Washington Trust Bancorp Inc (WASH) 2008 Q3 法說會逐字稿

Hello, and welcome to the Q3 2008 Washington Trust Bancorp, Inc. earnings conference call. All participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (OPERATOR INSTRUCTIONS.) Please note this conference is being recorded.

Now, I would like to turn the conference over to Elizabeth Eckel. Ms. Eckel, you may begin.

Thank you, Missy.

Good morning, everyone, and welcome to the quarterly earnings conference call for Washington Trust Bancorp, Inc., the NASDAQ global market symbol WASH.

This morning's conference call is being recorded and is being webcast live, and a webcast replay of today's conference all will be available shortly after the conference call through the Corporation's website at washtrust.com in the Investor Relations section under the subhead presentations. However, the information we provide during today's call is accurate only as of this date, and you should not rely on these statements after the conclusion of the call.

Hosting this morning's discussion is John C. Warren, Chairman and Chief Executive Officer, and David V. Devault, Executive Vice President, Secretary, Treasurer, and Chief Financial Officer.

And now I'm pleased to introduce Washington Trust's Chairman and CEO, John Warren.

Thank you, Beth. I'd like to welcome everyone and thank you for joining us today.

Yesterday, we released our earnings for the third quarter ended September 30th. This morning David and I will discuss these results and answer any questions you may have about our performance.

I'm pleased to report that Washington Trust recorded another solid performance, despite the economic recession and the upheaval in the credit and financial markets. For the third quarter ended September 30th net income totaled $6 million, which is down from the $6.6 million earned a year ago. Diluted earnings per share were $0.44 compared to $0.48 per diluted share reported last year.

Asset quality continues to remain good and strong, and Washington Trust continues to be well capitalized. In addition, as you all know, just after the close of the third quarter Washington Trust raised $50 million in new capital though a private equity issuance, a pipe deal. This capital will be used to take advantage of strategic growth opportunities, particularly in the areas of commercial banking and wealth management. Washington Trust is a solid financial institution, and this additional capital just makes us stronger.

Over the past year we have expressed concern about the economy and what the spillover affect from the sub prime crisis would be on the financial services industry. No one could have predicted the upheaval and the series of events that have taken place over the past several weeks. We saw several of the nation's top financial institutions fail, investment banking firms, those that are left, converted to bank charters, and a $700 billion government rescue program. Needless to say, our industry and the competitive landscape have changed dramatically and will continue to do so.

How has all of this affected Washington Trust? In these unchartered waters we've stayed the course. We've remained focused and disciplined. We have persevered. Washington Trust has a strong heritage that during these uncertain times many depositors and borrowers have looked to us for guidance. In several respects we have benefited from the disruption in the marketplace.

Now, I'd like to discuss some of the quarter's highlights. Total loans increased $63.4 million during the quarter, with almost $47 million of that increase attributable to growth in commercial loans and commercial real estate. In fact, this was our eighth straight quarter of firm commercial loan growth.

Year-over-year commercial loans have increased $192 million or 30%. This double-digit growth confirms that Washington Trust is one of the area's top lenders for businesses, both large and small. We continue to be a leading resource for businesses in our market.

Recently, our Chief Credit Officer participated in a forum with Rhode Island's Lieutenant Governor, the Small Business Administration, and other business leaders. He advised small business owners not to panic, but to take a big breath and to look at this as an opportunity.

He reminded them that Washington Trust is still lending money to qualified borrowers. The media somehow misses that we, as well as several others are still lending money. This message continues to resonate with many businesses, and with some borrowers who have been displaced by the larger institutions, they have turned to Washington Trust, and that's been part of our growth, as we have mentioned to you before.

It's important to note that that commercial loan growth is comprised of quality credits. We have not relaxed our credit standards to bolster the balance sheet. We have disciplined credit criteria and maintain adequate reserves commensurate with the current economic conditions. Once again, asset quality remains strong.

Let me now turn to wealth management, a key line of business for us, and one that provides a key source of non-interest income for the Corporation. Wealth management revenues declined by 6% from the second quarter of 2008 and were essentially flat from the same period a year ago.

Assets under administration stood at $3.6 billion at September 30th, and were down primarily due to the significant decrease in valuations in the financial markets. In prior quarters we reported good new business growth, but the pace slowed considerably in the third quarter due to increased uncertainty and unrest on Wall Street and the global markets.

The best strategy during these times is communication, and we've been doing that with our clients. We have good relationships with them. Our wealth management professionals are working one-on-one with clients, advising them on both the status of their investment portfolios, but also on the markets, as well.

On the residential mortgage and home equity side, demand has been relatively flat. Decreased consumer confidence, fueled by unemployment and decreased housing valuations have continued to affect demand.

On the deposit side, [in market] deposits grew by $53.5 million or 3.6% during the quarter. But, again, market unrest led some nervous depositors to come to the bank to ensure their deposits were within FDIC limits. We haven't had any major deposit outflows and, but media stories advising consumers to put money under their mattresses doesn't help consumer confidence.

The recent increase in FDIC limits to $250,000 and the discussions on providing 100% coverage for demand deposits have certainly helped ease depositors' concern. In addition, Washington Trust has provided another solution where we now provide depositors with access to up to $50 million in FDIC insurance through the [Cedars] Program, which I believe we've mentioned to you in the last quarter.

At this juncture, I'd like to turn it over to Dave Devault to provide more detail on the third quarter financials. David.

Thank you, John. Good morning, everyone. Thank you for joining us on our call today. I'll be reviewing the third quarter operating results and our financial position as described in our press release yesterday.

Net income for the third quarter of 2008 was $6 million or $0.44 per diluted share, compared to $6.6 million or $0.48 per diluted share reported for the third quarter of 2007.

For the nine month period ended September 30th, 2008 net income was $18 million or $1.32 per diluted share, substantially the same as the amounts reported for the same period last year.

Return on average equity in the third quarter was 12.94% and it was 12.68% for the first nine months of this year. This compares to 14.99% in the third quarter last year and 13.74% for the nine month period last year.

There were some items of note in the earnings, securities losses charged to earnings of $982,000 were recognized in the third quarter of this year on Freddie Mac and Fannie Mae perpetual preferred stockholdings which were deemed to be other than temporarily impaired. On an after-tax basis this amounted to $669,000 or $0.05 per diluted share.

In addition, an income tax benefit of $841,000 or $0.06 per diluted share was recognized in the third quarter, based on an increase in net deferred tax assets resulting from a change in a state corporate income tax rate in the state calculation method which was enacted during the quarter.

Net interest income for the third quarter this year was $16.6 million, up $437,000 or 2.7% on a linked quarter basis, and up $1.3 million or 8.7% from the third quarter a year ago. The increase in the second quarter reflects higher earning asset levels, while the increase from a year ago reflects both growth in interest earning assets and lower deposit costs.

The net interest margin for the third quarter of 2008 was 2.62%, down 9 basis points from the second quarter and down 19 basis points from the third quarter a year ago. The decline in the margin reflects decreases in yields on variable rate commercial and consumer loans, and with less commensurate reduction in deposit rates paid during the same period.

In addition, approximately 5 basis points of the margin declined from the second quarter, to the third quarter, was attributable to several additional factors, including among other things the cost of temporarily maintaining lower yielding short-term assets for balance sheet management purposes and a reduction in the dividend yield earned on the Corporation's investment in Federal Home Loan Bank of Boston stock.

Turning to the loan loss provision, it was $1.1 million in the third quarter, an increase of $800,000 from the third quarter a year ago, and down $300,000 from the second quarter of this year. And that provision was largely due to growth in our loan portfolio, as well as ongoing evaluation of credit quality and general economic conditions.

On the balance sheet, total loan growth was $63.4 million or 3.7% in the quarter, and it's $195.4 million or 12.4% since the beginning of the year. As John mentioned, commercial loan growth continued at a firm pace for the eighth consecutive quarter, it was $47 million or 5.9% in the third quarter. And commercial loans are up by $192 million or 30% in the last 12 months.

Residential mortgages and consumer loans grew at a more moderate pace, with residential growth of 1.6% for the quarter and consumer loan growth of 2.2% for the quarter.

The investment securities portfolio stood at $753 million at the end of the third quarter, down $36.8 million for the quarter, including a decrease of $20 million in mortgage backed securities.

Total deposits rose by $128 million in the third quarter, and they were up by $91 million in the first nine months. Excluding out of market brokerage certificates of deposit, in market deposits grew by $53.5 million or 3.6% in the third quarter, and they were up by $32.9 million or 2.2% from the end of 2007. In market deposit growth in the most recent quarter reflected increases in certificates of deposit, while NOW savings and money market balances declined.

Looking at non-interest income, the non-interest income in the third quarter of this year declined $1.6 million from the second quarter and $1.3 million from the third quarter of last year. That decline was largely due to the recognition of the previously described impairment charge of $982,000 on Fannie Mae and Freddie Mac perpetual preferred stock holdings. There was only a minor amount of securities gains and losses in the second quarter and there were none in the third quarter of last year.

Wealth management revenues were essentially flat to the third quarter of last year, and are down by $459,000 on a linked quarter basis. In the second quarter of this year there was $335,000 of seasonal tax preparation fee revenues. Wealth management revenues are, of course, dependent to a large extent on the value of assets under administration.

Wealth management assets have been affected by lower valuations in the financial markets, and were down by $299 million or 7.6% in the third quarter and stood at just over $3.6 billion at the end of the quarter, and they're down 10% from a year ago.

Non-interest expenses were $18.5 million in the third quarter, up 2.3% from the second quarter, and up 6.7% from the third quarter a year ago. The increase on a linked quarter basis compared to the second quarter includes an expected seasonal increase of $259,000 in merchant processing expenses. And about 40% of the increase from a year ago represents costs attributable to our wealth management business, as well as an increase in FDIC deposit insurance costs.

Earlier, I mentioned the $841,000 non-core income tax benefit, excluding the affect of this the effective tax rate for the third quarter was 32.2% compared to 31.6% for the second quarter and 31.3% for the third quarter last year. We currently expect the fourth quarter effective tax rate to be approximately 31.8%.

Let me now discuss asset quality. Nonperforming assets remain at manageable levels, at $6.8 million or 0.25% of total assets at the end of the third quarter, compared to $6.2 million or 0.23% of total assets at the end of the second quarter, and up from $4.3 million at the end of 2007. Properties acquired through foreclosure or repossession amounted to $113,000 at the end of the third quarter.

Non-accrual loans as a percent of total loans stood at 0.38% at the end of the third quarter, up slightly from 0.36% at the end of the second quarter, and up from 0.27% at the end of 2007.

Total 30-day plus delinquencies were $11.2 million, down $3.8 million in the quarter, and up $4.2 million in the first nine months of this year. The decline in delinquencies in the third quarter was primarily due to one commercial mortgage relationship of $3.5 million, which was brought current by the borrower during the quarter. Commercial loans make-up 80% of total delinquencies at September 30th, 2008.

Meanwhile, in the residential and consumer loan categories, delinquencies were fairly stable in both the third quarter and the first nine months of this year, and amounted to $2.2 million or 0.24% of those loan categories at the end of the third quarter.

Total 90-day delinquencies in the residential mortgage and consumer loan categories amounted to only $188,000 in residential and $48,000 in the consumer category at the end of the third quarter.

Total non-accrual loans, which include the 90-day delinquencies, were $962,000 in the residential category at the end of the third quarter, and $208,000 in the consumer loan category.

As I indicated earlier, the loan loss provision charged to earnings in the third quarter was $1.1 million. That compares to $1.4 million in the second quarter, and $300,000 in the third quarter a year ago. Our provision is based on our assessment of various factors affecting the portfolio, including growth, our ongoing evaluation of credit quality, with particular emphasis on the commercial portfolio, and overall economic conditions.

Net charge offs in the third quarter were $432,000 compared to $161,000 in the second quarter and $155,000 in the third quarter last year. $385,000 of that $432,000 in the third quarter were commercial loans.

The allowance for loan losses was $22.6 million at the end of September. Our coverage ratios remained good, with an allowance of 1.28% of total loans, and an allowance to nonperforming loans ratio of 337%.

During the third quarter we recognized a liability of $5.6 million, with a corresponding increase in goodwill, representing amounts earned under the terms of the 2005 acquisition of Western Financial Group. The terms of that transaction provided for contingent payment earn outs in each year during the three-year period ending this year.

Total shareholders equity was $184.8 million at the end of the third quarter, compared to $186.5 million at the end of 2007.

Our capital ratios at September 30th placed both the Corporation and the Subsidiary Bank in the well capitalized category.

We've previously announced that we had raised $50 million in common equity in a private placement of 2.5 million shares of our common stock. The net proceeds were approximately $47 million after deducting offering related fees, and these proceeds were received on October 7th. The proceeds will be used for general Corporate purposes and to support growth initiatives in commercial and wealth management lines of business. And yesterday we filed a Form S-3 registration statement for those shares.

In September we declared a dividend of $0.21 per share, which was paid on October 10th.

And, at this time, I'll turn the call back to John Warren.

Thank you, David. I'd like to thank everyone for joining us on today's call, and for your continued interest in Washington Trust.

There are still many unknowns, not only in the economy and the financial services industry but, obviously, with the upcoming Presidential elections, as well. The economy continues to make borrowers nervous. They're losing confidence. And over the past four or five weeks and the events thereof, they have really slowed things down.

As we mentioned, our loan growth has continued strong, but with many closings over this period our pipeline has slowed and is back to year-ago levels. We're hopeful that the global actions taken are beginning to show a glimmer of positives, and the paper talks about that, and it's good to see LIBOR beginning to drift lower. We'll see.

As I mentioned earlier, the recent capital raise has made us stronger and better positioned to grow as a Company. We'll continue to look for the future and take advantage of the opportunities as they become available to us out there, and there are many.

So, thank you very much, at this point. And David and I would now be happy to answer any questions you might have.

(OPERATOR INSTRUCTIONS.)

Our first question comes from John Stewart of Sandler O'Neill Asset Management.

Good morning, guys.

Hey, good morning, John. How are you?

Hi, John.

Good, thanks. I had a couple of questions for you.

Yes?

I guess, first, just wanted to get your thoughts on participation in the TARP?

Well, it's kind of interesting, as one CEO was quoted this morning as saying, "the devil is in the details."

Yes.

I think we're very happy with the $50 million that we raised. There's no question about that. I think we'll -- we've got between here and November 14th. I don't want to say categorically we won't touch it, so we'll look at the details. We'll also look and see if there are any opportunities out there, but we're very happy with the $50 million that we raised.

And, also, a little unnerved, that I think there was an Op-Ed piece in the Wall Street today, either the Wall Street or the New York Times, and there were a couple of people stomping up and down, saying definitively that "no dividends should be paid at all for any banking institution that takes this government money."

So I think that we'll take a look at it, but where we stand right now is we're very, very pleased with the $50 million that we raised, net $47 million.

Okay. And then I guess just on the commercial loan growth in the quarter, can you kind of just break-down where that came from, how much of it was self-originated versus purchased, things like that, geographically, as well?

Sure. Hang on just a second.

Geographically, it's primarily in southern New England, very little would have been out of that footprint. Primarily self-originated, and there were some participations in there. I'm not sure I have that exact dollar amount of participation originations in the quarter handy.

We can give you the gross amount of participations that we have right now, which is on the sheet, and on a net basis that only puts it up a few million dollars.

Right. We have ...

$82 million ...

$84 million of participation balances where we are not the lead bank at the end of the third quarter.

Okay. And I guess if -- is there something that's happening kind of in your markets that's giving you the opportunity to put up that kind of growth? It's just more than I would have expected in the quarter.

Yes, I mean it continues to be, and I think we mentioned a little bit last quarter, as well, the largest banks in our area from a competitive point of view, are all in the category I'd say of being slightly distracted to say the least.

Okay.

I mean you can go down the list and you can, I mean Citizens is number one. Bank of America is number two in size. Sovereign is number three in size. Webster has a presence in our market.

So it's nothing that you guys are doing on -- as you alluded to in the prepared statements on the credit side, as far as using standards there or anything like that?

Definitely not easing standards, no question about that. I mean I think what we're really seeing is with what's going on in the marketplace, there's just a stronger recognition, and we're receiving a lot of credibility, rightly so, that we think, and the lenders are there and the opportunities are coming to us. Good business.

And then I guess just on the other side of the balance sheet, transaction, core transaction accounts were down linked quarter almost $20 million. Is there anything specific that's happening there on -- offsetting that? There was a tremendous amount of growth from out-of-market brokered CDs. Can you just kind of talk about the terms of those liabilities, duration, pricing, things like that?

Well, we saw a shift in in market deposited demand into time deposits, and that's reflected in the decline in the money market and savings balances for the quarter.

Did you change pricing on those deposits to generate that shift?

Well, I think there were some competitive forces that moved in that direction, and we have to be competitive in the marketplace. The out-of-market brokerage CDs is primarily longer term to pick maturity spots that make sense from a balance sheet management and interest rate risk management standpoint.

Longer term is out three to five years, something like that?

A year and longer. I'm not sure we have any five-years in that piece.

Okay. And then I guess considering the capital raised early in the fourth quarter, can you just talk about your outlook for the margin, I guess the capital raise and the recent Fed activity, heading into the fourth quarter and through '09 or the beginning of '09, if you could?

Well, the capital raise has been deployed primarily in securities at this point, and the Fed action is -- one of the things structurally that you run into is that lower rates bump up against floors in some of the non-premium rate, non-time deposit accounts.

So it's -- we'll have to see how that plays out in the marketplace here, but so on the positive side you would certainly have the additional securities, but on the negative side a lower Fed rate does not hurt most banks', does not help most banks' margins.

So is it fair to say that the margin will be down underneath the [260] level for the quarter? I would imagine there's at least a couple [BIPS] of compression from the deployment of the capital into securities. Is that fair?

I'm reluctant to give guidance on this, given what happened during the third quarter with some external factors. So I think that, again, that the net interest income will be helped with the addition of the securities but that the Fed rate cut is not helpful.

Okay. And then I guess just finally what was the amount of the FHLB dividend cut?

About $100,000 a quarter.

In cut or that's the net difference, or what was it last quarter versus this quarter?

That's the dollar affect on us.

Okay.

And that is likely to continue for the foreseeable future.

Yes, I mean basically all the home loan banks were -- of course, they sent a very nice letter out as to why they were recapitalizing or strengthening their capital base. But, in essence, it was a letter explaining that when you got to the end of it that they, obviously, in order to do that would have to reduce the dividend that they would -- or the spread on the dividend that they would normally pay to their banking members.

Right.

And I would expect with what's out there that it'll probably take a couple years before the home loan system is back with the flexibility to be able to open that spread up again.

Right. Okay. What was the dollar amount of the dividend in the second quarter?

Hang on just a second. Got the dollar amount in this quarter, Dave?

In the second quarter it was $489,000. In the third quarter it is $292,000.

Okay. Great. All right. Thank you.

You bet.

Thank you. Our next question comes from Laurie Hunsicker of Stifel Nicolaus.

Yes, hi, good morning.

Hi, Laurie.

Just to sort of follow-up a little bit on the margin question, do you have the margin for the month end September?

It was 2.7%.

2.7%, okay.

2.71%.

2.71%, great. And I guess from the standpoint that you just raised for $47 million in essentially zero cost in capital, it would seem that, you know, and I appreciate that you're hesitant to comment on margin, but it would just seem that at least in the fourth quarter, shy of everything else going on, we would see a margin benefit just from the standpoint of even if you redeploy that into securities. Is that not an accurate statement?

That's an accurate statement.

That is. Okay. Okay. Great. And then something else I wanted to ask you. With respect to the increase in FDIC assessment that all banks are facing, if you're up 7 basis points that's up whatever, $1.2 million next year into expenses -- are there any steps you're taking to reduce non-interest expense, to sort of offset this? Or should we be adding that right on top?

And then I guess sort of a tandem question to that, the demand deposits that are insured unlimitedly, that you can sort of opt into or opt out of, do you all know what you're going to be doing there? Or should -- I guess that's another way, should we be modeling a 10 basis point cost to that, as well, or--?

We're looking, on the latter we're looking at that, and we'll make a decision shortly, and competitive forces will no doubt play a factor in that.

The increase in the announced rates, it -- banks, to my knowledge, we don't know yet exactly what the basis point increase for us will be. There'll be some qualitative factors taken into consideration by the regulators in setting those rates or selecting those rates for individual institutions. It could be an amount similar to what you had described of 7 basis points and $1.2 million on an annualized basis, but we don't know yet.

It would be very difficult I think to expect that structurally we could offset that with any significant amount of non-issued expenses without affecting service quality, and we're always hesitant to do things that would affect service quality.

Yes, I mean we're obviously right in the throes of the budgeting process right now. I think it's safe to say that we're not wildly optimistic on the economy for 2009, and so from the expense side we'll be as tight as we can possibly be on that, fully recognizing that there are lots of uncontrollables out there, including the FDIC increase.

Sure. When you all were on the road with your capital raise, did you give any kind of bottom line earnings guidance that you could share with us?

We did not.

Okay. Or is there any -- I mean I know typically you all don't give earnings guidance, but in light of everything is there any sort of range that you would throw out there?

We've stayed away from it, Laurie. I mean I think the thing -- the point that we will continue to make or that we do make is that our loan demand has continued strong, the quality has continued excellent. And the additions to the provisioning that we do have in part been looking at the economy and what's going on out there, but to a very large extent reflective of the magnitude of the loan growth that we've been enjoying over the last couple of years.

Great.

The last six quarters anyway.

It's been incredibly strong. One sort of small question to ask, and then I have one follow-up. And, David, you touched on this briefly. The Western Financial acquisition, the corresponding increase to goodwill, can you just take me through why that was written up, what happened there?

Well, under the terms of the acquisition, based on operating performance of the acquired business in 2006, 2007, and 2008, there is the opportunity for the selling shareholders to earn more, it's an earn out, additions to the purchase price.

And based on the earnings of that acquired business through September 30th using the standard of has it been earned beyond a reasonable doubt, we concluded that it was time to recognize that liability owed to the selling shareholders for that amount of the 2008 earn out. So it's -- it'll be paid to them in March, and the debit is to goodwill on the balance sheet.

Got it.

Yes, Laurie, just as part of the incentive, when we did the deal we consciously didn't want to pay them everything upfront. We wanted to give them plenty of reason to stick around and be motivated, and they have done just that for us, which has been wonderful.

Okay. Great. Okay. So with respect to that, I mean your tangible book finished at [8.80]. If I were to proforma it with the capital raise, you're right about [10.37], is that correct?

Let's see, yes, I'm at ...

I mean I'm just adding in $47 million even with the new shares?

Right. I deducted a little bit of expenses associated with it. I got to [10.36].

[10.36].

Of book value per share.

Okay.

Spot on.

Okay. Great. And then just one last thing, do you have your proforma leveraged risk base and total risk based ratios?

Based on the -- what has been used to deploy those proceeds, the total risk based ratio is coming out around 12.99% and the tier one leverage of 7.68%. That's at the outset, I mean that's not a prediction of what it would be at December 31st.

That's great. That's perfect. Okay. Perfect. Thank you, all, very much.

You're welcome, Laurie.

I would like to make just one correction to an earlier statement I made about the amount of the Federal Home Loan Bank dividend. I think I had combined that with some other equity dividends that we had received and comparing the second to the third quarter.

The decrease in the amount of the Federal Home Loan Bank dividend is about $100,000 compared to what we would have expected based on the -- on a quarterly basis, based on the amount of stock that we own.

Okay. Thank you. We have one more question from Frank Schiraldi of Sandler O'Neill.

Good morning, Frank.

How are you doing?

Oh, we're doing well, thank you.

Good morning.

Hey, I just have a couple of follow-ups. Most of my questions have been answered, actually. But I just wanted to make sure I heard that last number right, David. You said what was the tier one proforma that you're coming up with after the capital raise?

I'm seeing 7.68, tier one leverage.

Okay. Tier -- you have like a tier one risk base?

Oh, yes, 11.74.

Okay. Thanks. Is there any -- just going back to the margin and the CD growth in the quarter, is there any ballpark average price you can give me on sort of what you have been putting retail CDs on the books at in 3Q, and if that's sort of changed here early in 4Q?

We continue to see very competitive rates in our marketplace from other institutions. I think banks are just very concerned about attracting and, frankly, retaining deposits, and it continues to be very competitive.

Yes, I mean I think the good news is I was down in Florida a couple weekends ago, and I saw ads in the paper from some very large institutions at 5.25 for a three-year CD. Fortunately, we're not there, here, but we have seen rates much higher than normal.

And, hopefully, when we get some, a little bit of confidence back in the system and stabilization we'll see the shrinkage on the spreads on the CDs because they're, obviously, just like LIBOR, they're much higher than would be anticipated in this kind of environment or should be in this kind of environment.

So they still -- is competition still north of 4, and then given that, that's where you guys are?

On a selective basis that could be true. I don't think that's the average rate that we're paying on new time deposits.

And it sounds like, if I heard you right, John, the pipeline sort of here has returned to last year's levels, so maybe we don't see the outside growth that we've seen in the last two quarters in the loan portfolio in 4Q?

The last two to three weeks have definitely been on the quieter side. We continued closing good loan volume through the end of the quarter, and it's just quieter now, so we'll see.

So I guess you wouldn't be adverse to growing the loan book if the opportunity is there in 4Q, as you did in the third quarter?

Yes, absolutely. No, I mean we are definitely looking at opportunities out there, but in this kind of environment we're very selective, and it really is the better credits that you're going to see going on the books when they come.

Okay. And was there anything out of market, like out of southern New England that would sort of [bolt] you, like a bigger sized loan maybe above $3 million or something, that you can recall and could just give us some more color on? Because I know you did a little of that last quarter.

Yes, I don't remember -- Dave has got the list in front of him.

We have a credit in -- it's in New Jersey, it's a commercial real estate office building, and that is about just under $5 million. But, again, that's out of $42 million in growth in commercial mortgage originations during the quarter.

Right.

That's it.

Okay. And then what sort of loan to value on that? Is that the holder of the loan is in the office building, so it's occupied by the owner, or--?

I tend -- I doubt it, but I don't have that information.

No, it was not -- once again, a very high quality borrower, and solid strong LTV ratio, and once again on the higher side on debt service coverage ratios.

Okay. Would you be willing to give sort of an idea of loan to value there? Just ballpark?

We don't have that information.

I don't have it in front of me, sorry.

All right. And then I was wondering on -- if you could give us some color -- I don't know how much you can, but sort of in talks with the accountants on taking or not taking OTTI charges on the trust preferred, the portion of trust preferred portfolio that's been marked down through OCI? Did anything change sort of late in the quarter?

Was the guidance that came out from the SEC whenever it was, late September, early October, did that sort of change the minds, change sort of this whether or not there was going to be an OTTI charge, or is there any color you can give us on that process? Just because I don't know, just industry wide I'm trying to get an idea if we're going to see more of these OTTIs for trust preferred pooled and single issuer stuff.

Sure. Obviously, we continue to monitor those kind of announcements being made, either by the SEC or the FASBE or the Center for Audit Quality, you know, right up until last week, as we looked at this issue.

Most of what came out had more to do with determining fair value as opposed to determining whether there was other than temporary impairment. And in illiquid markets that kind of guidance was necessary, and we were very pleased to take every bit of advice and guidance that we could receive.

And some of the decisions we've made, I mean on the trust preferreds where there are named issuers we continue to believe that with the maturities that are there and the strength of the companies that are there that we will be repaid, and that is the predominant reason for drawing a temporary impairment conclusion on those type of debt instruments.

On the -- we have a couple of pooled trust preferreds securities and there it's a bit more of a complicated analysis, looking at the cash flows of what we own, but when we went through that analysis, again, we compared that, determined rather that the impairment is temporary and that no impairment charge to earnings was warranted.

Okay.

Yes, I mean, Frank, we look at all the discussions, both externally but also needless to say staying in very close touch with KPMG, which is our accounting firm.

And I, you know, all the accounting firms are working together. The regulators are all talking. Everybody is trying to figure out what they ought to be recommending and doing and what the banks ought to be looking at and doing. And we're intimately involved with discussions on an ongoing basis with them, as I'm sure every single bank out there is.

Right. Okay. And then just a few quick questions on modeling, for modeling purposes here. There was no -- there wasn't a contribution to the charitable foundation in 3Q, right? Is that correct?

That's right. Yes, I expect to do that this quarter.

Okay. And then as far as the tax rate, I know you gave it for what you expect to be the fourth quarter, Dave. Is there any reason to alter it considerably from that number for '09? I have like a 31.5% tax rate, that's for revenues in '09, does that ballpark sort of still make sense?

I think it's ballpark. We haven't completed our '09 budgeting process, but ...

Okay.

... I mean it's somewhere between 31.5% and 32% is probably a good placeholder for now.

Okay. And then just, finally, you mentioned the margin for September was [271], so the margin for the quarter obviously was [262]. So do you expect that to sort of continue? Is that a better gauge? I mean it would seem to me that would be a better gauge of 4Q would be September's margin than the whole quarter's? Is that fair to say? Or is there something in September that's a one-off or something that would move that needle?

We didn't see anything in September that was in that number. There were some reasons that, some of the reasons I alluded to earlier on the non-routine, I guess, elements of margin that had occurred, and they did occur for the most part in July and August. So I'm encouraged by September, I'm reluctant to extrapolate, however, from September, but it certainly moved in a good direction in September.

Yes, I mean September is a 30-day month, so we get a slightly different affect. August was a tad below that, but the combination of the two indicative, along with the capital raise that -- as Dave said, I don't want to be wildly optimistic but hopefully that is indicative of what we will see.

Okay. Great. Thank you.

Thanks, Frank.

Thank you. We show no further questions at this time. I would like to turn the conference back over to Elizabeth Eckel for any closing remarks.

We just want to thank you, all, for attending, and if any of you have any questions feel free to pick-up the phone and give us a call. Happy to chat with you. Appreciate it, and have a good day. Thanks.

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