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Operator
Good afternoon, my name is Mike, and I will be your conference operator today.
At this time, I would like to welcome everyone to the Simmons First second-quarter earnings conference call.
All lines have been placed to mute to prevent background noise.
After the speakers' remarks, there will be a question-and-answer session.
(Operator Instructions)
Thank you.
Mr.
David Garner, you may begin your conference call.
- Investor Relations Officer
Good afternoon.
I am David Garner, Investor Relations Officer of Simmons First National Corporation.
We want to welcome you to our second-quarter earnings teleconference and webcast.
Joining me today are Tommy May, Chief Executive Officer, David Bartlett, Chief Operating Officer, and Bob Fehlman, Chief Financial Officer.
The purpose this call is to discuss the information and data provided by the Company in our quarterly earnings release issued this morning.
We will begin our discussion with prepared comments, and then we will entertain questions.
We have invited institutional investors and analysts from the investment firms that provide research on our Company to participate in the question-and-answer session.
All other guests in this conference call are in a listen-only mode.
I would remind you of the special cautionary notice regarding forward looking statements and that certain matters discussed in this presentation may constitute forward looking statements and may involve certain known and unknown risks, uncertainties, and other factors which may cause actual results to be materially different from our current expectations, performance, or achievement.
Additional information concerning these factors can be found in the closing paragraphs of our press release and in our form 10-K.
With that said, I'll turn the call over to Tommy May.
- Chairman, President, CEO
Thank you, David.
Welcome, everyone, to our second-quarter conference call.
In our press release issued earlier today, Simmons first reported second-quarter earnings of $6.7 million or $0.39 diluted EPS.
During Q2, 2011, we recorded an after-tax gain of $688,000 from the liquidation of Class B shares we received as parted of the MasterCard 2006 IPO.
Also during Q2, we incurred after-tax merger-related costs of $101,000 and branch right-sizing costs of $86,000.
Excluding these nonrecurring items of $501,000, our Q2, 2011 core earnings were $6.2 million or $0.36 diluted core EPS.
On June 30, total assets were $3.3 billion, and stockholders' equity was $404 million.
Our equity-to-asset ratio was a strong 12.4%, and our tangible common equity ratio was 10.7%.
The regulatory tier-one capital ratio was 21.1%, and the total risk-based capital ratio was 22.4%.
Both of these regulatory ratios remain significantly above the well-capitalized levels of 5% and 10% respectively and rank in the 97th percentile of our peer group based on March 31, peer versus our June 30, actual.
Net interest income for Q2, 2011, was $27.3 million, an increase of $2 million or 8.1% compared to Q2, 2010.
Net interest margin for Q2, 2011 was 3.9%, an increase of 7 basis points from Q2, 2010, and 3 basis points from Q1, 2011.
The increase in both net interest income and margin was primarily due to a higher yield on covered loans acquired through acquisitions, compared to the yield on loans in our legacy portfolio, and a continued decrease in cost of funds.
Non-interest income for Q2, 2011, was $14.4 million.
Included in Q2, 2011, is a $1.1 million gain from the sale of MasterCard stock.
Looking back to the same period last year, non-interest income also included a non-recurring item of $3 million which was the bargain purchase gain related to our FDIC -assisted acquisition of Southwest Community Bank in Springfield, Missouri.
Normalizing for these non-recurring items core non-interest income for Q2, 2011 was down 6.9%.
Now, let me take a moment to discuss several items that impacted our non-interest income.
First, the most significant item is the $1.1 million gain on the sale of the MasterCard stock.
From the time of the initial offerings, it has been our intention to sell both the MasterCard and Visa stock when the holding periods were satisfied and the stock price reflected full value.
While Visa has not yet met the holding period, the MasterCard stock has met all requirements, thus our decision to liquidate the stock.
The second item, credit card thieves increased $221,000 or 5.5% on a quarter-over-quarter basis.
This increase was due to a higher volume of credit and debit card transactions.
In July, the Federal Reserve released final rules regarding debit card fee income under the Durbin Amendment.
While the Durbin Amendment only applies to bank of $10 billion or more in size, there is concern that interchange income for all banks will be negatively impacted.
While it is too early to tell the full impact to banks with less than $10 billion, we now estimate the potential negative impact to be between $0.00 and $600,000 annually, which is significantly better than our initial estimate.
The third item.
Other non-interest income increased by $320,000 over the same period last year.
This increase was primarily due to the accretion on assets acquired through FDIC -assisted transactions in 2010.
Now in contrast, non-interest income for Q2, 2010, was negatively impacted by three items.
First, service charges on deposit accounts decreased by $527,000 from the same period last year.
As we have seen over the last few quarters, the decrease was primarily due to lower NSF income as a result of regulatory changes related to overdrafts on point of sale.
The second item, income from investment banking, decreased by $395,000 compared to last year.
The decrease is primarily the result of a favorable mark-to-market adjustment in Q2, 2010, which was not repeated in 2011.
And then the third item as expected, premium on the sale of student loans decreased by $545,000 compared to last year.
Beginning with the 2010 - 2011 school year, the private sector was excluded from originating government-guaranteed student loans.
Thus, we had no sales in the first half of 2011 and do not anticipate any for the remainder of the year.
Moving on to the expense category, which is also a little noisy.
Non-interest expense for Q2, 2011 was $28.7 million, an increase of $1.4 million or 5.2% compared to the same period in 2010.
The Q2, 2011 non-interest expense includes $2 million in incremental normal operating expense for our two FDIC -assisted acquisitions.
In addition, we incurred merger-related costs, and costs related to branch closings in both Q2, 2011 and 2010.
Normalizing for all of the above items, non-interest expense decreased by $331,000 or 1.3% compared to Q2, 2010.
This decrease is normalized non-interest expense as a result of the implementation of our efficiency initiatives discussed in previous calls.
Concerning our combined loan portfolio as of June 30, 2011, we reported total legacy loans and covered loans, net of discount, at $1.8 billion, a decrease of $34.8 million or 1.9% compared to the same period a year ago.
Covered loans, net of discount, increased $153 million due to our Q4, 2010 FDIC acquisition of Security Savings Bank in Kansas, thus our legacy portfolio decreased by $188 million.
As expected, we saw an approximate $80 million decrease in our student loan portfolio as a result of what I still believe was an irrational decision by the Administration in Congress to eliminate the private sector from providing student loans.
Excluding the student loan decrease, our legacy loan portfolio decreased by $109 million, or 6% from Q2, 2010.
$81 million of the decrease was associated with the real estate loan portfolio including a $15 million or 9.5% decrease in the construction and development portfolio.
Considering the challenges in the economy, it is important to continue to point out that we have no significant concentrations in our portfolio mix, and our construction and development loans represent only 8.5% of the total portfolio which compares favorably to our peers.
Simmons First, like the rest of the industry, is experiencing weak-loan demand as a result of the recession.
We believe loan demand is likely to remain soft throughout 2011.
But we are committed and positioned to meet the borrowing needs of our consumer and business customer.
However, we will be patient and continue to be the conservative lender that has enabled us to weather the economic storms of the past three years.
Although the general state of the National economy has shown signs of improvement, it remains somewhat unsettled.
Also, despite the challenges in the Northwest Arkansas region, overall, we continue to have good asset quality compared to the rest of the industry.
As a reminder, covered assets acquired from the FDIC are recorded at their discounted net present value, and the resulting FDIC loss share indemnification provides significant protection against possible losses.
Thus, FDIC covered assets are excluded from the computations of the asset quality ratios for our legacy portfolio.
The allowance for loan losses equals 1.7% of total loans, and approximately 150% of non-performing loans as of June 30.
Non-performing loans as a percent of total loans decreased to 114 basis points from 119 basis points.
Non-performing assets as a percent of total assets were at 127 basis points, down 5 basis points from Q1, 2011.
The decrease in non-performing, were primarily related to the resolution of a $2 million credit previously reported as a non-accrual TDR.
As a result, non-performing assets including TDR's as a percent of total assets declined by 1.58% compared to 1.65% at Q1, 2011.
These ratios continue to compare favorably to the industry and our peer group.
In fact, our nonperforming assets ratio, excluding covered loans, puts us in the 80th percentile within our peer group based on March 31, peer versus our June 30, actual.
During Q2, 2011, the provision for loan losses was $3.3 million compared to $2.7 million for Q1, 2011.
For the first half of 2011, net charge-offs were $4.6 million, down from $6.1 million in first half of 2010.
The annualized net charge-off ratio for the first half of 2011 was 57 basis points compared to 67 basis points for the same period last year.
Excluding credit cards, the annualized net charge-off ratio was 39 basis points for the first half of 2011.
We remain aggressive in the identification and quantification and resolution of problem loans.
Our credit card portfolio continues to compare very favorably to the industry as our Q2, 2011 annualized net credit card charge-offs to loans increased only 2 basis points to 2.08% compared to 2.06% for Q1, 2011.
Even with the national credit card charge-offs declining in recent months, our loss ratio is more than 475 basis points below the most recently published credit card charge-off industry average of almost 7%.
One of the real strengths of our credit card portfolio is its geographic diversification.
With no concentrations over 7% in any state other than Arkansas, where we have approximately 40% of our portfolio.
We are very conscious of the potential problems associated with high levels of unemployment, and we continue to reserve accordingly.
Despite our 2.08% loss ratio, we are currently maintaining a reserve of 3% for our credit card portfolio.
Bottom line, we continue to experience good asset quality compared to the industry.
We continued to achieve low credit card charge-offs, a modest non-interest expense increase, and most importantly, an extremely strong capital base with a 10.7% tangible common equity ratio, and regulatory ratios that rank in the 97th percentile of our peer group.
Simmons First is well positioned based on the strength of our capital, asset quality, and liquidity to deal with the challenges and opportunities that we may face.
Our conservative culture has enabled us to engage in banking for 108 years.
We consistently rank in the upper quartile of our national peer group relative to capital asset quality and liquidity.
While we are cautiously optimistic, and there are temptations to reduce liquidity, to be more aggressive in pricing, and possibly to try to redefine credit risk, we believe there remains much uncertainty relative to the speed of the recovery and the corresponding challenges in the economy.
As such, we continue to believe that there has never been a greater time to have the strengths of capital asset quality and liquidity.
Obviously a big part of our most recent past and anticipated future is growth through mergers and acquisitions.
With the strength of our balance sheet and the experience gained in our recent FDIC -assisted transactions, we remain committed to our M&A strategy.
As previously stated, that strategy also includes traditional acquisitions.
Likewise, we remain committed to our 325-mile radius from Central Arkansas.
And while we anticipate fewer opportunities by restricting that radius, we believe this discipline allows us to complement the acquisitions already made and allows us to continue to operate in markets that best fit our conservative culture.
In closing, we remind our listeners that Simmons First experiences seasonality in our quarterly earnings due to our agricultural ending and credit card portfolio.
Quarterly estimates should always reflect this seasonality.
Now this concludes our prepared comments.
And we would like to now open the phone lines for questions from our analyst and institutional investors.
Let me ask the operator to come back on the line and once again explain how to queue in for questions.
Operator
(Operator Instructions)
Your first question comes from the line of Matt Olney, from Stephens, Inc.
Your line is open.
- Analyst
Good afternoon.
Good to see the core expense levels come down a little bit in Q2.
Can you give us an update on the expense initiative?
Maybe more right today, versus the expectations from a few quarters ago?
- EVP/CFO
Okay, on the expenses, yes, you know, as Mr.
May said in our script, expenses were pretty noisy.
And when you back out the acquisition and the merger-related costs and the other -- the branch closing expense, we are down about $330,000, some 1%, 2%.
We see that same trend continuing the rest of the year in our core expense.
So we're -- we're on course, Matt, to be at about $1.5 million that we projected this year and probably another $1.5 million next year.
So we believe once again by the end of 2012, we'll have pulled about $5 million out, $4.5 million, $5 million out from the revenue initiatives and the expense savings.
- Analyst
And what about as far as the margin?
Seems like the seasonality typically pushes this up in 3Q.
I assume that's the case again next quarter.
Is there anything else we should be thinking about as far as the margin next quarter?
- Chairman, President, CEO
Well, this is Tommy, Matt.
And yes.
The seasonality helped.
Brought it up to the 3.9 level, and if you look at our total loans, where we are right now, on the agri side we're probably going to peak with those loans in September, and I'm guessing about $30 million to $50 million in that particular portfolio, which will improve the margin.
I would expect that we'll see that margin move close to 4%.
- Analyst
Also in the loan side, this will be the last quarter that we see the significant drop in student loans.
As you say, we're about $53 million in Q2, 2011, and Q3 of 2010 we were at $64 million.
So, we won't see that big, $80 million, $90 million drop in a quarter, as we have in the last three or four quarters.
- Chairman, President, CEO
I think also when you go back and look at the margin which was up 7 basis points, and you look at what was driving it, obviously the yield on covered loans that we have gotten through to the acquisition, compared to the yield on our legacy portfolio helped.
And then we have done a pretty good job in continuing to decrease the cost of funds.
And in all probability, we -- we see that decrease in costs of funds having bottomed out.
It's certainly possible to pick up a few basis points here and there.
But-- so I think the biggest improvement in the margin is going to come from the seasonality unless we see some kind of movement in interest rate, which we don't expect, and certainly, unless we happen to see something in a loan pipeline, which we also are not anticipating.
- Analyst
And Tommy, in your prepared remarks, you addressed M&A in your excess capital.
Any update in the overall strategy there?
And what are you seeing as far as the pipeline for failed banks in your targeted geographies?
- Chairman, President, CEO
That's a real good question, and as we have said each time, you know, we remain interested both in the FDIC -assisted, the traditional.
We've pretty well projected that the biggest opportunities over the next 18 months would be the FDIC.
Within our targeted area, we know we have less opportunities.
We also think we have less competition.
I would tell you that we're very active and looking at anything within that radius; we would be under an FDIC confidentiality agreement.
So I couldn't speak to any specific one other than I can tell you that we -- we would be very active in that process.
So I hope that answers the question on the FDIC.
The bottom line, over that 18-month period, we think the FDIC, not only because of their availability and because of our capital and putting it to work, but also the fact that we expect the loan pipeline over the next two years to be challenged, we think the FDIC piece is very important.
But even with that, we're still going to be disciplined, and we're going to be looking at how that acquisition fits into our overall footprint.
And we've talked about what we've done in Missouri and Kansas and how we would like to be into Oklahoma.
So, you know, we're going to be aggressive in looking at any of them, but we will keep the discipline and remembering that the most important thing is that -- how we're going to manage those going forward.
Certainly the front-end profit is great, and we're interested in that, too.
But we want to make sure that we're complementing the footprint we have, so that we will get the long-term success going forward.
Now let me switch gears briefly about the traditional side.
We, again, remain cautiously optimistic about the economy.
Yet we don't think that all is done in the cleanup.
And so on a traditional side, we see that maybe out beyond the 18-month period.
We believe that the traditional acquisitions can be a major asset to us possibly getting into some growth markets where we might not -- we might not be.
So both FDIC and traditional continue to be a part of our thought process, traditional a little bit longer out.
- Analyst
Okay, great.
Thanks for the update, guys.
Operator
Your next question comes from the line of Dave Bishop from Stifel Nicolaus.
Your line is open.
- Analyst
Yes, good afternoon, gentlemen.
In terms of -- I know you've touched on loan demand.
But we've had a number of management teams thus far in earnings bemoan pricing competition and structure out there.
Give some commentary on what you're seeing in relative terms of the competitive environment.
- Chairman, President, CEO
Dave, I think from a competitive standpoint, and I'm talking specifically again about loans, that it is a very large loan.
There is a lot of competition for those loans.
And if it's -- if it involves some of the Money Center Banks, that have locations in our region, the sizing of those particular loans, [border] on what we call irrational pricing.
We have made the same discipline decision on pricing, that if we're going to take any risks, it would be in the area of the pricing risk versus the credit risk.
Even then it would be relatively short.
We're not going out beyond any three-year, five-year fixed rate pricing.
If we can find the right opportunity in a block, then we will do that.
But even then we're finding ourselves competing with some banks on very large credit, and the pricing that is out there is at the level that we simply are not interested in.
So what I would consider our traditional portfolio, where our eight community banks are involved, and we are interested in opportunities.
We have found that the pricing is much more rational.
- Analyst
Okay.
- Chairman, President, CEO
And competition is still high on those particular loans.
And to sum it up, we're not seeing nearly enough loans coming through the pipeline to excite us.
Our feeling is, in not only conversation with our CEOs, but conversations with our customer, that there remains uncertainty in the economy.
And it's got a lot of people interested in jumping out there in capital expansion.
But we're just not seeing many loans.
I think the credit card piece of our loan situation, we have seen a significant reduction in the number of new applications.
We also have seen a return of the large credit card companies to the market, and again, some very irrational pricing techniques --
- Analyst
Teaser terms --
- Chairman, President, CEO
Teaser terms to try to bring those borrowers to the market as a result of that.
Our net new accounts are probably at a three-year low right now.
We are going to remain active in that market, but we're not going to change our underwriting standards, and that's exactly why we keep the very good asset quality on the credit card side.
And I probably told you more than you wanted to know, but if you have another drill-down question from there, I'd be glad to address it today.
- Analyst
I appreciate the color.
I-- I do have a followup just in terms of maybe, sort of, a miscellaneous balance sheet question.
Is there some sort of reclassification in terms of the securities portfolio from HTM to available-for-sale within the agencies?
- Chairman, President, CEO
Is that on a -- you're looking at it on a link or a quarter over quarter?
- Analyst
A link basis.
- Chairman, President, CEO
We probably -- I'm not look at it right now, but if it's a movement from the available-for-sale to the held-to-maturities, is that what your saying --
- EVP/CFO
Yes, and our target is to be in there about a 75%, 25% range.
And it was probably just as maturities came off they were re-invested into more of what our target over the latter is.
- Chairman, President, CEO
Dave, let me just address that, if you could, because that's a good question.
You know, five years ago we would have been more heavily [in] the available-for-sale versus the held-to-maturity.
We changed that strategy in 2008, as we began to look at expanding our capital or capital retention.
And the concern about rising interest rates and what the impact on that would be on the mark.
So we -- we now are looking at a 25% target on the held-to-maturity-- I'm sorry, 25% on the available-for-sale, 75% on the held-to-maturity.
We've had a lot of maturities that came due, so they're probably moving those out of the AFS over into the HTM.
And those maturities -- they're either maturities or calls, and that would be my guess there.
- Analyst
And one final one, in terms of the losses this quarter, looked like a little bit of a uplift there on the real estate side of things.
Any commentary on that?
- Chairman, President, CEO
Are you saying on the charge-offs?
- Analyst
Charge-offs?
Yes, about the $1.6 million or so, looked like about a $1.3 million delta.
- Chairman, President, CEO
It was one single credit that was both in the -- or in nonperforming -- as in the nonperforming loan, as well as the TDR category, and we --
- EVP/CFO
It's been resolved now.
- Chairman, President, CEO
We resolved the --
- EVP/CFO
--it's off the books completely, so --
- Chairman, President, CEO
We took a loss at a little higher level than we had reserved.
And the property was sold, and we're completely out of it now.
- EVP/CFO
Yes, and if you look, at, I think the charge-off ratio [today] for the quarter was 85, but there was a loan in the first quarter, if you -- [implies] for the year it's pretty good.
But that quarter you'll see bumps up and down.
- Analyst
Got you.
- Chairman, President, CEO
That bump-up was that one single --
- EVP/CFO
That one did have a specific allocation that was pretty close to what our charge-off was.
- Analyst
Okay.
- Chairman, President, CEO
While we're talking about reserves, just in case somebody doesn't ask about it, we're obviously pretty pleased and proud of our asset quality overall.
It is good, and it got better.
This quarter, both in the non -- about the $2 million improvement, half of it coming from OREO and half of it coming from the nonperforming loans.
But I think, when you look at our loan loss reserves, one of the things that I'd like to point out that we said before, you know, our credit card portfolio, we're reserving at 3%.
And our charge-off was 2.02% or 2.08%, which up about 2 basis points, I think.
And we had significantly, 4.5% to 5% better than the most recent peer numbers.
And yet we're reserving at 3%.
So I think the most positive thing there with the unemployment level the way it is, is that credit card charge-off ratio has held very good.
But until we have a little bit more assurance relative to how this unemployment thing works out, we're going to continue to reserve at that $3 million level -- I mean that 3% level.
And one other thing is, that during the month, we made, what we would call, a special provision of $500,000 to our loan loss reserve.
And you might look at the nonperformings and say, well, your nonperformings were getting better, and your reserves were so good relative to the peer, you know, exactly why did you want to do that?
And you might also look at the 30-day past dues and say that they, too, are at exceptionally low levels relative to peers.
I think maybe 80 basis points --
- EVP/CFO
87 and 58 when you back out student loans.
- Chairman, President, CEO
So you might say, why did you do that?
Well, I think it is consistent with what we've said before, and that is that even with the reserve as good as it is, and the asset quality as good as it is, that there's still a lot of unknowns in this economy.
So when we have the opportunity to enhance our own loss reserve, then we want to do that.
And obviously we did have a -- an extraordinary nonrecurring income item.
And obviously on the other hand, even though it's unrelated, on the other hand, we see this, this opportunity to increase that reserve, and we chose to do so.
And so we just wanted to know that that special provision had nothing to do with the ratios or the direction trend.
It had everything to do with building that reserve as high as we think that we can justify, and we will continue to do so when the opportunity presents.
Okay, Dave?
- Analyst
That's great.
Thanks, Tom.
Operator
Your next question comes from the line of Derek Hewett, from KBW.
Your line is open.
- Analyst
Good afternoon, gentlemen.
Going back to your FDIC deals, any lending opportunities in either Missouri or Kansas at this point, or is it still a little too early?
- Chairman, President, CEO
I'm going to just simply say that we still remain very excited about the opportunity on the agri side relative to Kansas, but obviously that wouldn't be during this current agri cycle.
Marty Casteel is here with us, and Marty has oversight for all of our out-of-Arkansas region.
So he's been doing some hiring and so forth, so Marty, why don't you say a word?
- Executive VP
Well, we are seeing some opportunities.
Of course the economy is not exactly blazing in any of the markets right now.
But we are seeing some opportunities in the Springfield market, and we've booked a few loans in that market.
We are seeing some opportunities in the Kansas market.
We're also seeing that, a lot of the loans that we acquired are, in fact, performing loans, and that they're going to be -- we're going to be able to retain them and keep those relationships and hopefully grow them.
We don't see as much pricing competition fortunately in those markets at this point on the loan opportunities.
So yes, we are seeing some, some loans.
We do have to get more people in place, hire some additional lenders.
But at this point I think we're pleased with where we are.
- Chairman, President, CEO
I would also -- you made a couple of strategic hires in the Kansas market that are going to be a positive for us.
- Executive VP
That's correct.
We have brought on a new lender in the Olathe market and we need to look for additional lenders.
- Chairman, President, CEO
I think the agri side, again in the Kansas -- being the Salida market -- and maybe what you call, too, I'm not sure -- but the hiring of that person is going to be very, very important to us.
As you well know -- we're very good in agri-lending.
I mean, if there is a best practice, in our organization other than in credit cards, agri-lending would be one of those.
And I think up there, agri-lending is a little bit different.
There are some things that go with it that we don't do here such as the cattle side and so forth, or the beef side.
So we're taking our time and trying to find that right person.
But we've got a lot of good people that, know who they are.
So my guess is that that hire will take place in the near future.
- Executive VP
We have some good leads on some -- they call it ag lending in Kansas by the way, agri-lending, that is one of our terminology differences.
But we have good leads on candidates and are actually talking to some at this point.
- Analyst
Okay, great.
And my final question is -- any opportunity to sell the student loan portfolio without taking a loss to maybe free up a little capital?
I know you guys already have a ton of capital to deploy right now.
But it is -- it seems like that's kinds of a low margin business to be in.
- Chairman, President, CEO
Let me just give you a couple of answers.
The first is, the last offer we had, until recently, was at a discount that we were unwilling to accept.
The-- recently, we were approached about the possibility of selling that portfolio at par.
The fact is, that if we were to sell that $60 million at par, we sure don't need the liquidity.
Secondly, as low as the deal that that portfolio is, that 2% or 2.08%, I'm advised, that's a whole lot better than that 25 basis points that, you know, we would be able to invest it in right now.
Our guess is that we've seen it go from a discount to par.
We would not be surprised to see that we would have the opportunity to sell that at a later date, at possibly a, to a -- I'll say a Sallie Mae or somebody, at a premium.
But right now we're not -- we don't have a whole lot of incentive to sell that portfolio.
- EVP/CFO
And our expenses, Derek, are pretty minimal to operate it.
- Chairman, President, CEO
We've consolidated most of the processing expenses associated with that student loan portfolio into the bank as we have known it.
We're not incentived to do really do that right now, but we are going to continue to monitor that, Derek.
- Analyst
Great.
Thank you very much.
Operator
Your next question comes from the line of Michael Farmer, from Raymond James.
Your line is open.
- Analyst
Hi, good afternoon.
My question is on Durbin.
Even though you guys are supposed to be exempt, do you think it's still going negatively impact you?
And if so, can you have you quantified that or can you quantify what you think the impact will be?
- Chairman, President, CEO
Michael, I think you said it very well.
And that is, even though we're supposed to be exempt, there's certainly a big question.
But one of the things for sure, is that the changes that the Federal Reserve came out with relative to pricing moving from that $0.12 to $0.21, to more likely $0.24, is going to be very favorable to us versus what it could have been.
We had projected numbers as high as $1.9 million.
And we projected a range of somewhere around $1.3 million to $1.9 million.
I'm not absolutely sure at the low end of that range.
Right now we're saying that the impact would be $0, up to $600,000 on a pretax basis.
I think that the one good thing that we've seen is that the Fed has expressed a real desire to make sure that they try to protect the integrity of the intent of not impacting those institutions under $10 billion.
We're just very hopeful that they'll be able to deal with the dual system by Visa, and that's very important.
- Analyst
And I assume that $0 to $600,000, that's an annual figure, right?
- Chairman, President, CEO
Yes.
- Analyst
Can you remind us, or give us a number for what your current annual interchange revenues are?
- EVP/CFO
Off the top of my head, I think it's in about -- David, is it at about $2.5 million?
- Chairman, President, CEO
We're looking.
Hold on.
- Analyst
Okay.
- Pres/COO
Yes, I think it's $2.5 million to $3 million annual.
- Analyst
Great.
- EVP/CFO
Somewhere in that ballpark.
- Analyst
All right.
Thanks a lot, guys.
Operator
There are no further questions at this time.
- Chairman, President, CEO
All right.
Thank all of you very much for being with us, and we will look forward to seeing you next quarter.
Operator
This concludes today's conference call.