S&T Bancorp Inc (STBA) 2009 Q3 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the S&T Bancorp Inc. third-quarter earnings conference call.

At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce Robert E. Rout, Senior Executive Vice President, Chief Financial Officer, Chief Administrative Officer and Secretary of S&T Bancorp Inc. Thank you, Mr. Rout, you may begin.

Good afternoon, everyone. Thank you for participating in the call.

Before beginning the presentation, I want to take time to refer you to our statement on forward-looking statements and risk factors found in the third slide of our webcast in the slide presentation. This statement provides cautionary language required by the SEC for forward-looking statements that may be included with this presentation.

Listeners are also reminded that a copy of the third-quarter earnings release can be obtained from our Investor Relations website at www.STBancorp.com. A set of financial highlight slides is also included with the webcast to support what we are about to discuss. We do not plan to review the slides in detail but certainly would be more than happy to respond to any questions concerning them or any other aspect of our financial performance.

So with that said, I would like to introduce Todd Brice, S&T's President and Chief Executive Officer, who will provide an overview of S&T's third-quarter results.

Thank you, Bob, and good afternoon, everybody. As indicated in our press release, we had net income this quarter of $7.7 million or $0.28 per share. I think although this performance is far removed from our historical performance and goals, it certainly is a positive direction from an extremely difficult first two quarters in 2009.

Our credit issues continue to dominate our financials as well as our own organization's strategic focus. We understand that focus can't cure all of the economic stresses occurring this credit cycle, but we are certainly growing more confident with our credit administration processes to provide early identification and quick action. Troubled credits and credit cycles are nothing new to commercial banks, but the speed and intensity and breath of this particular cycle has certainly moved the performance bar for this area to new levels.

Tony Kallsen, our Chief Credit Officer, will be providing some specific details about this quarter's credit quality activities and how we are addressing and monitoring stresses that this recession has created in almost every segment of our commercial lending portfolio. Following his presentation, Bob Rout will be discussing other areas of this quarter's financial.

I'd just like to begin by saying commercial loan growth was negative again this quarter. Most of that decreased activity is the systemwide deleveraging that's incurring from most of our businesses. We're seeing a slowdown in commercial real estate development and an overall hesitancy for customers to assume significant risk until the economic and political picture becomes more clear.

Now, the loans that we are booking have better pricing than we have seen in over a decade and we also have (inaudible) (technical difficulty) on a good portion of our variable rate loans. Both of these initiatives are having a positive impact in our net interest margin. We do not believe that we've ever compromised our underwriting standards which almost always includes personal guarantees at the principles. This current credit environment, particularly in the lack of funding in secondary markets on commercial real estate loans, has resulted in a more rational and traditional market approach with respect to pricing and credit structure.

It [accounts] for our other lines of business, our retail, insurance, and wealth management. These areas are performing well, given the circumstances. I think our retail folks have done a good job of taking advantage of the current M&A disruptions in our marketplace.

I think especially pleasing is the growth in DDA balances, which is an important component of our relationship banking philosophy. As we noted in our press release, we have increased DDA balances this year by $73 million, or 12%. Again, this has been a strategic focus and has enabled us to deepen our relationships with our customer base.

I think the stock market for insurance premiums and what's been happening in the investment markets hasn't helped our insurance and wealth management businesses, but I am pleased with how these folks are making the best of a bad market and positioning themselves for when the market does return. I think the core earnings of all these areas provide a lot of staying power through times like these and a great foundation for taking advantage of opportunities once the economy does turn positive.

With that, I would like to turn the discussion over to Tony Kallsen, our Chief Credit Officer.

Thanks, Todd.

Provision expense for the third quarter was $8.4 million, marking a deceleration in the expense rate compared to the first half of the year. This is primarily attributed to lower charge activity, combined with fewer adjustments to qualitative risk factors within the allowance model.

Total reserves increased $3 million over last quarter with specific reserves accounting for the majority of that increase. With that said, nearly half of the increase to specific reserves was due to expanding the scope of loans subject to analysis rather than valuation declines.

Other significant changes to the model were included in the press release, but I would like to provide you with more color on two of these larger events. Last quarter, I talked about a large client that had invested in several single-family developments in Florida. At that time, the bank had $25 million in loans, $12.5 million was loaned in Florida with the balance on developments in western Pennsylvania. Based on a preliminary workout plan, the bank isolated $8.8 million of the Florida loans and recognized a charge of $5.3 million in the second quarter. The $3.5 million residual balance of this loan pool was transferred to non-accrual. This left $3.7 million of Florida loans on performing status.

As the bank worked through the details of a potential restructure, it became evident that the global cash flow of the client was insufficient to protect the remaining Florida projects. Accordingly, this quarter, the bank is recognizing an additional charge of $2.9 million.

The remaining exposure in Florida totals $3.7 million. This balance is supported by current appraisals using (inaudible) value. The bank will continue to negotiate a resolution with the client which will include a near-term liquidation of the Florida investments.

The second noteworthy event centers on an $11.5 million mixed-use redevelopment project in Pennsylvania. The project is complete but not stabilized. The sponsors have historically subsidized cash flow from other ventures. However, these sources have become distressed and the owners now lack sufficient resources to service the debt.

The bank transferred of the loan to non-accrual but the timing of this event did not provide adequate time to update the appraisal. The bank established a specific reserve of $1.5 million, based on the prior appraisal, a USDA guarantee on a tranche of the debt and [ancillary] collateral.

The bank also terminated certain interest-rate derivatives resulting in counterparty fees of $1.4 million. The bank converted this claim to a receivable and recognized a decrease in non-interest income of $600,000 based on the under-secured portion of these receivables.

Nonperforming loans increased $15 million or 21% ever last quarter. The majority of this increase is the redevelopment project. Given the charges in Florida, there was only a nominal addition to nonperforming loans this quarter derived from out-of-state.

It is important to note that, during the quarter, the bank realized $2.1 million of productions due to asset sales and payments pursuant to well-defined workout plans. Asset liquidations have been in line with projected values and are updated through the allowance model on a quarterly basis. Therefore, while this ratio will continue to be under pressure as it takes time to work through these problems in a soft economy, management believes the loans have been properly valued.

Further, I would like to remind you that the bank does not have any loans over 90 days past on accrual status.

Despite significant charges in permanent reductions, total criticized and classified loans remain relatively unchanged from last quarter. On a net basis, total criticized and classified loans decreased 5% from the first quarter and 1% from last quarter. Risk-rating migration from special mentions of substandard continues to occur.

There have not been any significant changes in the out-of-state portfolio other than the charges in Florida. The portfolio rested at $354 million, which is relatively flat compared to last quarter.

We continue to refine our construction loan management process. For example, last year, we developed a predictive model that utilizes current abortion trends to forecast interest reserve adequacy. While this model is predicated on certain assumptions, it serves as another tool in our toolkit to provide early warning signs.

Participation loan exposure totaled $192 million with $48 million categorized to shared national credits. This [SNIC] exam results were released last month and as you probably know, there's a dramatic increase in both classified and doubtful loans. In our SNIC portfolio, 12% has been adversely classified and 3% is on nonaccrual. None of the SNIC credits were rated doubtful.

The only other loan in the participation portfolio that is adversely classified is a $7.5 million loan on nonaccrual. This is part of the New York/Connecticut relationship previously disclosed and accounted for in the allowance model.

While the credit metrics are not where we'd like to see them, overall the rate of deterioration appears to have leveled off from the first two quarters.

With that, I will turn it over to Bob Rout for a discussion on financial statements.

Thank you, Tony. Again, good afternoon everyone.

It has certainly been another busy and interesting quarter for us with, of course, credit dominating most of the discussion. But I want to quickly go through some of the other issues affecting our performance this quarter, and that first is net interest income.

The net interest margin expanded slightly to 3.94% as compared to the linked-quarter through higher loan spreads and reduced funding cost. Earning asset levels, on the other hand, declined primarily to reduce demand for commercial lines.

Consumers and businesses throughout the country are going through a deleveraging process in response to slower business activity and also increased economic risk.

We, too, are deleveraging involuntarily from a loan growth perspective but probably voluntarily from a security perspective. The decrease in loans and securities, along with the funds received in the TARP program, have provided us a significant opportunity to pay down borrowings and reduce the need to aggressively solicit deposits. We believe that a high liquidity and a high capital position is not only the place to be in riding out the recession, but it also positions us well for when the economy does begin an upturn.

With regards to liquidity, we have taken a number of actions to reduce our borrowing exposure to the Federal Home Loan Bank.

Going to the second quarter, we took $2.1 million of other than temporary impairment charges in our equity portfolio. This portfolio primarily consists of local bank stocks where we may have a future merger interest. As we all well know, bank stocks have not been a particularly strong performer and these impairment charges have been a drag on our earnings recently.

The good news is that our current exposure in this portfolio is a $12.9 million market value, including about $200,000 of unrealized losses that could represent a potential future impairment risk depending upon how bank stocks perform going forward.

In the fee area, most of our business lines have been fairly sluggish this year with the exception of mortgage banking and debit and credit card income. One unusual item that did occur in non-interest income is a $585,000 charge for unwinding the interest rate swap on one of those commercial lines that went nonperforming this quarter.

Our portfolio of debt securities has not incurred any impairment charges since this is a fairly conservative portfolio with no subprime [trup] or other corporate exposure.

Our philosophy with respect to debt-related investment securities is that the portfolio should help mitigate the credit and interest-rate risks that are inherent in banking and not add to it. It is a strategy that has served us well during times like these.

Higher FDIC insurance premiums, defined benefit plan and pension costs and loan collection costs continue to move our operating expense run rate to a higher level. But there were no unusual items of significance in this quarter's $24.8 million of non-interest expense.

The last area that I want to touch on is capital. As mentioned previously, despite the governmental restrictions, which we believe are currently manageable, we believe that the recessionary effects from credit quality and the trend toward higher regulatory capital levels continues to validate our TARP participation decision. It remains the most reasonably priced capital available today.

We continue to update our credit stress forecast and our five-year capital plan to determine how quickly we can pay back TARP under various credit scenarios without tapping into the very expensive external capital markets and while at the same time maintaining a comfortable tangible common equity cushion.

The biggest variable of all that of course is credit losses and, along with that, the potential severity of a commercial real estate market correction. We have, however, seen those forecasts, under various scenarios, begin to trend towards more positive outcomes for us.

As I mentioned earlier, we believe a high liquidity and a high capital position provides us with the most flexibility to effectively respond to any economic shifts. Along with that flexibility is patience, patience to allow the future economic direction to become more clear before we act. We have, however, updated our shelf registration so that we can move quickly if and when the timing is right.

But before we rush into any external capital raise, we want to make sure that we have a good handle on future credit risk. And we also want to make sure that we have exhausted all an internal sources of capital, which include reducing the dividend, which we have already done some of that, and that resulted in $18 million of capital savings annually.

We adjusted our dividend reinvestment in 401(k) plans to issue S&T shares from treasury stock. That should produce another $3 million to $5 million per year.

You also saw that we announced last month a realignment of our dividend declaration dates with earnings announcements. This one-month lag or deferment provides another small incremental boost to capital. They are considering other programs as well which would possibly include a discounted stock purchase program with, of course, understanding that these programs thus far have had mixed results.

Looking hard at the denominator side of the equation with the balance sheet is also another one of our capital retention strategies. Lastly, keeping our core business growing, which is currently generating $90 million to $100 million of profit before provision and taxes annually.

These actions seem to make the most shareholder sense rather than jumping into a difficult capital market for bank common stock either before you have to or before you have the appropriate growth opportunity story to tell.

So, with that, I will go ahead and open up the call to any questions. I would like to start out with a couple that we had e-mailed to us. The first one comes from -- I guess we won't say a name. But the question is there's a good base step to increase earnings and restore share price. Is S&T management willing to abstain from taking any bonuses? If not, is management willing to submit the matter to the S&T shareholders for a vote at the next annual shareholders meeting?

I think we already announced here earlier this year that we have suspended all bonus programs. As far as approval for S&T shareholders, as a TARP participant, we are already putting any bonus plans and executive compensation up to the nonbinding vote that is required by those TARP rules.

And question two -- does the S&T management have a timeframe for repaying of the TARP money that S&T has received? If not, what is the plan that management has for the eventual repayment?

Hopefully, I have covered that within my comments. Again, we have a five-year capital plan and repayment is largely going to be dependent upon the variables presented to us, both within the economy, the result and effects to the credit quality, and also with what's happening in the capital markets.

So with that, I guess we can go ahead and turn it up to the moderator here for questions (inaudible).

Thank you. We will now be conducting the question-and-answer session. (Operator Instructions). Andy Stapp, B. Riley & Company.

Good afternoon. As you work through your credit issues, are you gaining any clarity when nonperforming loans may peak?

Boy, we are hoping now.

Okay.

But with that said, we've been scrubbing that portfolio pretty hard. There's still a lot of economic stress in every segment of the portfolio, so there will be more coming and more coming up. One of the problems we're having is liquidation of collateral. This isn't a very good market for liquidating collateral, whether it be real estate receivables, equipment, inventory or for that matter personal property. So we're going to be working with these issues for a while, Andy.

The one comment I would like to make, Andy, is, you know, when we put something into [NPA], I think we been pretty aggressive on coming up with a good mark on the collateral valuations. The assets that we were able to sell last quarter, we had some favorable responses on. We -- there's some good outcomes I guess. So it's just trying to get some of them sold is taking a little bit longer than what we had anticipated, but I now, each quarter, we do a pretty thorough analysis of what the appropriate collateral valuations are and factor those into our model.

Sure. Do you happen to have what 30 to 89 delinquencies were at quarter end?

Sure, this is Tony. Our 30 day delinquencies were 84 basis points; 60 days were 22 basis points; and 90 days were 251 basis point. Just to benchmark back to the prior quarter was 30 days was 79 basis points; 60 was 24 basis points; and 90 days was 206 basis points.

Okay, great. Could you provide some color on opportunities for additional margin expansion?

I would say, Andy, we're working really hard. Were able to get decent spreads on the credits. They continue to kind of migrate up a little bit. Also we're looking at the liability side of the balance sheet and we've been letting some of our borrowings run off just with some of the paydown that we're having on the loan side.

The growth in DDA, Andy, has been very helpful for that margin as well. We will continue to emphasize that product line. Not only do we think it is good funding, but it's a great relationship building product for it.

Short.

Both on a retail and a commercial basis.

Okay. Your balances for shared national credits -- I missed that. Could you repeat that please?

Sure. Let me go back to that. I was disclosing our total participation loans, but our exposure to shared national credits is $48 million as of 9/30.

Okay. I'll get back in the queue for other questions.

One comment I would like to make today, Andy -- the majority of those are in-market and with companies that we know and know the management.

Damon DelMonte, KBW.

Good afternoon. I was wondering. Could you guys disclose what your total TDRs are at quarter's end?

Yes, $1.4 million.

Okay, pretty well, thank you. Also, do you guys have any exposure to the Erickson Retirement Communities that recently filed bankruptcy?

Repeat that again, Damon?

Did you have any direct exposure to Erickson Retirement Communities?

Are they in our market, Damon? I'm not familiar with them.

They are in the -- I didn't know if maybe it was part of a shared national credit or participation loan. I think they're headquartered down in the Baltimore, Maryland area but I know that there's a bunch of other Pennsylvania names that had exposure to these guys.

We missed that one.

Okay. Kudos to you on that one then.

I guess lastly, could you just help frame out the provision going forward in how we look at the combination of reserve build? And can we expect charge-offs and (inaudible) provisions going forward? Or should we expect to see more reserve build?

I think you'll probably see provision equals charge-offs going forward. Unless there is a major downslide in some of the economy further where we have to change some of our economic factors, if the economy stays stable, I think we will probably see that. You may see some reserve build where we've set aside specific reserves rather than taking charge-off as a normal sequence of events.

Okay. That's all I have for now. Thank you very much.

Matthew Schultheis, Boenning and Scattergood.

Good afternoon. A really quick question -- your other non-interest income went down about $1.6 million on a linked-quarter basis from about $4.6 million to $3 million. I'm assuming about $500,000 of that is the swap charge you've already discussed. What is the other $1 million?

Okay. You're looking on linked-quarter.

Yes. Now, when I look at your other non-interest income, you had, not including service charges, wealth management, insurance, but the category Other is $4.6 million in the second quarter and $3.0 million in the third quarter.

Yes, $1 million of that would be mortgage banking revenue coming off a record second quarter.

Okay. Thank you very much.

David Darst, FTN Equity Capital Markets.

Good afternoon. Could you give us some details on the out-of-market portfolio and maybe give us some insight into what type of loss rates we could use if we were buying the [scat] methodology to that portfolio?

I can tell you our exposure to the out-of-state portfolio is around $350 million. It's about 10% of our total loans. I would be remiss to estimate a loss rate for you at this point. We have certainly seen a higher proportion of criticized and classifieds assets, areas we have been working through some issues that we have in New York, Arizona, and Florida.

Is that materializing in something along the base or adverse case? Or (technical difficulty) (inaudible) single-digit loss rate? If we look out over an 18-month period?

Can you repeat the question, David? You're asking about --

What type of loss rate would you expect to see over an 18-month horizon out of that portfolio? Would it be a mid to high single digit rate or do you think it could be -- is there something that you are seeing that would make it lower?

This is Tony. I'm not seeing any additional deterioration in the portfolio. Most of what's in the portfolio that we are working through has already been recognized in our allowance model.

Okay. Thank you. The USDA coverage, how much is that, you know, $11.5 million credit?

Yes, it's fairly complicated because it secures a percentage of the middle tranche of that debt. With that said, it is a percentage guarantee of the deficiency. It's an 80% guarantee.

Of the total?

Yes, that middle tranche of debt is around $4 million.

Okay, thank you. Then Bob, could you tell us where you -- how much cash you have in the holding company relative to the amount of TARP funds you received?

We have all of the TARP funds and plus a little extra on top of that. We've got it all at the holding company at this point.

Okay, thank you.

Collyn Gilbert, Stifel Nicolaus.

Thanks. Good afternoon, guys. Bob, just to follow up in your comment about there is still uncertainty obviously on the credit side, can you give us though a little bit of color as to what -- and maybe this is more for you, Tony -- what the characteristics have been of the inflows and the outflows in that NPL bucket?

Well, sure. Let me talk about this current quarter because the delta from last quarter to this quarter is about $15 million or 21%. That is largely made up of this redevelopment project which happens to be in Pennsylvania. So it's odd to say I'm happy to be talking about a large non-accrual in Pennsylvania as opposed to out-of-state.

The other balances that make up that difference -- I'm sure one of the questions is how much of that is construction. Really only about $2 million of that is single-family development. The balance of that then is made up of smaller, primarily C&I credit, some commercial real estate exposure to C&I operators, but in $1 million or $2 million pieces, so not a lot that changed over last quarter. The biggest change is that redevelopment project.

Okay. How about just with migrations? Are you still seeing a lot of downward ratings in the portfolio?

Yes, we are. They have been offset by progress that we are making. We've also seen, for the first time in a while, some upgrade activity as well. What we see is there's some continued migration from special mention to substandard, so the total criticized and classified really hasn't changed quarter to quarter, but we do still see some migration, yes.

Okay. Then just in terms of the $16.9 million that you talk about on the three CRE projects in New York and Connecticut, how much of that $16.9 million is in New York and I guess more specifically, New York City?

Well, I'll have to work that out here.

Or roughly --

I know at least I know probably about half of it is in New York.

Okay.

Long Island.

Yes.

Do you consider Long Island, New York in the city?

Sure.

I guess it depends if you are from New York.

Yes. That's right. I remember guys talking about this last quarter, okay. The $262 million that you guys have in your slide deck in terms of within the CRE book that's residential rental properties, do you know how that breaks out geographically?

Yes, I can probably tell you that.

Again, I guess with my most interest -- mostly interested in what the New York City exposure might be in the residential rental property.

Sure. It might take me a second to get to that so --

Okay. While you're looking for it, maybe just in terms of the -- remind us again of what -- go ahead.

Yes, well, I guess we have one project that might be a mixed-use project. But we have some cash on the back end of that as well.

Okay. Maybe could you just talk a little bit about, within the CRE book, kind of what the original terms were of some of these loans, you know, as it relates to debt service coverage, LTV and just kind of remind us kind of how you were underwriting these loans. Was it the projected rent rolls? Just kind of walk through some of the metrics to get a better sense of how these loans were originally structured.

Before you throw out any more questions, Collyn, let's try to answer one before we get too far ahead.

Okay.

I have one piece of this and that's the apartment rentals that you've asked about. In out-of-state, it's about $42 million out of that -- what was it -- $262 million. And go ahead. Let me look for the detail on location within the out-of-state.

Okay.

Okay. Then the second question was concerning residential properties within New York City. It would include Long Island.

But we disclosed that one.

I would say our exposure is the Long Island problem condos that we talked about at (multiple speakers)

Yes.

-- families with the same borrower.

Within New York City, we do have some I guess mixed commercial where you might have a storefront with some apartments or lofts above them. [We have] two or three projects that we don't consider a significant risk at this point, primarily based upon the strength of the borrower. We've done an awful lot of business (inaudible) here locally. So I think that would be the extent of our single-family exposure within New York City. There was one other question that she had.

Well, I think she was looking for the MSA breakdown within this department. I can't speak to the specific segment this (multiple speakers) but overall, in New York, the majority of our exposure really is in the Rochester MSA, followed by New York City and then we have some in the Buffalo area as well.

Okay. All right.

The final question was more along the lines of I guess the first part of that question is what is your typical underwriting criteria for commercial real estate lot developments. We have David Antolik here, who is our Chief Lending Officer. The next question would be had we veered from them significantly that is a result of some of the credit problems that we currently seeing? Am I phrasing that question correctly, Collyn?

Yes. I guess I am just wanting to know kind of what the initial metrics were when these lines were underwritten more so than what you have done lately, just how they were underwritten initially.

Sure. We were looking at 75% to 80% loan to value based on the lower appraisal or purchase price, typically a 120 debt service coverage ratio. We will comment on the projects in New York City that we have remaining. We are -- we underwrote those at a 60% loan to value.

Typically, on the majority of our credits, we like the guarantees as well. I want to stress that.

On the commercial real estate side, what kind of cap rates were you underwriting to?

Dependent on the type of product. If it was a credit tenant, obviously there would be a lower cap rate.

Can you give us a range maybe? Or is it just too wide?

That happened a couple of years ago (inaudible) now.

Yes, they're up significantly now (multiple speakers) Yes, there double digits now.

Okay.

The other thing -- this is Tony. The other thing I would add to that is a lot of the problems that we have incurred in those portfolios are not really the retail strip center that was leased and we could underwrite to those leases. It was really on the construction side where we ran into cost overruns or delays based on change in market conditions.

Yes. Okay. That's helpful. I'll hop off for now. Thanks.

Mike Shafir, Sterne Agee.

Good afternoon, guys. Just real quick, I was wondering what is the tax rate we should kind of look to use moving forward?

It gets a little sticky. When you're in a loss position from a FAS 109 position, I think we are currently at what, 20%? Weren't doing it on a discrete basis. I think we don't have one, Mike, because we are calculating those credit exposures on a discrete basis because, together, the other approach just provides some numbers that just are very, very counterintuitive.

Then also, I guess back in the first quarter, you guys gave a pretty detailed percentage disclosure out of the out-of-market portfolio. I would say is that still pretty consistent? I think it was 28% in New York, 20% in Ohio, 9% in Florida, 6% in Arizona.

Yes, that really hasn't shifted that much.

Okay, and that's on the $354 million?

Yes.

Okay thanks a lot, guys.

(Operator Instructions). Andy Stapp, B. Riley & Company.

The remainder of my questions have been answered. Thank you.

We did have a couple of other questions that were e-mailed to us. Maybe we'd like to go through those first -- the first being can you provide more color regarding the $600,000 loss related to the loan swap? Are there other similar arrangements?

The answer is yes, we have I guess probably a couple of dozen of other swap arrangements on the commercial loans. We do underwrite those loans that are going to have a swap arrangement, taking into consideration that it does involve more credit risk. When you get into a situation, you have to underline that swap. So yes, we do have other arrangements with them. Maybe I'll just let Tony speak to more specifics.

Sure. We have roughly $224 million of notional swap exposure out there. We have changed the underwriting of these derivatives significantly. We now consider an LTV component to it. In this particular case, the project is not yet stabilized. A little over a year ago, we stopped writing any swaps on projects that are not yet stabilized.

The other thing that we have done in terms of building in some monitoring of this exposure is we do track the risk ratings. So we saw this one in the pipeline as it was being downgraded due to cash flow concerns. We don't have any other as of 9/30 with an adverse risk rating in the swap portfolio.

Good. The next question would be the next regulatory exam regarding safety and soundness? And that's scheduled for the fourth quarter.

There's a question concerning the rates on the short-term borrowings that were paid off. I'm not sure I can answer that without a time frame. Was it last quarter or --?

(multiple speakers)

This is Mark Kochvar, our treasurer. Go ahead, Mark.

Between the second and the third quarter, we did shift some of our short-term borrowings to the Home Loan Bank to a short-term brokered CD program. We saved about maybe 15 basis points by using the CD broker program. So part of the balance change might be just that switch from borrowings to CD.

I think we've got the last one Bob.

Then the last one -- are there remaining nonperforming assets? I think we addressed that one already, or what are the components of it. So with that, are there any more questions?

Mike Shafir, Sterne Agee.

Yes, just following up on the exam, I was wondering. Who is your primary regulator?

The FDIC for the bank.

I'm showing no further questions in queue.

Good. Thank you for participating in today's conference call. I know Bob and Tony and I and Dave Antolik appreciate the opportunity to discuss this quarter's results, and we look forward to hearing from you at our next conference call.

Thank you. This concludes the teleconference. You may disconnect your lines. Thank you for your participation.