FNB Corp (FNB) 2012 Q3 法說會逐字稿

Good day and welcome to the F.N.B. Corporation third-quarter 2012 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 Cindy Christopher, Manager of Investor Relations for F.N.B. Corporation. You may begin.

Thank you, and good morning, everyone. Welcome to our third-quarter of 2012 earnings call. This conference call of F.N.B. Corporation and the reports it files with the Securities and Exchange Commission also contain forward-looking statements. All forward-looking statements involve risks, uncertainties, and contingencies that could cause F.N.B. Corporation's actual results to differ materially from historical or projected performance.

Please refer to the forward-looking statement disclosure contained in our third quarter of 2012 earnings release, related presentation materials, and in our reports and registration statements F.N.B. Corporation files with the Securities and Exchange Commission and available on our corporate website. F.N.B. Corporation undertakes no obligation to revise these forward-looking statements to reflect events or circumstances after the date of this call.

I would now like to turn the call over to Vince Delie, President and Chief Executive Officer.

Thank you, Cindy. Good morning, everyone. Welcome to our third-quarter earnings call. Joining me today on the call are Vince Calabrese, our Chief Financial officer, and Gary Guerrieri, our Chief Credit Officer. I will be discussing highlights of our third-quarter financial results and the strategic rationale behind the acquisition of Annapolis Bancorp. Gary will then discuss our asset quality, and Vince will provide a detailed review of the operating results and our outlook for the last quarter of the year.

The third quarter was another great quarter for F.N.B. We delivered strong performance through our continued ability to generate sustained loan and deposit growth while managing risk and expenses.

Net income was $31 million, or $0.22 per diluted share. This represents a 16% increase in earnings per share over the prior year period.

Return on average tangible assets was 115 basis points, which also compares favorably to the year-ago period. Additionally, revenue growth, excluding the benefit of accretable yield, was 4% annualized, consistent with the 4% growth we saw last quarter.

The net interest margin was 3.7%, in line with our previous guidance. Vince will provide details and guidance for the next quarter in his remarks.

We were pleased to see continued progress in the efficiency ratio as we closely manage expenses and fully realize cost savings from the Parkvale acquisition. The third quarter's level of 56.8% is on target with our expectations and has been trending downward through 2012. Again, this metric shows year-over-year improvement.

Looking at loan and deposit results, our portfolios further expanded through strong organic growth in loans, transaction deposits, and customer repurchase agreements. Total average loan growth equaled $135 million or 7% annualized when excluding the Florida portfolio and reflects growth in both our core commercial and consumer portfolios.

Our core Pennsylvanian commercial portfolio grew nearly 9% annualized and continues to be the primary growth engine, accounting for 68% of the current quarter's average growth. We are seeing positive results and market share gains across our footprint, and we continue to add new client relationships. Year-to-date, significant new commercial relationship growth is 12% higher than last year at this time. This growth only includes significant middle-market relationships that meet specific revenue thresholds. Our small-business unit has also had great success this year. Through the end of September, small-business production is 16% higher than 2011's full-year production. These middle-market and small business relationships will continue to benefit us in the future through additional revenue opportunities as the economy improves and we begin to see an increase in line utilization.

The consumer portfolio experienced an excellent quarter with 12% annualized growth. Production was strong, and the pipeline is at a record high going into the fourth quarter.

If you look at slide six, you can see these positive loan growth trends. It's worth noting that we have achieved 13 consecutive quarters of total organic loan growth, even with the planned declines in the Florida portfolio and the acceleration of prepayment speeds in a residential mortgage portfolio. Despite these factors, we continue to generate meaningful growth. For the third quarter, loan growth, net of these portfolio reductions, was nearly 10% annualized.

We believe that the quality and consistency of our earnings is a differentiating factor as demonstrated by our positive pre-provision net revenue trends. Year-to-date, this measure has increased 21% over the prior year on a net revenue basis and 9% on an earnings-per-share basis.

In addition to our third-quarter earnings, we were pleased to have announced the acquisition of Annapolis Bancorp. Annapolis Bancorp is a well-respected bank with eight branches based in Annapolis, Maryland. We expect the deal to be highly accretive on a marginal basis. Given its overall size relative to F.N.B.'s total asset base, it should be slightly accretive to operating earnings-per-share.

What we gain from this transaction is an attractive entry point in a market characterized with very favorable demographics and long-term growth potential. Prospects for retail and commercial growth are strong, and the relative proximity to the DC and Baltimore areas present further opportunity for our corporate banking groups, asset-based lending team, leasing, and our wealth platform. There are over 35,000 commercial prospects with revenue exceeding $1 million located within a 50-mile radius of Annapolis Bancorp's headquarters.

In addition, Annapolis Bancorp's markets are expected to see further economic benefit from the base realignment and closure, or BRAC program. This has made the region a center of homeland security and defense functions. The relocation of the cyber and information assurance centers and other government organizations are projected to create significant economic growth.

This is a great opportunity for F.N.B. to expand beyond the southern border of Pennsylvania into Maryland, and we believe we will be successful for several reasons. We have a scalable, sales-driven business model that has proven success, and these higher growth markets should work well for us. There is a heavy concentration of commercial prospects in the market. This bodes well for our core competency as commercial bankers.

Secondly, we will leverage our regional model by creating a fifth F.N.B. region. Annapolis Bancorp has strong local ties to the community, and we intend to further develop these relationships.

Lastly, there are ample opportunities in the greater region to build scale through future consolidation.

Now I would like to turn the call over to Gary for his remarks on asset quality.

Thank you, Vince, and good morning, everyone. During the third quarter, our credit quality performance for the overall portfolio exhibited continued positive movement. In the Pennsylvania and Regency portfolios, we experienced stable to slightly better metrics on a linked-quarter basis, while our activity in Florida was very positive, providing further benefit to the Company's solid performance.

I would now like to direct you to slide nine as I cover some of the quarterly highlights with the focus of my commentary around the originated loan portfolio, followed by some brief remarks on the acquired book.

At the end of September, originated delinquencies stood at 1.66%, improving 13 basis points on a linked-quarter basis with the reduction in the level of Florida nonaccruals and the ongoing consistent improvement in the Pennsylvania portfolio as the drivers. The reduced levels of Florida nonperforming loans, as well as lower Pennsylvania commercial nonaccruals, moved the Company's nonperforming loans in OREO to 1.69% at September, ending 24 basis points better than June.

For the Pennsylvania portfolio, NPLs and OREO improved 10 basis points to stand at a very solid 1.14% for September.

Net charge-offs were relatively flat from last quarter at $7.4 million. However, as a percent of the originated portfolio, they improve 3 basis points to end September at 42 basis points annualized or 37 basis points when measured on a GAAP basis. Our reserve position on the originated book ended the quarter down 6 basis points at 1.43%, remaining directionally consistent with the performance of this portfolio.

Touching briefly on Florida, we are very pleased to report that we successfully resolved a $9 million nonperforming land-related credit during the quarter. The payoff of this loan brings our total Florida exposure, including OREO, down to $92 million.

As it pertains to the acquired book, the loan portfolio now stands at $1 billion. The amount of contractually past due accounts decreased during the quarter by $2.8 million to end September at $55 million with the majority of the linked-quarter reduction attributable to principal payments received on an underperforming commercial relationship. The portfolio did require a provision of $2.2 million following a reestimation of cash flows and was the result of some downward migrations in certain homogenous small-business loan pools. The largest specifically identified credits that are individually marked to fair value have performed better than expected. Any benefit of accretable yield that results from these accounts will be recognized over the expected life of these loans.

In closing, our portfolio demonstrated stable to improving trends across our key can credit metrics, reflecting the strength and consistency of our portfolio. As we move towards closing out another successful year, we continue to be very pleased with the current position of our book relative to this stage of the economic cycle.

I'd now like to turn the call over to Vince Calabrese, our Chief Financial Officer, for his remarks.

Thanks, Gary. Good morning, everyone. I will focus my remarks this morning on additional highlights of our operating results and our expectations for the remainder of the year. Let's begin with balance sheet highlights on slide 10.

As Vince mentioned earlier, the third quarter marks the 13th consecutive quarter of organic total loan growth. Excluding expected reductions in the Florida portfolio, total growth was a strong 6.9% annualized. Positive results were seen in both the commercial and consumer portfolios. Through continued market share gains, commercial growth for the Pennsylvania portfolio was strong, while the commercial line utilization rate remains stable at historical lows.

Consumer loan growth was also strong, benefiting from 13.7% annualized growth in home equity-related products.

On the funding side, growth for total deposits was 3.4% annualized with strong growth of $154 million or 8.7% annualized and relationship-based transaction deposits and customer repurchase agreements, which was partially offset by continued managed decline in time deposits. Our efforts remain focused on growing transaction deposits and customer repos with these balances supporting our net interest margin.

Non-interest-bearing deposit average balances grew $109 million, or 27.5% annualized, linked quarter, reflecting new account acquisition and clients increased liquidity.

Our deposit mix continues to strengthen with transaction deposits and customer repos comprising 74% of the total, and our cost of funds declined 3 basis points linked quarter.

The net interest margin of 3.70% included a 5 basis point benefit from $1.5 million in accretable yield due to better-than-expected cash flows on acquired portfolios. As I commented last quarter, this is only the second quarter that we are now using the new acquired loan accounting system we implemented last quarter. So it will still take some time to increase our comfort level with predicting expected results for future quarters as we get a few more quarters under our belt.

Even with that, though, actual results with or without accretable yield will equal to the guidance that we provided last quarter, mid-3.60%s with upside depending on the level of accretable yields.

Non-interest income increased 3.2% in the third quarter after adjusting for a $1.4 million gain on the sale of a building and modest net securities losses. Overall, our fee income results were favorable. Specifically, insurance commissions and fees benefited from seasonally-higher revenue, and gain on the sale of loans increased given the higher volume of residential mortgages we generated during the quarter.

Turning to noninterest expense on slide 12, total noninterest expense decreased 1.8% through continued expense control, cost savings related to the Parkvale acquisition, and lower OREO costs. The overall efficiency ratio improved to 56.8% compared to 57.7% last quarter.

Looking at our capital position on slide 13, regulatory capital levels at September 30 are all higher than last quarter, and the TC ratio at quarter end increased slightly to 6%. We continue to exceed all regulatory well-capitalized thresholds.

Now turning to our outlook for the fourth quarter of 2012, we have had solid results through the first nine months of the year that are largely within our expectations. With this in mind, our expectations for the last quarter are consistent with our previous guidance. We expect to achieve continued solid growth results for loans, transaction deposits, and customer repos.

Core net interest income was in line with our expectations, and we are still expecting the full-near core net interest margin to be in the mid-3.60%s and the full year as-reported net interest margin in the 3.70% range.

In the context of fourth-quarter expectations, we are looking for a modest compression in the margin given the continued pressure from reinvestment rates and the impact of accelerated prepayments on our residential mortgage portfolio. We look for noninterest income to be comparable to second-quarter levels as the third quarter included the gain on sale of our former headquarters building, and the fourth quarter typically has seasonally lower insurance commissions.

Through the realization of cost savings related to the Parkvale acquisition and our culture of expense control, we reaffirm our expectations for the full-year efficiency ratio to be in the high 50% area with the fourth quarter expected to be comparable to third-quarter levels. This is on a run-rate basis.

Non run rate items expected in the fourth quarter include costs associated with our previously-announced branch consolidation scheduled to occur in early November. As previously disclosed, we project these one-time costs to total $2.5 million pretax next quarter.

As Gary discussed, we are very pleased with our credit quality results through the first nine months of the year. Looking to the fourth quarter, we expect overall credit quality to demonstrate continued, consistent performance and believe the provision will be closer to $7 million, pending on acquired loan accounting results. On a full-year basis, this range represents nearly a 15% improvement over 2012 -- over 2011.

For taxes, we expect an effective tax rates between 28% and 29% on a GAAP basis next quarter.

Now I would like to turn the call back to Vince for his closing remarks.

Thank you, Vince. We are very pleased with the third quarter as well as our year-to-date results. We continue to generate sustained loan growth and attract new clients. We have also maintained disciplined expense control while continuing to invest in future growth initiatives. Our continued execution of these strategies will benefit us in the future and continue to contribute to top-line revenue growth. This past year has been especially busy and productive.

Through the first nine months, we have achieved a number of important strategic accomplishments beginning with the integration of the Parkvale acquisition. The acquisition has gone as we envisioned. According to the most recent FDIC data, we maintained our number three retail market position and grew deposits over 3.5% in the MSA. This growth was accomplished despite the consolidation of 17 branches.

We also gained tremendous ground in executing our e-delivery strategy with close to 30,000 mobile users to date. We are still in relatively early stages of this initiative with additional enhancements slated for release throughout the fourth quarter.

On last quarter's call, we formally announced an acceleration of our branch optimization plan. We are on target with our plans to reduce our retail branch network 7.5%, realizing run rate cost savings of $2.5 million. Keeping in mind that this is an optimization strategy, not just a cost-cutting measure, we have opened several de novo retail locations in high growth potential markets. Early-stage results for these branches are favorable, and we are tracking well.

We have also built on the success of our proprietary sales management system by deploying our scorecard tools to our wealth and private banking platforms. This is another example of how goal-setting and performance tracking and monitoring are embedded in the F.N.B. culture.

We were also honored to recently receive two Pittsburgh-area employer awards. For the second consecutive year, First National Bank has been named a top workplace by the Pittsburgh Post-Gazette and the best place to work by the Pittsburgh Business Times.

We are very pleased with the announcement of the acquisition of Annapolis Bancorp, an expansion of our footprint into the adjacent state of Maryland. We expect to close on this transaction at the beginning of the second quarter. I'm very excited about the progress we have made and our prospects for the future.

I would also like to congratulate our team on another great quarter. We look forward to replicating our success in a new market and continuing to gain share in our existing markets.

I would now like to turn the call over to the operator for questions.

(Operator Instructions). Bob Ramsey, FBR.

This is actually Tom Frick for Bob. I just had a couple of questions on the acquisition. I know you mentioned that the deal would be neutral at tangible book. Should we assume that it's also neutral to your TCE ratio?

Yes, I would say so. It would be neutral to that, also.

Okay. And then can you give us an estimate of how much goodwill you're expecting to be created from the acquisition?

Let me come back to you on that. I'll find that in my notes.

Okay, great. And then one last question. On the cash credit-related adjustment, the $0.36 per share pending the resolution of a certain credit, I was just wondering if you could give us some color on that credit.

We really don't want to get into a discussion on the credit, but I can tell you a little bit about the mechanics.

We, basically, in doing our due diligence, we have a fairly extensive process. So we covered a great deal of their commercial portfolio.

Yes, we actually covered 90% of the commercial portfolio, as well as 48% of the retail book, which was a very heavy coverage from that perspective.

So there was one credit in particular, it was fairly large that we decided that we would assign a mark to that they believed had a higher value. So basically, we agreed to permit some upside in moving that asset out, and that's what you're seeing in that structure.

Okay, great. And then would the credit mark then go down assuming that is resolved?

It will go down, depending on the resolution if a resolution does occur, and that's why we've given a range in terms of where we're looking at this one from a mark standpoint.

So essentially when you look at it, the adjusted price to tangible book declines if that asset is moved out because there's an adjustment, corresponding adjustment to the credit mark.

Right. Great, guys. That's all I had. Thank you.

Okay. Thank you.

Just to go back to your question on goodwill, it's preliminary, obviously, because it's not going to be final until you actually book it, but the preliminary number is in the low $20 million area that we would be booking.

Okay, great. That's what I had. Thank you.

Okay.

Thanks, Tom.

Damon DelMonte, KBW.

Vince, I was wondering if you could just take us through the process of looking to expand through Maryland versus maybe the western markets of Ohio or the eastern side of Pennsylvania. What really led you to see this market as being an attractive extension of your footprint?

Sure, Damon. As we discussed our M&A strategy in the past, we've often mentioned the expansion into the adjacent markets around Pennsylvania were appealing to us.

In the past, we've looked at other opportunities in the Maryland market, but we passed on those opportunities. What we found here was a unique situation in that we had a company that has a great sales culture. The leader of the company is a very good leader. He's agreed to stay on through a transitional period. The demographics in that particular market were very appealing and attractive to us.

When we looked at the landscape we felt that moving into the Annapolis market would be a smart move for us given that is not truly DC or Baltimore. It is its own markets. We felt this operation would give us a significant enough presence to build a team, and we have identified several people in the market that we have interest in to help us there. So all the stars aligned.

And I think when you look at it, the underpinnings there in terms of their local economy with the BRAC going on and that being cyber command for the US, there will be a continuous support in terms of job creation and businesses moving into the area.

And, as we've discussed in the past, we analyzed the markets that we're going to move into based upon the number of commercial opportunities that exist in addition to the demographics for the consumer side of the bank. And we felt that given that the high number of businesses located in close proximity to that headquarters -- I mentioned 35,000 over $1 million in revenue -- it was a very appealing area to move into.

Now, obviously, Ohio is still of interest to us. In-markets acquisitions would be of interest to us. But this was an opportunity that popped up that really was pretty compelling, and we felt it made long-term strategic sense for us.

And Damon, I would just add that given the relative size of it, it's a low-risk entry point into that market. And one of the things that we talked about is Annapolis becoming part of us, we can introduce our broader set of products, Wealth Management, and also have the opportunity to do some larger loan deals that they have the opportunity to do today that they could not do as part of a larger organization. So there are a lot of opportunities just right there in that market that we thought were compelling.

Okay. Great. That's great color.

And just one more question here on loan growth. Could you just talk a little bit about the dynamics you're seeing in your markets for -- in terms of pricing? On the commercial real estate side, what are you seeing in the way of spreads and structures?

Yes, I think it is -- pricing, as I've said, it's still a slug fest out there. People are trying to grow earning assets. So yields have come in a little bit. We've talked about that on the last call. I don't think that's changed. I think we'll see that for the foreseeable future given the margin compression that banks are experiencing.

The one thing I will say is what we've tried to do here is invest heavily in our ability to execute in the markets that we're in, and it's evident in the loan growth that we've had. So we've spent a good deal of time and energy and resources on our internal sales management process in identifying prospects and systematically pursuing those opportunities. I think given the markets that we're in, which are not high-growth markets, I think we've done very well, and it's proven in the results that you've seen, from a production standpoint.

But it's still tough out there. And for us, it has been for the last four or five years. So it really -- this isn't anything new. I think we just make sure that we put the right people in the right seats, and we put a very good sales management system to manage the process. And we'll just keep moving forward.

Okay. Great. Thank you very much. That's all that I had for now.

Thanks, Damon.

Thanks, Damon.

(Operator Instructions). Mac Hodgson, SunTrust Robinson Humphrey.

Vince, I am curious to get your thoughts back on the entry into Maryland -- get your thoughts on how big you'd like to be in that market and how big of a bank do you feel like you need in order to compete effectively? I'm assuming we should expect maybe some more deals down the road in that market. Just curious how large you would like to be in that region.

Yes, I think the beauty in this particular deal is we don't really have to look too far down the road. I think we're going to be able to achieve all the results that we've forecasted with the enterprise that we have and the focus on Annapolis.

Having said that, there are 20-plus banks in the markets from $500 million to $3.5 billion. So we don't really manage ourselves -- we don't shoot for a particular asset size. We just try to make sure that we're doing the right things to create shareholder value and improve earnings per share.

And I would say long-term I think there are lots of opportunities to expand in that market. And I think short term or intermediate term, we have a pretty good platform to leverage, to continue to provide EPS growth.

So that is how we looked at it. So I guess a little of both. We think we have a great platform today we can add to. And there are some talented people in that market that we know from our past that may want to join us, and we can build out a platform and we'll see how it goes.

As Vince Calabrese indicated, for us, that's a low-risk entry point into a new market, and we're going to make a go at it.

I would add to, Mac, just I think you guys know is that we don't have any arbitrary size targets that we have up on the wall here. We really look at each deal to stand on its own. We focus on maintaining top quartile profitability. And we'll be opportunistic as deals come up, but there's not a -- we have to get to X size by a certain period of time. Let's just do deals that make a lot of sense that are compelling like this.

And to Vince's point, there will be opportunities in that market as we go forward, and we'll just evaluate each one; it has to stand on its own.

Okay. Great. That's helpful.

And then, can you give us any color on expectations for cost savings and then weigh that against potential hiring you'll have to make to maybe build out the team there?

Well, some of the modeling that we've done included -- the preliminary modeling included adding several people to the platform. And really, that's what it entails, augmenting what is already there with some folks that can call up market. A CRE lender, for example, that could move upmarket because their internal thresholds were relatively low. There are a number of asset-based lending opportunities in the market that we could pursue. There are commercial deals that would require a different expertise. They didn't have a wealth platform, so we would probably be looking to add a few wealth people, a private banker or two.

But the management team there -- there's a great CEO. He's very bright, articulate man who understands the business pretty well, and he's agreed to transition to help us find a leader in the market and to transition for a year, and that gives us enough time to build out the team.

But from a modeling perspective, Mac, we don't have significant incremental increases in expense outside of what we've presented to you.

No, in fact, Mac, our model, the accretion we have it fully bakes in the adds to staff in those areas that we would supplement the team that's there. And a lot of those are producers, so they'll generate revenue. And it's all baked in. So we don't have anything beyond what's in our model that we need to add on top of that. We think there is a strong team that is already there.

Okay. Great. Just one last one. I know this is a small, like you said, a small transaction, but does this deal preclude you from doing the other transactions in the near term? Or do you still feel like you have the ability to do more than one a year?

Well, we've done -- in the past, we've done -- we did a $600 million deal and nearly a $2 billion deal simultaneously. So I would say we have capacity to do transactions. This single transaction would not prevent us from doing anything further.

Okay. Great. Thanks.

All right. Thank you.

(Operator Instructions). Matthew Breese, Sterne, Agee.

Maybe sticking with the expenses for a bit, just to clarify, was there anything one time this quarter that was in there?

In our expenses?

Yes.

No, I wouldn't say there was anything one time. Pretty clean quarter. The only real one-time item we had was on the income side to gain on the sale of a former headquarters building.

So from that $77.1 million, looking into the branch cost savings, so that is a $2.5 million annual savings, correct?

Yes.

Yes.

Okay. And then from what I'm gathering with Annapolis, it sounds like they run at a $3 million a quarter expense run rate, it seems like. Can we expect to just tack that on top come third quarter, second or third quarter next year?

Well, when we give our guidance in January, we'll give you full guidance with this fully baked into the model. There is cost savings in the low to mid 20s that are baked in. But once we roll it all up, then we'll give you that guidance.

I'm not really prepared to get into the modeling of next year at this point because we'll just wrap it all into our guidance for next year.

Okay. And then maybe we can hope to the margin for a minute. The core margin was down 5 basis points from the second to third quarter with a couple basis points more it sounds like in guidance for next quarter. Looking at 2013, is there anything really to stop the margin from flipping down 2 to 3, as high as 5 basis points a quarter through 2013?

As I said, we'll give full guidance in January. I think our goal overall is, as we've talked about in the past, is really neutral from an IRR position. We spend a lot of time managing the margin. I think the fourth-quarter expectation is just based on with how low rates are, the impact of reinvestment in our securities portfolio and the impact of pre-payments in the residential mortgage.

Now, the prepayments will -- those don't continue forever. The fourth quarter will probably still be heavy, and then that will probably get back to more normalized levels as you go forward. But, as far as the way we're managing the margin, we continue to have some levers available to us. We can continue to have a significant amount of CDs -- $450 million in the fourth quarter that will pick up 75 basis points on average.

Going the other way on the investment portfolio, we're basically giving up about 100 basis points on reinvesting about $150 million a quarter. So a smaller size, but that's rolling through the numbers.

So it's early for me to give you guidance for next year, but our job is to manage the margin and to manage it to be relatively stable given the environment that we're in and focus on bringing in the loans and the demand deposits to help us support the margin. And that drives the net interest income. So that's -- even though it's a challenging environment, that's our job to manage that. So we'll continue to do that.

Are there any large maturations of CDs or borrowings coming due over the next few quarters?

No, it's regularly anywhere between $400 million and $500 million a quarter. So there's not some big slug. It has laddered over time.

All right. Maybe hopping to a different item, I'm curious on the BRAC. The last I heard on that program it was really a couple of years ago that that was put in place, and I thought it had run through. But it sounds like there's still some benefit there. Could you remind us what -- how many jobs are being relocated to the area and some of the impacts to the DC surrounding markets?

They're on track right now to have -- building up to 60,000 jobs by 2015 is really the underlying --.

I'll tell you, having read a little bit about this and having a better understanding of it, what's really driving the local economy down there are the businesses that are relocating to support the cyber command. So there are a lot of IT companies that are relocating in that market to support those activities. And given what you're hearing with North Korea, China, the other countries investing heavily in their ability to conduct cyber attacks, I would expect that that line item in the budget of military spending to continue to grow over time. And I would expect there to be a considerable amount of support required for those activities in the market. I mean that's one of the aspects of it that's pretty interesting.

But there has been fairly significant growth in the market because of the initial wave of base consolidations. I think it's more about the future and what that area with Fort Meade and the Cyber Command means for the business community, longer term.

And again, our growth -- remember, we're used to competing in markets that don't grow at all and in many instances have shrunk over time. I've been in an environment where I had to compete in a shrinking market for years. So having any growth at all like we have with the Marcellus shale and Utica Shale here, believe me, it makes a big difference. And those markets already are much more dynamic than what we have -- more competitive, but more dynamic.

So I expect us to continue to produce at the levels that we produce up here or greater in those markets. And that's all we really modeled. So we weren't reaching for the stars.

And they are continuing to build that out. The 60,000 -- they are on pace -- they are still adding jobs to get to that figure. And when you're down there in that market talking to people, the BRAC is their Marcellus shale is the way they talk about it. Because it has really added such a strong underpinning to the economy there. And still more to Vince's point, that's going to get built out and then all those support businesses.

So there's still more -- definitely significantly more development to happen there.

Yes. I don't grab on -- even with the Marcellus situation, I've gone on a number of road shows, and people have asked specifically, how many jobs have been created and how much of an impact has it had. Some of this stuff is very difficult to indemnify. And even though there are research reports out there that indicate how much job growth there is off of a particular event, it's really difficult to get your arms around it. So we look at it anecdotally and directionally. And I think if you're in the market and you drive around, you see what's going on and you talk to people, you'll find that there is a lot of activity.

And then any update on Basel III?

Well, we went through an exercise last month with our board, and I guess I should start with, as you guys know, they are all proposals. We submitted a comment letter, as I'm sure every other bank is planning to submit a comment letter. But we went through and calculated the Tier 1 common ratio, where it is today, where it will be end of next year and then 2019. And we're fine. We don't have to really take any action on capital. We're above all the buffers and everything, until you get all the way to the very last year, the phase in of 2019. So when we looked at that, there's a comfortable cushion there.

And given that we are part of the group that has 10 years to phase out the trust preferred, that also gives us more time to have that capital. And over that 10-year period, we will replace that, but from a straight -- looking at Basel III the way it is written today, we're fine with where it is and don't have any immediate needs for the next three to five years because of that.

Okay. And then remind us the ability to phase up TRuPS, when do they mature or pay off?

They go out for still another 20, 25 years. They go out for a long time.

Okay. Thank you, guys.

Thank you.

Thank you.

And it appears we have no other questioners at this time. I'd like to turn the conference back over to our presenters for any additional or closing remarks.

Well, I'd like to thank everybody for calling in. I appreciate the time you've invested with us and hope you have a great day. Thank you.

And that does conclude today's conference. Again, thank you for your participation today.