Premier Financial Corp (OHIO) (PFC) 2012 Q3 法說會逐字稿

Good morning and welcome to the First Defiance Financial Corporation third quarter 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 call event is being recorded.

I would now like to turn the conference over to Terra Via. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us for today's third quarter earnings conference call. This call is also being webcast and the audio replay will be available at the First Defiance website at FDEF.com.

Providing commentary this morning will be Bill Small, Chairman, President, and CEO of First Defiance Financial Corporation, and Don Hileman, Executive Vice President and Chief Financial Officer. Following their prepared comments on the Company's strategy and performance, they will be available to take your questions.

Before we begin, I'd like to remind you that during the conference call today, including during the question-and-answer period, you may hear forward-looking statements related to the future financial results and business operations for First Defiance Financial Corporation. Actual results may differ materially from current management forecasts and projections as a result of the factors over which the Company has no control. Information on these risk factors and additional information on the forward-looking statements are included on the news release and in the Company's reports on file with the Securities and Exchange Commission.

And now I'll turn the call over to Mr. Small for his comments.

Thank you, Terra. Good morning and thank you for joining us for the First Defiance Financial Corporation conference call to review the 2012 third quarter. Last night we issued our earnings release reporting the third-quarter 2012 results, and this morning we would like to discuss that release and look forward into the rest of this year.

Joining me on the call this morning to give more detail on the financial performance through the third quarter is Executive Vice President and CFO Don Hileman. Also with us this morning to answer questions is Jim Rohrs, President and CEO of First Federal Bank. We will answer any questions you might have at the conclusion of our presentation.

Third quarter 2012 net income on a GAAP basis was $5.4 million, or $0.54 per diluted common share. This compares to net income of $4.1 million and $0.36 per diluted common share in the 2011 third quarter. Net income for the first nine months of 2012 is $13.5 million, or $1.29 per diluted common share versus $11.5 million and $1.06 per diluted common share for the nine months ending September 30, 2011.

We are extremely pleased with the earnings results this quarter, not just with the strong bottom-line number, but with the overall quality behind the earnings. Without a doubt, the improved credit quality was a significant factor in the strong quarter. But another quarter of loan growth, coupled with margin improvement and strong non-interest income led to improvement on the income side. These strong showings for the quarter, coupled with continued good expense control, resulted in the strongest quarter we have seen for some time.

As we said last quarter, we felt that we had completed the changes we needed to make in our own portfolio to adjust to our new regulators' guidance, and had anticipated stronger credit metrics beginning this quarter. As a result, we saw a major improvement in the key credit metrics in our third-quarter performance. Charge-offs, classified loans and nonperforming loans all showed solid improvement this quarter.

As we continue to focus on loan quality, the increase in loan growth in the third quarter was another solid indicator of the Bank's performance. The slow loan environment that we have all been experiencing over the past several years has made loan growth a challenge. So, a second straight quarter of growth after the first quarter decline was certainly welcome.

The uncertainty amongst many businesses as to the overall economic environment has made them cautious regarding new capital investments. Our loan growth this quarter does reflect some increase in new demand. However, much of the growth continues to come from opportunities to bring on new relationships through the diligent efforts of our [CALL] program. We will continue to look for these opportunities while maintaining our strong underwriting practices and pricing discipline.

The deposit side of the balance sheet saw some reduction in average total deposits, but at positive mix variance. Noninterest deposits were up over 13% compared to the period ending December 30, 2011, and almost 4% over the linked quarter. The low rate environment has pushed many depositors to park funds in liquid accounts as they await an opportunity for higher returns, and we need to be prepared to (technical difficulty) the deposit mix when rates do rise.

Even with the increase in loan balances and the positive shift in the deposit mix, tax equivalent net interest income for the quarter was basically flat with the linked quarter, and down slightly compared to third quarter 2011 results. Net interest margin was down compared to the year-ago period. However, it was up 5 basis points over the linked quarter.

The current interest rate environment does not show any signs of abating soon based on most forecasts following the Fed announcement last month. The challenges on the net interest margin in this low rate environment persists as we see continued competitive pressure on the asset yields and, as we noted last quarter, the ability to offset declining yields on the asset side with additional rate reductions on the deposit side are diminishing. So this will remain a challenge for margin management.

Noninterest income was up in the third quarter of 2012 compared to both the year-ago period and the linked quarter. Mortgage banking income was strong again in the third quarter as the low mortgage rates continued to attract activity. While refinance activity still represents a majority of the mortgage business, there has been some increase in purchase activity in 2012.

Fee income, while up over the linked quarter, was less than the third-quarter 2011 results. Income attributed to insurance and wealth management was down compared to the linked quarter, but is substantially higher on a year-to-date basis. These are both areas that we feel have a great potential and we will work to build on them.

Noninterest expense was up over the third quarter of 2011 and the linked quarter. However, core operating expenses were pretty much in line with prior periods.

I will now ask Don Hileman to give you the financial details for the quarter before I wrap up with an overview and a look of what we see developing for the balance of the year. Don?

Thank you, and good morning, everyone. We are very pleased with the significant improvement in our financial results this quarter. We continue to see loan growth and strong noninterest income.

The main driver of the earnings improvement over the third quarter of 2011 and on a linked quarter basis was a reduction in the provision for loan loss. As Bill noted, net income available to common shareholders was $5.4 million, which was an increase of 53% over the $3.5 million in the third quarter of 2011.

EPS for the third quarter was $0.54 per diluted share, which was an increase of 50% over the $0.36 per share in the third quarter of 2011. Year to date the diluted earnings per share was $1.29, up from $1.06 in 2011. The 2012 EPS includes the adjusted impact of $0.06 per share relating to the redemption of the TARP preferred shares in the second quarter of 2012.

We are very pleased with the overall profitability and in the improving asset quality trends we've seen. This gives us some encouragement that the material negative impacts from adverse credit issues are waning, and we are in a more stable environment.

Total noninterest income grew 13% year over year. We also had continued improvement in the levels of nonperforming assets and classified loans on a linked quarter basis as well as year-over-year. Of significant note was the lower level of net charge-offs which helped drive the reduction in the provision for loan loss.

Total credit-related expenses, which includes the net gain loss on the sale of OREO, OREO repairs and write-downs, collections and secondary market buyback costs, was $567,000 in the third quarter of 2012 compared with $555,000 in the third quarter of 2011. We saw strength in mortgage banking originations, which reached $146 million in the quarter, $65 million more than the third quarter of 2011.

The percentage of originations for purchase and [obstruction increased to] 26% in September, which is the highest monthly level in over a year. Overall mortgage banking income for the quarter was $2.2 million, compared with $1.4 million in the third quarter of 2011 and $2.3 million on a linked quarter basis.

We had gain on sale income of $2.9 million in the third quarter of 2012 compared with $2.1 million in the third quarter of 2011 and $2.5 million on a linked quarter basis. We also recorded a negative valuation adjustment to mortgage servicing rights of $600,000 in the third quarter of 2012, compared with a negative valuation adjustment of $1.1 million in the third quarter of 2011.

At September 30, 2012, First Defiance had $1.3 billion in loans serviced for others. Mortgage servicing rights associated with these loans had a fair value of $7.8 million or 60 basis points of the outstanding loan balance in service.

Total impairment reserves, which are available for recapture in future periods, totaled $2.4 million at quarter end. In the third quarter of 2012, we did not have any OTTI charges, reflecting a stable economic environment as it relates to our remaining investments in trust preferred collateralized debt obligations.

Turning to other operating results, our net interest income was $17.2 million for the third quarter of 2012, relatively flat on a linked quarter basis and down from $17.6 million when compared to the third quarter of 2011. For the third quarter of 2012, our margin was 3.8%, up five basis points on a linked quarter basis and down 9 basis points from the third quarter of 2011.

The 5 basis point increase in the third quarter of 2012 from the linked quarter is attributable to up to an increase of -- or $19.7 million in average loans and a decrease of $28.8 million in average earning interest-bearing deposits, resulting in a decrease in overnight investments and interest-earning assets. We also had a full quarter impact on the TRUP subordinated debenture, too, that moved from a fixed rate to a floating rate, decreasing that interest expense by $138,000 in the third quarter of 2012 compared to the same period in 2011.

Our yield on earning assets was flat while our cost of funds declined to 7 basis points on a linked quarter basis, with the overall margin increasing to 3.8% from 3.75% on a linked quarter basis. Overnight deposits decreased to $60 million at the end of the quarter from $72 million on a linked quarter basis and are down from $100 million at the end of -- or third quarter of 2011.

Our available for sale securities portfolio was $269 million at September 30, 2012, up from $233 million at year-end 2011 and September 30, 2011. We saw competitive loan pricing pressure continuing in the third quarter, with the yield on loans declining 17 basis points to 4.84% on a linked quarter basis.

The overall loan portfolio grew in the quarter where we saw strong growth in the commercial category along with growth in the multifamily residential area. We expect growth to continue at a moderate rate over the course of the year.

Noninterest income was $7.8 million in the third quarter, up from $6.9 million in the third quarter of 2011. Fee income was $2.8 million in the third quarter of 2012, flat on a linked quarter basis, and down from $3.1 million in the third quarter of 2011.

Net NSF fee income was $1.1 million for the third quarter of 2012 compared to $1.4 million for the third quarter of 2011 and $1.1 million on a linked quarter basis. Insurance and wealth management revenue was $2 million in the third quarter of 2012, basically flat with the third quarter of 2011 and $2.2 million on a linked quarter basis.

Overall, noninterest expense increased to $16.5 million this quarter compared to $15.5 million in the third quarter of 2011. This quarter includes $366,000 in expenses related to an increase in deferred rent liabilities associated with leases that are considered one-time. The third quarter compensation and benefit expense was $8.2 million, basically flat with the third quarter of 2011, but an increase from $8 million on a linked quarter basis.

Other non-interest expense increased to $3.2 million in the third quarter of 2012 from $2.7 million in the third quarter of 2011, an increase from $3 million on a linked quarter basis. The main driver behind the increase from 2012 and 2011 third quarters is mainly due to $107,000 increase in the value of the liabilities of deferred compensation plan in the third quarter of 2012 compared to a decrease in those values of $283,000 for the third quarter of 2011.

On a linked quarter, other than non-interest expense increased $216,000, primarily due to the aforementioned increase in the value of the liabilities of the deferred compensation plan in the third quarter of 2012, compared to a decrease in those assets' values of $72,000 on a linked quarter basis.

The following is a three-quarter trend of certain significant expenses. Real estate owned expenses were $256,000 in the third quarter of 2012 compared to $316,000 in the third quarter of 2011 and $217,000 in the second quarter of 2012. Credit and collection expenses were $196,000 in the third quarter of 2012 compared to $196,000 in the third quarter of 2011 and $289,000 in the second quarter of 2012.

Secondary market buyback losses were $115,000 in the third quarter of 2012 compared to $99,000 in the third quarter of 2011 and $73,000 in the second quarter of 2012. Secondary buyback losses have not been significant in the past and the Company continues to review and monitor our secondary marketing servicing procedures to comply with changing servicer guidelines.

We are pleased with the significant client net charge-offs this quarter and we believe that overall credit quality will continue to improve. Our provision expense totals $705,000, down from $3.1 million a year ago and $4.1 million on a linked quarter basis. Provision included approximately $330,000 due to the [overall loan notes] in the quarter.

Our allowance for loan losses decreased to $26.3 million from $33.3 million at December 31, 2011. The allowance percentage decreased to 1.74% from 2.61% a year ago. The overall reserve percentage declined on a linked quarter basis as well, from 1.76% to 1.74%.

The allowance represented 62.48% of our nonperforming loans, up from 58.32% on a linked quarter basis. The allowance to nonperforming assets was 58.53% at September 30, 2012. The 2012 third-quarter provision was $100,000 less than net charge-offs for the quarter.

As mentioned in the past, we believe that we had a good opportunity for recoveries in the future due to the nature of a conservative approach to charge-offs on some collateral-dependent loans with an exhibited collateral shortfall. We had recoveries of $770,000 this quarter. The overall reserve level is adequate based on the sustained general weakness in the economy, but as we see improvement in the economic environment and with continued reductions in classified loans, we would expect a reduction in the [required] overall allowance level and corresponding provision expense.

Classified loans declined 5.1% this quarter. Total classified loans decreased $4.8 million to $90.3 million at September 30, 2012 from $95.1 million at June 30, 2012. We expect continuing improvement in 2012 in the level of classified assets.

Annualized net charge-offs were 22 basis points for the third quarter of 2012, down from 178 basis points on a linked quarter basis, and down from 155 basis points in the third quarter of 2011. Of the total charge-offs, 50% related to commercial real estate loans, 23% to commercial loans, 14% residential, and 13% home equity.

Nonperforming assets ended third quarter at $45 million, or 2.19% of total assets, down from 2.77% of assets -- total assets at September 30, 2011 and down from $48.8 million, or 2.36%, on a linked quarter basis. Total non-accrual loans decreased to $37.8 million from $41.7 million on a linked quarter basis and were down from $48.3 million at September 30, 2011.

Construction loans remained relatively stable on a linked quarter basis. Construction loans are considered nonperforming because of changes in the original terms granted to borrowers. It is important to note that these loans are still accruing interest.

Total past due and non-accrual rate was 2.87% at September 30, 2012, down from 3.77% at September 30, 2011. The delinquency rate for loans 90 days past due (inaudible) non-accrual decreased to 2.47% this quarter from 2.76% in the second quarter of 2012, and from 3.27% at September 30, 2011.

While we are not satisfied with the overall levels of 90 day delinquencies and non-accruals, of the total non-accrual loans of $37.8 million, $23.4 million, or 62%, are under 90 days past due. We are also encouraged that loans delinquent 90 days or more past due declined $3.9 million or 9% in the quarter. We had a slight increase in the 30-day to 90-day levels of delinquencies this quarter compared to the second quarter of 2012, but it declined from the third quarter of 2011.

As I have mentioned in the past, we expect this indicator to be somewhat choppy in the near term until we see a consistent downward trend develop. Our OREO balance declined from the third quarter of 2011 and ended third quarter of 2012, at $2.8 million and was down from the linked quarter of $3.5 million. The OREO balance is made up of $2.5 million of commercial real estate and $278,000 of residential real estate.

We had additions of $549,000 in the third quarter of 2012, offset by sales of $1.1 million and valuation adjustments of $36,000. We saw the balance sheet decline slightly from the third quarter of 2011 with total assets of $2.1 billion at September 30, 2012.

On the asset side, cash and equivalents declined to $92.4 million from $190.2 million at September 30, 2011. Securities grew $36.3 million, or 16%, over the year to $269.7 million.

Gross loan balances increased $51.6 million year over year and increased $11.5 million on a linked quarter basis. Loan activity in general has showed mixed signs of picking up and we'll continue to be prudent in our new loan activities and underwriting.

Total deposits increased $19.4 million over the same period a year ago and decreased $4.3 million on a linked quarter basis. We are pleased with the mix of deposits, as we have seen a growth in non-interest-bearing balances. Non-interest-bearing balances increased to $271.3 million at September 30, 2012, up from $239.6 million at September 30, 2011.

Deposit mix and pricing opportunities are a continued focus of our overall strategy in the efforts to reduce cost of funds in this interest rate environment.

Total period-end stockholders' equity ended September 30, 2012 at $255.1 million, down from $275.1 million as of September 30, 2011, reflecting a reduction in the capital due to the redemption of TARP. Our capital position remains strong with average shareholders' equities to average assets of 12.29% at September 30, 2012 compared to 13.22% at September 30, 2011.

The Bank's risk-based capital ratio is strong at approximately 13.8%. We believe we are taking the right steps to well-position the Company for future success.

In October, the Company executed a balance sheet restructuring strategy to enhance the Company's current and future profitability while increasing its capital ratios and protecting the balance sheet against rising rates. The strategy required a one-time net loss of approximately $260,000 through selling $60 million in securities for a gain of $1.6 million, and paying off $62 million in Federal Home Loan Bank advances with a prepayment penalty of $2 million.

The ongoing positive effects of this transaction will be -- increases to net interest margin and net interest income, improvement in capital ratios, and increases in the return on average assets and return on average equity. Again, this transaction occurred in October.

That completes my overall update for the quarter and I'll turn the call back to Bill.

Thank you, Don. I view the 2012 third quarter as a cornerstone period for First Defiance. The solid performance for the quarter validates the strong core pretax pre-provision results that we have maintained throughout this economic cycle. I believe it demonstrates a sound business plan we have in place and have continued to execute on.

We paid off the last of the TARP preferred shares at the very beginning of this quarter and just continued to build momentum throughout the period. Now our focus is on maintaining that momentum going forward. As we progress through the final quarter, we are aware that there are still many challenges to a sustained economic recovery. Throughout the year, our primary objectives have been asset quality, expense control, and revenue growth.

We have made positive strides in all three of these areas to date, and we will continue with this effort to meet the challenges and maintain profitability. While we are focused on these, we will be monitoring developments and changes in the economy, locally, nationally, and globally. There remains an extremely challenging business development market out there with uncertainty in the economy, limited loan demand in all banks and high liquidity positions.

We are actively engaged in a culling program, both on potential and existing clients, to develop new business and solidify existing relationships. We are hoping that recent indications of increased opportunities and stronger loan demand continue to build. We feel the proactive approach we took in our recent move to restructure the balance sheet will benefit us from -- both from a near-term and a long-term perspective. As Don mentioned, this will have a positive impact on the margin, earnings, and capital.

The overall economic climate throughout our market area remained subdued after showing indications of gaining momentum last year. Uncertainty relative to regulations, taxes, and the upcoming elections in this country, combined with the concerns with the global economy, has stalled what was already viewed as a tentative recovery.

Unemployment has improved during the year, led by the automotive industry's strong presence throughout this area. However, if things continue to slow with the economy in general, we could lose that advantage.

Agriculturally, it's been a roller coaster ride throughout 2012. An unseasonably warm spring allowed crop inputs to be completed early and build enthusiasm for another strong harvest. The dry, hot summer, however, quickly tempered that enthusiasm.

Late-season rains offered limited help to the driest of areas. And harvest results, while mixed, have been better than anticipated. Many of our agricultural customers do carry crop insurance and that will help cover some of the harvest shortfall for them.

We spent considerable time monitoring the drought situation throughout the summer months to assess crop insurance coverage and liquidity positions for our farm clients. The strength of this industry over the last several years has helped, as many of the farmers entered this year in strong cash positions.

We do expect, however, that due to the crop insurance payment schedule, more farmers will be utilizing their operating lines for 2013 crop inputs, something many did not need to do in 2012. This could have a positive impact for us, as it would increase outstanding loan balances.

The housing market continues to be one of the biggest issues facing the full recovery of the economy. With supplies still high and prices, while showing some recovery, remaining historically soft, it appears that this sector's recovery will remain slow. However, even in this environment, our mortgage production continues to be a strong contributor, as the lower rates have stoked the refinance activity. As I mentioned earlier, we have seen an increase in purchase loans in the last six months.

Our mortgage pipeline appears to be strong entering the fourth quarter, but beyond that it's hard to predict. Our retail lenders have built strong relationships with realtors and consumers, and this gives us an advantage over many others in maintaining a steady flow of mortgage business.

We feel as if we have positioned the Company well to move forward to the areas that we have some control over. However, not everything is within our control. Concerns remain with the regulatory and legislative scene on several levels.

We remain concerned with the direction of the Consumer Financial Protection Bureau and some of their proposed rulemaking and recent positions on banking practices. We will be working with our industry to encourage regulations that offer protection to consumers without hindering our ability to offer affordable financial products.

With all these challenges, we continue to build on our strong core strategy and philosophy. Our mission is to be a community bank that provides a complete line of financial services with a relationship-oriented approach on a profitable basis.

The staff we have throughout this organization all work hard so we can achieve that goal, and they deserve much credit for our success. I thank them for their diligence and loyalty, and I thank you for joining us this morning on the call. And now we would be happy to take your questions

(Operator Instructions) Christopher Marinac, FIG Partners.

Thanks. Bill and Don, good morning. Just wanted to ask a little bit about the customer behavior, if you felt that folks who may be holding back this last couple of months, or has their behavior been consistent with previous quarters? Just curious on the color as you see this, or loan pipeline and behavior from a lending perspective.

Actually, I guess we've been fairly pleased with how it's held up, Chris. It just seems like every time the economy starts to show signs of rally, there is something that causes it to stumble. But for the most part, I would say customer behavior has remained cautiously optimistic.

Yes, I would agree. I think both our residential pipeline are still very strong on the mortgage banking side this quarter and we're seeing a pretty stable commercial pipeline. I think part of where we benefited from the loan growth was we are seeing less payoffs and less, I guess, competitive pricing that some of our credits are going to our competitors. So I think it's pretty strong so far.

Okay. And then from a deposit perspective, like you seeing any additional opportunities to price even lower on funding than you have? Is there still some window to ratchet down funding even more?

It wasn't very big.

Not very big. I thought it was probably closer in last quarter than we were able to eke out a little bit more. I think we are probably -- I sound like a broken record, but I think we are probably at the bottom there.

We still have -- like I mentioned, mix helped us, transitioning into higher levels of non-interest-bearing deposits. I think there is a little bit more opportunity there, but we are rolling off of pretty similar rates right now on the CD side, so.

Okay. Very good, guys. Thanks very much. I'll let someone else get in queue.

(Operator Instructions) John Barber, KBW.

Good morning, guys. Don, I think you said that your overnight funds dropped to $60 million from $72 million. I'm just wondering, is that the right level for you guys? And also what type of securities are you buying? What is the average yield? Thanks.

You know, I think that's pretty close to the right level on the overnight. As we still look to stay liquidity, our regulatory environment is pretty focused on liquidity. So I think that's pretty close if not at the right level, John, for us, especially with the continued opportunities, maybe, for some load demand.

Where we are looking at, the securities side is probably low 2%'s, 2.25%, 2%, with an average duration pretty similar of 4 to 5 years on the securities purchase side. But we haven't done a lot of that here recently.

And then as we are now -- as we've always said, we're going to try to look to fund loans versus increase our securities portfolio. So with loan demand picking up a little bit, that's where we will use any excess liquidity.

All right. Thanks. And then on the balance sheet restructuring, that $260,000 you said, is that before or after tax number?

That's the after-tax.

That's the after-tax. Okay. Just curious; the $60 million of securities you sold, what was the average rate on those? And also -- I think you have $20 million of FHLB advances left -- what the cost will be going forward on those?

It was just below 2% on those, on the securities purchase. What was the other part of the question?

And then the FHLB advances, I believe you have about $20 million left, just what that cost will be on those going forward.

I think that was going to be around [2-something] is the average cost on that going forward.

Okay great. And your insurance revenues this quarter were down a little bit. I was just wondering if there was anything unusual that happened, or is that just normal customer flow?

I think that's a little bit of the cycle. Nothing that I'm aware of that -- any unusual items in the insurance revenues.

All right. And that last one I had was just on capital management. Just wondering if you guys could talk about the dividend and also your appetite for bank deals, and also insurance type acquisitions?

As far as the capital management is concerned, dividends certainly are high on the list. We continue to evaluate our position on that, but it certainly is our intent to be a dividend-paying Company.

We've been asked by many about cash buybacks and that, right now, is not anything that we've got on the table as far as a managed capital management tool. So I think that our focus will be primarily the dividends.

From an acquisition standpoint, we certainly are open to looking at further opportunities, both on the insurance side and on the bank side. One of our focuses is get our stock back up to the tangible book level and above, to hopefully make that for better execution. But we continue to evaluate opportunities that are out there and are open to, as I said, both the insurance side and the bank side.

Bill, Don, thanks a lot.

Okay. Thank you, John.

Eric Grubelich, Highlander Bank Holdings.

Hi. Good morning. Could you repeat what you said about the FHLB advances that you prepaid in terms of the volume and the prepayment penalty, and the rate on those?

Sure. Let me grab that.

And the other question I had was just on the mortgage banking. What was the volume of production you had this quarter that generated the gain?

I think we originated about $48 million -- no, that was -- I'm sorry, that was for the month. Yes, I was going to say (multiple speakers) about $146 million for the quarter. We are getting you the information on the FHLB advances.

It was $62 million of advances with the prepayment penalty of $2 million.

And what was the rate on those?

That rate was in the -- I'm going to say 3.80%, I think was what the average rate.

Low 3.80%'s, I think, was the effective rate of that.

Okay. Perfect.

We did have one advance that we -- a $7 million one this quarter that we repaid that wasn't -- didn't have a prepayment. It was procured so -- lowered our [balance sheet] more.

And how long did you have to go on that $62 million? What was the remaining maturity on it?

Probably around 3 years, 3.5.

Okay. No, that's good enough. Thanks. Okay. That's it for me. Thank you.

Christopher Marinac, FIG Partners.

Thanks, guys. I just wanted to ask about the efficiency ratios, just from a bigger picture perspective. I mean, if you look at into 2013 and beyond, is there opportunity for you to run in a different overhead level? And just kind of curious how you think about that, not a specific number, but just more of an in-general trend.

As we start to plan and look at our financial planning for 2013 and beyond, we looked at our efficiency ratio and feel that -- we think it will be a little higher than what we were running this year because of more or less the pressure on the revenue side than on the expense side increase. And I'm not sure there's a lot of strategies that we could employ that would reduce expenses enough to keep the levels we were running at here in the last several quarters. So I would expect an increase in our efficiency ratio.

Okay. Great. But that's not necessarily being driven by expenses or the regulatory costs. It's already blended into your run rate.

That's correct. We don't think there is a lot of expense there. When we look at that, it's mostly because of the revenue contraction and how we can generate more overall revenue. That's why the insurance acquisitions are attractive to us to help that revenue growth.

Okay. Great, Don. Thank you again.

At this time, I show no further questions. I would like to turn the call back over to Terra Via for any closing remarks.

Thank you for joining us today. And since there are no further questions, we will conclude our call. Thank you.

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