S&T Bancorp Inc (STBA) 2011 Q3 法說會逐字稿

Greetings and welcome to the S&T Bancorp Incorporated third-quarter 2011 earnings conference call. At this time all participants are in 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 your host, Mark Kochvar, Senior Executive Vice President and Chief Financial Officer for S&T Bancorp. Thank you. Mr. Kochvar, you may begin.

Thank you. Good afternoon and thank you for participating in today's conference call. Before beginning the presentation I want to take time to refer you to our statement about forward-looking statements and risk factors which is on the screen in front of you. This statement provides the cautionary language required by the Securities and Exchange Commission for forward-looking statements that may be included in this presentation. A copy of the third quarter earnings release can be obtained by clicking on the press release link on your screen or by visiting our Investor Relations website at www.stbancorp.com. I would now like to introduce Todd Brice, S&T's President and CEO who will provide an overview of S&T's results.

Well, thank you, Mark, and good afternoon everyone. Once again it's hard to believe that the quarter has passed by and we're getting together to review our financial results with you. As we announced in yesterday's press release we earned $12.2 million or $0.44 per share for the quarter versus $10.9 million or $0.39 per share in Q3 of 2010. I'd have to say that overall we're very pleased with our performance this quarter in spite of some of the economic headwinds that are still impacting the industry.

We're extremely excited about the Mainline Bank transaction that we announced earlier this quarter. We feel that Mainline Bank is a great fit for us from a strategic standpoint and we're looking forward to partnering with a very solid community-based organization. In addition, we feel that there's going to be continued activity in the M&A arena, and we'll continue to see opportunities to grow our business through this channel going forward. Mainline complements our retail footprint very nicely as it fills in the gap that we had in Cambria County where we really had a big void between our Indiana and Blair County markets. We are going to be adding the 7 branches in Cambria and also 1 branch over in Blair County to augment our branch network in these markets.

Mainline really also has a great group of people who are very well versed in providing outstanding service and from a cultural standpoint they're very similar to how we approach the business. So as a result we expect integration to go very smoothly. The markets that Mainline operates in have very similar characteristics to our existing footprint where we've really had a lot of success over the years. We're very excited to offer our enhanced products and services to their customer base and we really believe that we will experience some nice revenue gains. From a pricing standpoint, the transaction is going to be accretive to our EPS as a result of the cost synergies that we expect to achieve and really the impact to capital is negligible. Mark Kochvar is going to provide a more in-depth analysis of the transaction in his presentation.

As far as results go, the big story this quarter is again continued stabilization in our asset quality metrics as our provision expense was $1.5 million which was significantly better than the $8.3 million expense that we recorded in the third quarter of 2010. Really the big driver of this is the continued reduction in nonperforming assets as well as an improvement in our criticized and classified loan categories. Net charge-offs for the quarter were $8 million. However, the majority of these have been previously recognized through our [AOL] model. Pat Haberfield is going to elaborate in more detail on this in his discussion.

The disappointing news for us this quarter was the continued decline in the loan portfolio which was down $76 million on an average basis from Q2. I think payoffs in our real estate portfolio continue to be the story, as well as some exit strategies that we had with some of our C&I customers coming to fruition. In addition, we've seen some runoff in our home equity portfolio as consumers continue to refinance and deleverage in the current environment. But in spite of the runoff, we are more optimistic regarding prospects to grow the portfolio that we have been in quite some time. We actually saw an increase, even though it's not reflected in the quarterly numbers, but we did see a nice increase in our C&I book in September over our August numbers. Really the upticks attributed to an increase in line utilization and then also some nice new activity, some of that relating to the drilling activities in the region. Also, the pipeline continues to build in both our C&I and real estate divisions as the overall western Pennsylvania economy continues to improve.

On the retail side our mortgage pipeline is up from Q2, probably around 75%, and we expect to have a solid quarter from a closing perspective in Q4. I think additionally, in the third quarter we began to book 10- and 15-year Fannie Mae mortgages, qualifying mortgages, on our balance sheet which has helped to stem some of the runoff that we've experienced in our mortgage portfolio. Also, we restructured our small business lending unit earlier this year to enable our sales people to be more interactive with our clients, and really in the third quarter we're beginning to reap the benefits. Year-to-date we booked approximately $40 million in this line of business and we're beginning to see monthly increases in both applications and loan bookings.

We do realize that growing our balance sheet and our revenue streams is critical going forward, and to that end we've focused on enhancing our production staff. I'm pleased to announce that since the end of last quarter we've added 1 commercial lender who focuses on C&I and also just within the last 2 weeks, 2 people on the sales side in our wealth management division and also early this quarter we added 2 people on the sales side in our insurance division. So we expect to see some increase in our fee revenue lines of business. While it's early, all the people are generating nice levels of activity, which should begin to appear in our numbers in the coming quarters.

As I mentioned last quarter, as a result of the strong performance by our wealth management team, we're beginning to show up on the radar of some institutional investors. It's been a focus and in Q3 we were able to secure approximately $15 million in institutional funds into our wealth division, and that pipeline continues to build as well. I think we've talked about our mineral management division, and while it's small, we are seeing a lot of activity. We did book our first dollar of revenue this quarter and, again, it's a little bit on the small side, but that pipeline continues to build and we continue to see nice activity as these services are well received in our market places. Also, we're adding another sales person in our southern region to keep pace with the demand that we're seeing.

Efficiency has always been a hallmark at S&T. One of our main areas of focus this year has been on our electronic banking products, really to try and contain our delivery costs. I think we have a good story to tell. To date, 60% of our customer base utilizes our electronic delivery channels. We did introduce a mobile banking product, an app several weeks ago and already have 4,000 users signed up. Also in Q3 we made a concerted effort to move people onto our e-statements, and as a result in the quarter we migrated over 36,000 accounts to this delivery channel. So today, versus traditional methods, we now have over 80,000 accounts receiving statements electronically, and we estimate savings to be approximately $50,000 per statement each month. So we're seeing nice lift on the expense savings side from those efforts. And finally, in our ongoing quest to rationalize our retail delivery channel, we also closed 2 branches this quarter which is going to have a positive impact on our expense ratios.

In closing, I want to say how pleased we are with our results this quarter. We do understand that we need to grow the balance sheet, but again, we want to do it in a prudent way from both a pricing standpoint and a structural standpoint. And also expense control is going to be -- continue to be very important as it always has been at our organization, and we're going to make incremental steps to keep these in check as well. Now I would like to turn the program over the Pat Haberfield, who is going to review our credit metrics.

Great, thanks Todd and good afternoon, everyone. Provision expense for third quarter 2011 was $1.5 million resulting in an ending balance in loan loss reserve of $51.5 million or 1.64% of total loans. This does compare to provision expense of $1.1 million with a loan loss reserve balance of $58 million or 1.81% at June 30, 2011. Included in this quarter's allowance is $2.9 million of specific reserves; we had $7.5 million in the previous quarter. Our reserves NPL coverage remains strong at 87%, which also compares to 93% in second quarter '11.

Our non-performing assets stabilized at $65 million from $69.9 million second quarter of '11, and down from $82.7 million third quarter 2010. Put another way, 2.08% of total loans plus ORE at the end of the third quarter '11, compared to 2.18% in the linked quarter and 2.45% at September 30, 2010. OREO properties are at $6 million which compares to $7.4 million in June. As expected, our TDRs ended the quarter at $43.5 million, which shows a decrease of $2.4 million from the previous quarter due to pay-downs. $22.1 million of these TDRs are classified as non-accruing and $21.4 million are accruing. We continue to work closely to monitor the performance of our restructured loans as we attempt to work with our borrowers through this economic cycle.

We continue our quarterly intensive review of our [CMC] loans in order to identify potential problems, work with our customers in situations warranted in order to continue with the relationship on a go forward basis. As we have moved through portfolio this year, our review of the loans through things such as our loan review function, stress testing, small business portfolio monitoring, and through our quarterly criticized asset meetings we anticipate reviewing in excess of 85% of our commercial loan portfolio. During the third quarter of 2011 the Bank experienced net charge-offs of $8 million of which approximately $6 million had specific reserves tied to them. This compares to charge-offs of $4.8 million in the second quarter of 2011 and $6 million in third quarter 2010. Our annualized net charge-offs to average loans is 54 basis points, which compares to 99 basis points in the year-ago period. Total special mention of substandard loans remains stable ending the third quarter at $356.8 million, which compares to $381 million in the second quarter of 2011. Also, the $8.8 million in loans held for sale last quarter did close in the timeframe expected.

Our total delinquency decreased during the quarter to 2.36% as compared to 2.66% in the linked quarter and 2.69% at September 2010. Our early stage delinquencies of 30 to 89-day categories which, of course, is one leading indicator for potential problem loans, continues to perform well within expectations. The 30 to 59-day delinquency bucket ended the quarter at 33 basis points, which compares to 51 basis points at June 2011. The 60 to 89-day delinquency bucket ended the quarter at 14 basis points, and this compares to 20 basis points in June. The over 90-day delinquency was at 1.89 which does compare to 1.95 at the end of June 2011. Next I will turn it over to Mark to provide additional details on our quarterly financial results.

Thanks, Pat. Our overall performance in the third quarter was in line with prior quarter. Lower revenues in both margin and fees along with slightly higher provisions were partially offset by lower expenses. We continue to experience net interest margin pressure from lower average loan balances which were down about $76 million compared to the prior quarter. And the shift to lower earning assets mostly in the form of excess cash held at the Federal Reserve. Deposit rates were relatively flat for the quarter as we are near the practical floors on non-maturing deposits and we have limited near-term CD repricing opportunities.

In the fourth quarter, we will get some relief from the reset of a $25 million sub debt issue that went from 6% to 6.78% to floating at LIBOR plus160 late in the third quarter. We do anticipate continued margin pressure both dollars and rate into 2012 and we continue to evaluate our options as we develop our plans for 2012. Non-interest income was impacted by an impairment charge to our mortgage servicing rights asset of $763,000 compared to an impairment of $158,000 in the prior quarter. This is the result of lower mortgage rates and the resulting higher prepaid fees. Service charges improved in the third quarter primarily due to about $215,000 for 2 months of new fees for paper statements that Todd referred to, but also due to some miscellaneous fee increases for a number of ATM and other account-related products. We do anticipate that the paper statement fee will decrease over time as customers opt out for paperless statements. Again, that shift to paperless will help us on the expense side.

Non-interest expense in the third quarter is down from the prior quarter primarily due to a decrease in the provision for unfunded loan commitments of $1.2 million compared to a decrease of $77,000 in the second quarter. Approximately $800,000 of this decrease relates to an item dating back to 2008. At that time we took a charge through the provision for unfunded commitments for a letter of credit that we knew one day would be drawn upon and would have to be funded and then charged off. That happened this quarter, which resulted in the release of the $800,000 that was set aside back in 2008, [an honest] expense and, of course, funding charge-offs through the regular loan loss provision. The net P&L impact for this quarter is zero. Lower non-interest expense is being offset by a higher loan loss provision due to the additional charge-off. The remainder of the decrease in provision for unfunded commitment is due to lower commitment volume.

Our capital ratios continue to show improvement, up about 65 basis points in the risk-weighted assets denominator rations due to lower risk-weighted assets from the shift from loan to cash and from another good quarter of earnings retention. Since the end of 2010, our risk weighted capital ratios are up over 165 basis points and both the leverage and tangible ratios are up about 70 basis points. We believe these improvements give us additional flexibility as we continue to explore our options relative to participation in the capital purchase program. As Todd mentioned, we're working on those various applications and integration preparations for the Mainline deal announced last month. We continue to anticipate closing the transaction in the first quarter of 2012.

Mainline's loan portfolio is fairly clean. Our credit discount assumption transaction is about 2.5%. We remain confident that the expense synergies for this end market deal at 40% are achievable. The impact on our capital ratio of about 40 to 50 basis points is relatively modest given the improvement we have seen in our capital ratios over the past few quarters. Our tangible book value payback is anticipated to be less than a year-and-a-half and the internal rate of return is in the low 20%. Thanks very much.

First we did have a couple questions that came in through e-mail. The first of those was about pricing of the Mainline deal. Also some detail, additional detail is available in the press release that was -- that came out on September 14, and an 8-K on the 16th of September. Those pricing metrics in relation to common book value was 126%, and to tangible book value at 127%. Another question we had was related to how much S&T is spending on compliance functions and how much this has increased because of Dodd-Frank. Although we have a separate compliance department and that spending has increased, we don't track that because a lot of the expenses related to that is involved with management's time, and also the additional external expenses related to that. We don't have a separate number on that.

They are up.

Yes, as Todd mentioned here, they are definitely up. The last question is what fees will S&T charge to raise or replace NSF and swipe fees. First, on the swipe fees, since we are under $10 billion, at least in the immediate timeframe, we are not impacted by a decrease in those fees. Relative to the NSF fees, we continue to evaluate that. One of the actions we've taken in part in response to that is the changes to the paperless, the cost for the paper statement that we talked about that started this quarter. Thank you. At this time I would like to turn it over to the operator to provide instructions for asking questions.

Just one other thing, too. I think I made a -- one of my colleagues mentioned I indicated that we were saving $50,000 on the paper statement. It's $0.50 per statement, and it equates with the lift we've had, about $20,000 a month or so right now. So thank you.

Thank you. We will now be conducting a question-and-answer session.

(Operator Instructions)

One moment, please, while we poll for questions. Mike Shafir, Sterne Agee.

I just have a couple of quick questions. On the salary and expense line, you guys had that come in for 2 consecutive quarters now. I was wondering is there anything specific or one-time this quarter that brought that down almost $1 million sequentially?

I guess it's down, what about, $800,000 quarter-over-quarter.

Yes.

The biggest things in there, on the salary side, we do an accrual for vacation so that actually results in a decrease in expenses in the third quarter since a lot of people use vacation in that quarter. That's about $300,000 of it. Additionally, we had pension adjustment that was a catch-up for the full year, our pension expenses are coming in a little bit lower than we had anticipated. That was about $170,000. And also in there is the market adjustment for the rabbi trust of about $270,000. Then some of our medical expenses are coming in a little lower than last quarter, about 100 grand. So there's a number of items go into that.

So should we see somewhat of an uptick then next quarter as some of that comes back through?

Certainly at the rabbi trust, that's more market value dependent. That can go either way. It's offset on the fee side in the exact same amount, so you might see some fluctuation that goes away or could go either way on that. The vacation thing is pretty neutral for the rest of the year so we shouldn't see that pick up. That $11.7 million is a little bit on the low side.

Okay. And then just kind of as -- the provision expense has kind of been pretty lumpy over the last several quarters. As we start to think about the out years and really think about kind of loan loss reserve to loan ratios, is there a level where you guys start to get comfortable, where, because the release has been pretty significant in the last several quarters. How should we kind of start thinking about that?

You know, it does fluctuate according to our model, and I guess the makeup of our portfolio. Where it is now is a fairly comfortable level for us I think. But again, as historic losses tend to fall out of the equation of it, it makes it a little tricky to kind of compute what's going on in there, but I think that around the levels we're at now, maybe slightly lower still allows us to have some sort of comfort on a go-forward basis.

The other thing, Mike, that's kind of impacting that is the improvement that we're seeing in our criticized and classified buckets and also volume to an extent plays a part in where we are. So a lot of moving pieces to that model.

That's just a real hard question to answer.

Okay. And then just finally the tax rate was up around 29% this last quarter. Kind of where do you think we should be modeling that moving forward?

Mike, I guess I'd calculate at about just over 25%. As our performance improves, and we came in a little bit better in third quarter than we had expected, just the way we take that expense, we kind of have to catch up for the prior quarters. But as we're modeling out in the future, we're still in that 24% to 25% range.

Thanks a lot, guys. Appreciate all the details.

Thank you. David Darst, Guggenheim Securities.

Following up on the reserve question, can you give us the level of the specific reserves at the end of the quarter?

$2.6 million.

Okay, so is there anything in the non-performing bucket that you expect to resolve in the fourth quarter?

We have some things moving. We track performance, especially in that TDR bucket. Our special asset folks have been very hard at work in trying to reestablish some of these customers and resolve. So without going into specifics, yes, we expect to see some resolution. The nice thing that we have seen is that the inflow in the migration analysis that we're looking at has kind of slowed a little bit. We expect -- one large lift we're looking at over the next say 3 weeks, is that we have a loan that was protected by a USDA guarantee for about $3.9 million. We've processed all the paperwork. We expect to get that. So that's a big lift for us. Anytime you're talking about $4 million at our institution, that's a big number. So yes, we see some positive things, but again, I'm still remaining cautiously optimistic.

Pat, did you give us any specifics on the improvement in the criticized and classified loans?

What we have is that we ended the quarter on -- our C&C bucket was about $356 million, compare that to Q2, that's down from $381 million.

Okay. Great. Thank you. Mark, one question on the margin. Is there anything coming due next year that would give you any help, maybe any CD maturities later in the year that would allow to you improve the margin or see some stabilization?

At the end of the second quarter and beginning of the third quarter, we have a relatively sizable block of 3-year CDs that will reprice. They're coming off at about 3.25% to 3.5% rate so we'll see some relief there, but other than that there's not a whole lot of CD repricing that we expect.

do you think that would allow to you stabilize the margin in the back half of the year?

It will give us a little bit of help. In the models we've run right now, as long as rates stay this low, we still are projecting some pressure throughout all 4 quarters.

Okay. And then how about as far as your outlook for loan payoffs in the fourth quarter? Do you still think you will see some, or is that easing?

Yes. Dave Antolik is with us, who is our Chief Lending Officer. We expect to see some continued -- this quarter we had roughly -- we went through the numbers, but how much in the real estate bucket, Dave?

You've got about -- the real-estate bucket is $36 million payoffs in the real-estate bucket. Now, that's primarily made up of 2 components. One, about $25 million of that would be due to payoffs that went into the perm market or properties that were sold. The other big chunk would be these 2 loans that were held for sale as well some other exit strategies that we exercised. We're starting to see demand pipeline -- it is starting to grow, and with regard to our C&I outstandings, we did see a number of customers start to add leverage to their balance sheet, particularly in September, and we saw some nice increases with new customers, specifically relating to the Marcellus activity in the region.

And I would say, our loan committee activities have really increased over the last couple of weeks. Tomorrow we have a pretty full agenda with some nice new business in there as well. Our hope is we maybe could offset some of those, the payoffs with some of the new activity if we can book it before the end of the quarter.

Okay, thank you.

Thanks, David.

Thank you. Collyn Gilbert, Stifel Nicolaus.

Thanks, good afternoon, gentlemen. Not to harp on the reserves provision conversation, but I guess I am, just want to understand, so, Pat, I think you had said that this quarter was $2.6 million in specific reserves.

That's right.

Okay, is that within the allowance, or are you talking about that in the provision or charge-off line?

That's part of the allowance.

Okay. So of your whole $51 million or so, just over $51 million that you have in total reserves, of that, only $2.6 million would be considered specific reserves?

That's correct. The rest is general.

Okay, okay. And then I think you had given some numbers here. You said $8 million in net charge-offs this quarter. $6 million of that had specific reserves, then the $4.8 million last quarter. Of that $4.8 million, how much of that had specific reserves?

Let me look. I don't know if we had the number from last quarter.

Okay,

I don't want to --

I don't know that I have that at my fingertips, I apologize.

Okay, all right, maybe I can circle back with you on that. And then just related to the year-ago period. Okay, and then, Mark, you may have covered this in your comments. I may have missed it. But you guys did see good growth in deposit service charges this quarter. In the press release you wrote new deposit fees. What was it that was driving that?

It was primarily the fee that we started to charge for paper statements.

Okay. I thought you said you were saving, okay, so that's the fee for the paperless statements?

Primarily. We did change a few other fees like the cost to use an ATM and for non-customers to use our ATMs, those were the other things, but it was primarily the paper statement fee.

Okay, okay, okay. That's helpful. And then, Todd, just a question for you. I know you gave some color on some of the loan dynamics and what's been going on in the portfolio over the recent periods. But I guess I'm trying to sort of reconcile the declines that you guys have seen year-over-year, kind of consistent declines in the loan book during the past year, and I can understand if you all had been kind of an underperforming bank and the need to sort of redesign or sort of reinvent your strategy, but it seems -- I guess where I'm going with this, is if it -- it didn't seem as if it was an organization that was necessarily broke. So, you know, to try to sort of reconcile why these loan buckets continue to decline, is it -- I know I'm not very articulate in my line of questioning, and I apologize. I'm trying to reconcile why each bucket continues to decline -- I don't know, I'll stop there.

I think I understand perfectly where you're coming from, because we've been having a lot of these same conversations ourselves internally. But really, I think 3 components. Number 1 is some of the charges that we've taken to clean up the portfolio. We have looked at our buckets of criticized and classifieds, and some of those accounts, while performing, we've come up and said, okay, let's come up with an exit strategy to move them out of the bank. We haven't done it with all of them. Certainly the relationships are very important to us. But there have been cases where maybe we just disagree on philosophies with management and they found an option that suits them maybe a little bit better than what we could or couldn't do for them.

Finally, the mix of our portfolio too, Collyn, it was a little bit more real estate oriented, and I think that those have come out in bigger chunks. We were just looking, we had a $20 million project this quarter that was sold, had another couple projects that got refinanced that were big chunks. That's kind of been going on throughout the year. Then the demand hasn't been there on the front end to make those up. In the past, we could go out and kind of replace some of the items that we had lost, just with new business, but that's been a little bit muted. But we are, again, as I mentioned earlier, we are seeing some activity, and that pipeline is starting to grow a little bit again. It's finally, I would consider some decent activity. On the C&I, it's been a focus of ours, but it doesn't come on in the big chunks like the real estate piece. Again, I think some of that has just been through customers de-levering over the summer. David mentioned in September we did see a nice lift, but I think the line utilization was up a couple points. We had some nice $10 million to $15 million of new activity, and again, that activity level in our pipeline is starting to grow a little bit on the C&I side.

And then quite frankly, on the retail side, we were just kind of doing analysis, but if you look, our retail portfolio outside the mortgages is very low. So we haven't had some of that activity offset some of the other growth on the commercial side as well. So we're just exploring some options on how we could maybe do a little bit better job on the consumer side. It's not going to be big, but the one change that we did make was on the small business lending, and I like the activity that we're having over there. We're starting to see increases every week, starting to see that line item grow. It's not going to be big $20 million chunks like we have had on the real estate side, or $10 million chunks, but incrementally it will add volume and hopefully start to stem some of the runoff that we've been experiencing. But, yes, we understand that's an area we need to do a little bit better job right now.

Okay, okay. That's very helpful. Thank you. And then just quickly, the decline in wealth revenues that you saw on a linked quarter basis, do you guys have a sense at all on how much of that would be attributable to just the decline in the equity markets? Just trying to reconcile the momentum that you're seeing as it relates to shale and just growing the business versus the market.

I think about half. The other thing, in Q 2, we were pretty heavy with annuity sales so they dipped a little bit this quarter. So between those two, components, that made up the bulk of it.

Okay, great. Thanks so much.

Thank you. Damon DelMonte, KBW.

Hi, good afternoon, it's actually Timar Brizola filling in for Damon. I'm sorry if you had mentioned this earlier in the presentation, but can you discuss a little bit about your commercial pipeline, maybe how that's changed quarter-over-quarter and maybe a little bit on the commercial landscape out there?

Yes, this is Dave Antolik. We are seeing a shift and we've consciously made an effort to grow our C&I portfolio, both from a small business perspective and from our standard middle market C&I customers so we've seen a shift away from CRE, although we are seeing some nice opportunities with regards to CRE right now. We are seeing some rational pricing I would call it in the market on some of these deals. So we're being disciplined about adding new loans to the books and making sure that they're profitable. We're very disciplined about how we approach new loan opportunities from a credit perspective and from a strategic perspective. Many of our competitors will fill holes with shared national credits. We haven't gone that route. We've been very disciplined about making sure that we live up to our reputation as a relationship lender, and we want to continue to do that in a measured way.

The other thing I would just like to comment on regarding that volume, too, I think in a lot of -- we've had a lot of discussions with clients in a lot of different businesses, and I think overall, the sense is that things are relatively good in the region. But I think what happened early this summer, they were kind of in the same bucket, then you kind of had that debt crisis jump up and people lost confidence. But I was just in last week with a group of clients, and I think they're starting now, and I think it's reflected in September, they're starting to say, okay, business has still been pretty good. I was with a client this morning that they had 20 positions open in a manufacturing company that they need to hire for. So we're starting to see -- people are starting to get back into some of their lines and starting to invest back into the businesses to prepare for growth.

Okay, that's very helpful. Circling back to the margin, can you provide the timing that that $25 million sub debt was restructured?

It was a five-year fixed, and that hit September 15th is when that rate changed.

Okay, great. And -- actually, I think that's all I have. Thank you very much.

Thank you.

(Operator Instructions)

Andy Stapp, B. Riley & Company.

Good afternoon. You talked about the CDs, the repricing at the end of Q2 and the beginning of Q3. Do you have the dollar amount?

$120.

Okay. That's it. The rest of my questions have been asked.

Rick Weiss, Janney Montgomery Scott.

Thank you. Hey there. I was wondering if you could give some of the pros and cons of repaying your TARP preferred stock.

Well, on the pro side, it does cost us $0.22 a share in terms of earnings. So that would be a pro to certainly to paying it off. On the con side, it does provide capital support. There's still a lot of uncertainty in the economy, whether there might be a double dip, it provides additional capital resources as being there.

Right, I would say, Rick, if you look over the last year, we generated about 150 basis points of capital, either through regained earnings or shrinking the balance sheet. We're seeing some improvement in asset quality numbers. So it's something we are going to talk a good hard look. I don't want to sit here and tell you we're going do it tomorrow or even this quarter, but we are going to evaluate it very closely and see what our best options are for maybe doing something in that regard.

We have to have discussions with the regulators and a lot of things. We've been patient, and we've been, I think just waiting for the right time, and when we feel it's appropriate and building the appropriate capital levels post-repayment.

As far as the SBLF, that's gone, right? So, there's no chance that you would replace the TARP with the SBLF fund?

No, We withdrew our application from that program.

Okay, so it would be either keep quiet for a while or just simply repay it, no other government program?

No other government program, right.

Okay, got it. Okay, thanks a lot, guys.

Thank you. Our next question is a follow-up from Mike Shafir with Sterne Agee.

Hi guys, just along the same lines as Rick's question on the TARP repayment plan, just very quickly, the total risk base, or the tier 1 risk base capital ratio is around 15% now. I was wondering, what would that go to if you guys paid back the TARP?

With no raise that would drop around 340 basis points, someplace in there. Mike, which one were you alluding to?

I'm talking about the tier 1.

Both the tier 1 and the total would drop by about the same amount.

Okay. And then just as your thoughts on TARP repayment, I guess -- or do you look into potentially do it within the next 12 months? Could there be a partial capital raise? What kind of options have you guys explored or thought about?

All of the above.

Okay,

We're evaluating a lot of different options right now, Mike.

Okay. Thanks a lot. Appreciate it.

Mr. Brice, there are no further questions at this time. I would like to turn the floor back over to you for closing comments.

Okay, thanks, operator. I just want to again thank everybody for participating in today's call, and Mark and Pat and I appreciate the opportunity to discuss our results and look forward to hearing from you next quarter. Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.