it was?

Those two loan balances were just under $19 million.

Okay, and you said those were sitting in non-accrual status?

Yes, they were.

Okay, great. That was it. Thank you.

Thanks.

(Operator Instructions) It appears we have no further questions at this time. I'd like to turn the conference back over to you gentlemen for any closing remarks or statements.

Okay, thanks, Stephanie. We just want to thank everyone for their interest and participation on our call and wish everybody a very good weekend. Thank you so much.

That does conclude today's conference. Thank you for joining us.