Washington Trust Bancorp Inc (WASH) 2009 Q3 法說會逐字稿

Hello and welcome to the Washington Trust Bancorp Incorporated third-quarter 2009 conference call.

All participants will be in listen-only mode for this event. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Elizabeth Eckel. Ms. Eckel, the floor is yours, ma'am.

Thank you very much. Good morning and welcome to the quarterly earnings conference call for Washington Trust Bancorp Inc., NASDAQ global market select symbol WASH.

This morning's conference call is being recorded, is being webcast live and a webcast replay of today's conference call will be available shortly after the conclusion of the call through the Corporation's website, washtrust.com, in our Investor Relations section under the subhead "Presentations". However, the information we provide during today's call is accurate only as of today's 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; Joseph J. MarcAurele, President and Chief Operating Officer; and David Z. Devault, Executive Vice President, Chief Financial Officer and Secretary.

Now, I'm pleased to introduce Washington Trust's Chairman and CEO, John C. Warren. John?

Thank you Beth. Good morning and thank you all for joining us on today's call.

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

We are pleased with Washington Trust's third-quarter performance in these challenging times. It's a testament to our sound business model and strong corporate brand that we were able to outperform market expectations during a period of continued economic uncertainty.

Net income for the third quarter totaled $4.9 million, or $0.31 per diluted share, down from the $6 million or $0.44 per diluted share a year ago.

We have told you that Washington Trust would manage our way through the crisis by staying the course. I'm pleased to report that we made good on our promise. Through discipline and focus we've been able to increase our deposit base and build our lending portfolio while continuing to maintain asset quality.

We have been capitalizing on market opportunities and attracting share from the big banks. We have also hired talent away from our major competitors, including our new president. Our strong brand reputation for service quality and a tradition of excellence resonated with consumers and borrowers who sought strength and stability.

Let me turn to some of this quarter's highlights. Total loans stood at $1.9 billion at September 30. This is up slightly from the previous quarter and due primarily to growth in the commercial portfolio, which was up 11% since December 31. While we continue to see good quality commercial credits, demand has definitely slowed and is reflected in a reduced pipeline.

It is important to note that as a result of our commercial loan growth and continued concern over further deterioration in the economy we have once again added to our loan loss provisions. We have always maintained prudent credit standards and are diligent about evaluating our portfolio and borrower status. However, we do believe that there is still cause for concern due to unemployment levels and continued weakness in the national and local economies.

On the residential side, refinancing and originations were strong due to low interest rates and the first-time home buyer federal tax credit. While the first-time home buyer credit is due to expire in December, there is talk of extending it into next year. That would be beneficial, we think, for everyone.

In August, we opened a new residential mortgage office in Sharon, Massachusetts. It is located just off 495 and is convenient to the greater Boston marketplace. We have a team of nine experienced mortgage originators who are well known in the Massachusetts market and we are optimistic that we can build a solid base of mortgage business in the area.

On the consumer side growth has been modest, which is to be expected in an environment where individual borrowers are cautious. We do not expect this to change for several quarters.

Let me now turn to Wealth Management. As I mentioned earlier, our Wealth Management area has benefited from a rebound in the financial markets. Wealth Management revenues were up 2% during the quarter.

We continue to meet with potential new investors and are pleased with the opportunities that are coming our way. At September 30, Wealth Management assets under administration stood at approximately $3.6 billion, less than 1% from where they stood a year ago.

On the deposit side, we were very pleased with the FDIC deposit market share reports that were released last week that showed our Rhode Island growth at the expense of our larger competitors. Deposit growth continued into the third quarter with good increases in both core and time deposits.

Year-to-date, in-market deposits were up by 12%. Like many community banks, we've benefited from the consumer trend towards saving.

At that point, this concludes my remarks. Now I will ask Dave Devault to provide more detail on our third-quarter financials. David?

Thank you, John. Good morning, everyone, and thanks for joining us on our call today. I will review our third-quarter operating results and financial position as described in our press release yesterday afternoon.

Net income for the third quarter of this year was $4.9 million or $0.31 per diluted share, compared to $6 million or $0.44 per diluted share reported for the third quarter last year. Net income and diluted earnings per share are up from the second-quarter 2009 levels of $3.8 million and $0.23 per share, respectively.

The return on average equity for the third quarter was 7.94% and is 6.24% for the first nine months of the year. This compares to 12.94% and 12.68% for the same periods last year.

Some of the more significant factors affecting comparison of the most recent quarter to the third quarter of last year include the following. The loan loss provision charge to earnings was $1.8 million for the third quarter of this year, compared to $1.1 million for the third quarter last year. Impairment losses of $467,000 were charged to earnings for an investment security deemed to be other than temporarily impaired in the third quarter. Impairment losses of $982,000 were recognized in the third quarter last year.

No dividend income was received from our investment in the Federal Home Loan Bank of Boston in the third quarter this year, while dividend income from that source was $292,000 in the third quarter a year ago.

And FDIC deposit insurance premiums are up by $543,000 from the third quarter last year.

I have some further comments on the results of operations. Net interest income for the third quarter of 2009 was $16.7 million, up 3% from the second quarter of this year and essentially flat compared to the third quarter a year ago. The net interest margin for the third quarter was 2.51%, an increase of 6 basis points from the second quarter, and down 11 basis points from the third quarter a year ago.

Compared to the second quarter of this year, the most significant factor for the increase in the margin was a 21 basis point decline in the effective rate paid on interest-bearing deposits. Compared to the third quarter a year ago the margin decline of 11 basis points is attributable to the elimination of the Federal Home Loan Bank of Boston dividend, margin compression in general, and the impact of higher levels of nonaccrual loans this year compared to last year.

Turning to noninterest income, noninterest income for the third quarter decreased by $1.3 million or 10% from the second quarter. It's $447,000 or 4% higher than the third quarter a year ago. As I mentioned earlier, we recognized a $467,000 impairment loss in the third quarter of this year.

There were no impairment losses recognized in the second quarter although we did recognized realized gains on securities of $257,000 in the second quarter. Again, last year, we had $982,000 of impairment losses recognized in the third quarter.

Wealth Management revenues for the third quarter of this year were up by $95,000 or 2% from the second-quarter level, but were down by $1.1 million or 16% from the third quarter a year ago. We would note that in the second quarter of this year we had our normal seasonal level of tax preparation fee revenues of about $339,000.

Wealth Management revenues are of course largely dependent on the value of assets under administration, which is closely tied to the condition of the financial markets. Wealth Management assets stand at $3.6 billion at September 30, up $287 million or 9% in the third quarter. As John mentioned, they are within 1% of the balance a year ago.

The increase in Wealth Management assets in the third quarter of this year included net market appreciation and income of $295 million and net customer cash outflows of $8 million.

Net gains on loan sales into the secondary market and commissions on loans originated for others totaled a combined amount of $591,000 for the third quarter, down from the very high level of $961,000 in the second quarter but up by $352,000 from the third quarter a year ago.

Turning to noninterest expenses, they totaled $19.2 million in the third quarter, down $1.1 million or 6% from the second quarter, mostly due to the impact of the special FDIC assessment, which was $1.35 million, recorded in the second quarter. Noninterest expenses are 4% higher, $721,000, than the third quarter a year ago; $543,000 of that $721,000 increase represents higher FDIC assessments primarily due to higher assessment rates imposed on banks.

The effective tax rate in the third quarter of this year was 27.4% compared to 28.1% in the second quarter.

Turning to the balance sheet, total loan growth was $15 million in the most recent quarter due to total commercial loan growth of $29 million or 3%. Residential mortgages declined by $14 million mainly due to refinancings into the secondary market. Consumer loan totals were essentially unchanged in the third quarter.

Our investment securities portfolio decreased by $44 million in the third quarter, primarily due to maturities and pay-downs on debt securities which were not replaced. Mortgage-backed securities represent 77% of our investment portfolio. All of these are issued by US government agencies or US government-sponsored enterprises. There are no private issuer mortgage-backed securities.

At September 30, the net unrealized gain position on the investment portfolio was $16.2 million and that is net of gross unrealized losses of $17 million. About 92% of the gross unrealized losses in the portfolio were concentrated in variable rate trust preferred securities issued by financial services companies.

Looking at deposits, total deposits were up by $10 million in the third quarter. Netted in that increase is an intentional reduction in wholesale brokered deposits. Excluding this, the balance of in-market deposits grew by $59 million, or 3% in the third quarter, with growth in all three major categories of DDA NOW, savings and money market, and time deposits. In-market deposits are also up by 16% in the last 12 months.

Let me now discuss asset quality. Nonperforming assets stood at $27.9 million, 0.97% of total assets at the end of the third quarter, compared to $24.8 million at June 30 and $8.8 million at the end of 2008. Nonperforming assets include nonaccrual loans, nonaccrual investment securities, and property acquired through foreclosure.

The largest category of nonperforming assets is nonaccrual loans, which totaled $25.2 million at the end of the third quarter, up $2.5 million in the third quarter and up $17.4 million in the first nine months of this year. The increase in the quarter was largely due to one commercial real estate loan of about $2 million which is secured by office properties.

Property acquired through foreclosure amounted to $1.2 million at the end of the third quarter, compared to $236,000 at the end of the second quarter. The entire balance at September 30 consists of one residential property.

At September 30, total 30-day or more delinquencies amounted to $30 million, or 1.57% of total loans, up $4.4 million in the third quarter. Commercial loan delinquencies make up the majority of that $22.2 million, or 2.27% of total commercial loans. Again up by $4.6 million in the quarter.

In the residential and consumer loan categories, delinquencies 30 days or more amounted to $7.9 million, less than 1% of those loans at the end of the third quarter, and they were down $207,000 in the quarter.

Net charge-offs amounted to $1.4 million in the last quarter, approximately equal to the second quarter and up from $432,000 in the third quarter a year ago. $1.2 million of the third-quarter 2009 charge-offs were in the commercial real estate categories. For the first nine months of this year net charge-offs were $3.8 million compared to $596,000 in the same nine-month period a year ago. Net charge-offs to average loans on an annualized basis in the first nine months of this year was 0.27% compared to 5 basis points in the same period a year ago.

Based on our analysis of the changes in credit quality indicated by the increase in nonaccrual loans and other factors as well as the impact of the charge-offs in the quarter, we concluded that a loan loss provision of $1.8 million charged to earnings was appropriate in the third quarter. This compares to quarterly provisions of $3 million in the second quarter of this year and $1.1 million in the third quarter last year.

We believe the decline in credit quality trend experienced to date in 2009 is primarily related to weakened national and regional economic conditions. These conditions, including high unemployment levels, may continue for the next few quarters.

Our allowance for loan losses stands at $26.4 million, 1.39% of total loans at the end of the third quarter, up from $22.6 million or 1.28% of total loans a year ago.

Total shareholders equity is $252 million at the end of the third quarter. The Corporation and its subsidiary bank are well-capitalized. Our estimated total risk-based capital ratio at the holding company level is 12.31% at September 30.

In September, we declared a dividend of $0.21 per share which was paid earlier this month of October.

At this time, I will turn the call back to John Warren.

Thank you, David.

Before I begin my closing remarks, I would like to introduce Joe MarcAurele. He joined us September 21 as President and Chief Operating Officer taking Jack Treanor's spot, who retired after slightly over ten years with us. This is one of the key strategic decisions our organization has made. Joe not only brings experience and insight into the New England financial markets, but is also well respected within the financial circles. I'm very pleased to welcome Joe to our team.

Thanks, John, and good morning, everyone. It is a pleasure to participate on today's call.

I joined Washington Trust just a few weeks ago, but it really feels very good to be here. People have really embraced me and it has really been an impressive interaction with the Bank's existing leadership team. That group really has a great deal of expertise and there is a real spirit of teamwork within the group.

As maybe some of you know, I did spend the last several years as President of Citizens Bank in Rhode Island. Previous to that, I had responsibility for Citizens Bank in both Connecticut and Rhode Island. During my career really I've had varied experience which has included stints in wealth management, certainly in commercial banking and also retail banking.

I am a native Rhode Islander. I am very familiar with really the entire banking industry in the Northeast through various corporate-wide responsibilities that I had while I was at Citizens Bank.

Overall, what I really see here is really terrific. There is a very good credit discipline, a very experienced group of leaders, and commercial and retail bankers. The portfolio is nicely mixed. There is also an excellent focus on retail customer service, which I really think is something we can build on, particularly as we look at the landscape of other competitors within Rhode Island and in southeastern New England.

It really is a privilege for me to be able to work with both John and David and other members of the senior management team. I am here really with the hopes that we can continue to capitalize on some of the disruption that we continue to see in the market.

Again, I am delighted to be here and I look forward to meeting many of you over the next few months. So, thank you and now I will turn it back to John.

Thank you, Joe. On another positive note, we are expanding our branch network and will be opening a new branch in Warwick just next week. It is an outstanding location, a high-traffic spot where there is a nice mix of both business establishments and retail households. We are excited about the opportunity it presents for us.

As far as the big picture is concerned, our overall strategy will not change. While there have been some positive economic indicators and the Dow recently surpassed 10,000 for the first time in a year, I don't think we're out of the woods yet. Unemployment rates remain extremely high, both nationally and locally, and may go even higher. When the economy starts to improve, it may be some time before businesses start hiring again. It continues to be a challenging economy.

On the good news front, we have a statewide economic survey that is conducted monthly by a University of Rhode Island business professor. Each of the past four months has shown improvement.

Also last week, statistics on the residential real estate market in Rhode Island showed a significant decline in homes and condominiums listed for sale in the marketplace, in each instance greater than 20% per category. All of this helps. It is all part of a slow turnaround.

It is a difficult environment out there and if conditions do not improve, we may see continued deterioration in the commercial markets, both C&I and commercial real estate. As always, we will carefully monitor these trends and do whatever it takes to keep our bank strong. I can assure you that Washington Trust is prepared to meet the challenges and take advantage of the opportunities ahead.

I would like to thank every one of you for taking the time this morning to join us and your continued interest in the Corporation. At this time the whole team will be happy to answer any of your questions. Thanks very much.

We will now begin the question-and-answer session. (Operator Instructions) Damon DelMonte, KBW.

Could you give us a little color on the commercial mortgage growth this quarter?

Absolutely. I will give you a couple of comments and then Dave or Joe might add a little bit more. Part of the growth actually was activity that we had in the pipeline in the second quarter and in the early part of the third quarter it was actually coming into closing. All of it is in-market, either Rhode Island or Massachusetts credits. They are all 3s or 4s on our ratings scale, which is about as strong as you can get for any credit that you are actually going to book that is a loan.

In addition to that, we had -- as part of an overall scrub and further digging into the portfolio, we had about $13 million of loans that we actually just re-classed from the C&I category back into the commercial real estate category. So putting each one of those pieces together, that explained the growth.

Okay. Could you just give us a little flavor for I guess historically the underwriting characteristics of your commercial real estate portfolio sort of, you know, the LTV or the debt service coverage ratio that you write to, things like that?

Damon, this is Joe. I could like to probably answer that. I have spent a lot of time in the last four or five weeks looking particularly at the commercial and in particular the commercial real estate portfolio. What I have seen is a great deal of consistency in regard to the underwriting characteristics of the portfolio.

We have held very strongly to 75% loan to values. We have looked for debt service coverage that is in excess of 1.25 times. I would say that, in my looking at virtually the whole portfolio, I have not seen really anything that is outside of those parameters. There is also very, very little in the way of real estate development loans or any loans certainly on the retail side of commercial real estate that have any spec characteristics to it.

Okay, great. Thank you. That is very helpful. Then I guess lastly, could you give a little color on your expectations for the margin going forward? You had a fair amount of benefit this quarter from lower funding costs. What do you see playing out over the next couple of quarters?

We feel that trend is likely to continue with [time] deposits continuing to reprice downward and a further ability to see some moderate improvement to the margin in the next few quarters.

Laurie Hunsicker, Stifel Nicolaus.

Good morning. I just wanted to follow-up a little bit on the commercial real estate, so I guess, David, this is you. The one commercial real estate nonperformer that came in, can you give us any additional color? Was that end market? What was the LTV at origination? When was that put on? Cap rate, vacancy? Anything you can give on that just generally?

It is secured by a couple of office properties. It is in-market. I don't know the specific LTV ratio at the time of the loan. The borrower in general is having some cash flow issues with other properties that appears to be affecting the payment status on that loan and we are working with that borrower to work through those issues.

I guess as we look at your commercial real estate nonperformers, how much of that actually, how much of the $8 million of (inaudible) nonperforming is actually in-market?

I think virtually all of the nonperformers would be in-market. I'm not aware of any out-of-market commercial real estate that is a problem.

The largest piece of it is the hotel that came in a few quarters ago. Is that correct?

The largest single piece of real estate I think would be that hotel that is in that status. And then the one that went into nonaccrual status in the third quarter I think would be the second-largest loan in that category.

Laurie, all of that is in-market.

All of that is in-market? Okay. Then just maybe you could comment a little bit more generally. Your troubled debt restructure -- the TDRs have obviously grown and I appreciate the breakdown here. But any sort of color in terms of when you move them over to the nonaccrual category?

It seems like the nonaccrual category of TDRs is tiny in comparison. I realize there's not a lot of firm guidance. It seems that nobody is doing it consistently.

Right. We are, I would say, sensitive to that issue and aware of the needs to do it in a responsible manner. On the retail side, residential loans for the most part that go into a TDR status we are making a business decision to work with the borrower that we believe, in the long run, will get us out of -- work through the loan, whatever problem the borrower is having.

We make a determination at that time whether or not there is any loss exposure. And if it is adequately collateralized and the borrower has the ability to work at the restructured payment terms, then we would leave it in accruing status.

If, subsequent to that, the borrower were to fail to conform to the terms of the restructuring, we would reassess it and if necessary put it into nonaccrual status. We haven't seen much of that at this point. Most of those restructurings haven't been done in I would say the last nine months to a year, so there isn't a lot of history with this but we are looking at it very closely.

Not to put you on the spot here but just sort of a for example; maybe you know this credit off the top of your head, maybe you don't. But within your commercial real estate book just linked quarter from June to September, your commercial real estate TDRs that are still considered performing went from $1.6 million to $2.1 million.

That increase -- how is that commercial real estate loan restructured that you felt comfortable it wouldn't end up in nonaccrual? Or is that too specific? Maybe that is too specific, and I can --.

It is kind of specific. Frankly, the judgment and -- the judgment exercise that you have to go through in determining whether or not either the granting of a change in terms or maybe a renewal of a loan is a troubled debt restructuring is -- there is a lot of judgment involved because you have to determine is there a concession being made and are you doing it on terms that the borrower would not be able to receive in an arms-length transaction with a different lender.

So, those are the criteria we look at. We are very conscious of the need to make those assessments in a responsible manner.

Okay, great. I guess I just want to say, Jack, congratulations on your retirement if you are on the call and, Joe, congratulations on your appointment.

Maybe you can share with us, Joe, a little bit in terms of your vision for the Bank and what you see is changing. Maybe your attitude toward acquisitions, especially given that obviously Rhode Island and Connecticut were very big markets at RBS. It looks like RBS had almost 50 branches in Connecticut.

First of all, let me say Jack unfortunately is probably in Florida, so he would have had to call into this. But I would say, in echoing John's comments, that certainly in the near-term we plan to stay the course. We consider ourselves a Rhode Island bank, and we think that there are continued opportunities to expand market share within Rhode Island.

Certainly, if other opportunities arose, we would look to take advantage of those. I don't think -- and I've spent a lot of time, both during the recruiting process and since I have been here, looking at the strategic plan that has been put forth by management here. I think that it is very sound. I think you will see that it will remain to be, relatively speaking, conservative.

But I also would tell you that our expectation is to continue to grow in a measured way. I think that there remains to be, today, a lot to get in Rhode Island. And at a point where we think it makes sense to cross borders, we will certainly consider doing that.

Okay. If you were to sort of rank your preference of de novo versus acquisition in terms of expanding Connecticut or now there is one branch in Massachusetts or on up, what would be your preference?

Our branch in Massachusetts is a mortgage origination office, so it is not actually a branch. I would say that, right now, we need to absorb the new branch that is opening here in a few weeks.

I think the strategy of opening in-market branches is certainly a sound one. We may think a little bit about how we do that. We may do more rather than less at some point. I think, from an acquisition perspective, I think that we always have to be circumspect about that. A lot of it will depend on what is available and what it appears we can support from a capital perspective.

I'm sorry. Just to go back to the Sharon, Massachusetts, branch, so that is a mortgage origination office only.

It is.

Would that be difficult to turn into a full bank branch or not something in the plans?

If market conditions would support that, we would entertain that. That would be somewhat of a leap geographically, but it could be done. But right now, the focus is on making that a very successful mortgage loan production office.

Yes, it's not really in the plans, Laurie.

Okay, great. Then I'm sorry, just one last question here. We've seen several banks retap into the capital markets and certainly you all were kind of in front of the curve last year when you did your spot. You didn't take TARP; you kind of have done everything right. Just any thoughts on tapping back into the capital markets again?

Not at this juncture, although if we were looking at an acquisition opportunity, it would probably be one that we would either use stock as part of the transaction or be tapping into the capital market to justify and basically fully adequately fund and keep ourselves very well capitalized.

Okay, great. Joe, I'm sorry, just one last question for you. Commercial real estate it looks like has been growing. It is now 25% or so of the total loan book. Where do you see that kind of in two to three years? Do you see it at roughly the same level or do you see it as a higher percentage? I mean I know your background is commercial, so --

I would say that I am comfortable with the percentage that is there today. I think that we will grow the commercial real estate book under the same type of underwriting parameters that we have historically used here.

I would say that I don't see -- I guess if there were a warning sign in any asset class within commercial banking today, I think you would have to understand that commercial real estate is a potential issue. So I would say that we will proceed, we will grow it, but with caution.

Okay, fantastic. Thanks so much.

Damon DelMonte, KBW.

Thanks. Just a couple of quick follow-up questions -- with regards to trouble debt restructurings, what percent of the second-quarter TDRs migrated to nonperformers and what percent are new into the third quarter?

None if the second-quarter TDRs migrated into nonperformers.

Okay, that's helpful. Then regarding the swing quarter-over-quarter in the AOCI, which is about $8 million, is that just reflective of unrealized gains in your bond portfolio?

Yes.

Okay. Then just lastly, when was your last regulatory exam completed?

In the spring, I think it was February or March that they signed off on the safety and soundness. We just had the Fed in for a visit that we completed earlier this month and just completed a compliance exam from the FDIC just within the last couple days.

Great. Thank you very much, guys.

Matthew Kelley, Sterne Agee.

I was curious if you might be able to comment on just kind of what kind of distress you're seeing in commercial real estate markets, in particular properties coming out of conduits or securitizations in your core Rhode Island, Massachusetts, Connecticut market.

So I know that your metrics are holding up pretty well. But what are you seeing in the marketplace for loans that are maturing, particularly from conduits and securitizations, and how that is impacting pricing and your viewpoint there?

Matthew, this is Joe. I'm probably best capable of responding to that. I would say that what we're seeing in general and I think it is not a surprise that particularly the larger conduit loans which are maturing as we speak or in the near future are having a very difficult time finding a home.

I think that a lot of what was in the conduit and securitization market within commercial real estate were very large, speculative to some extent condominium projects. I think that what you will see happened in regard to that is that those loans will get renegotiated with discounts over time and potentially refinance from other sources, probably as individual loans.

So, I would say that one of the things that I'm very pleased about when I look at our portfolio here is that we don't have clearly any exposure of that type but we also don't have any individual whole loan exposure in the condo space. Certainly not any that are at 10% or 15% sellout and appear to be difficult to re-up.

Got you. Then this quarter, the excess provision was smaller than we have seen for the last three or four quarters in terms of your provision, relative to your charge-offs. Where do you think we are in the excess provisioning cycle?

Well, I guess the provisioning generally reflects the path of the change in credit quality. It is difficult to predict where the future is going with respect to that. The charge-offs and the provisioning are not necessarily directly linked in terms of time periods in that, for example, a lot of the -- while we are charging off as promptly as we can and probably banks in general are doing that more promptly than ever before at the urging of regulators -- for example, a number of the charge-offs recognized in the third quarter were allocated as with loss exposure allocations at the end of the second quarter and is a moderate delay, I would say, in the time period recognition of charge-offs.

So I don't think you can draw a direct line between the provisioning and the charge-offs but of course, over time, it is going to be a strong relationship.

Right, no, I was just looking. The prior three quarters, it was between $1 million and $1.5 million in excess provisioning, and then it went to $400,000 this quarter. It sounds like that is probably not a trend then that we should rely on going forward.

Matt, I think the overall situation economically is, in the banking industry and you can look at this historically, is one that things stretch out over multiple quarters and will continue. With the unemployment level where it is nationally, that is going to take a little while.

We probably -- the expectations continue to be that we'll see a couple of more notches up in the unemployment level and then, for 2010, any improvement is going to be marginal and that spills over. Maybe some of the mega projects that you are seeing blowing up now are a different story, but as far as the core business activity around the country, not just in the Northeast but around the country, it takes a while to wade through it and small businesses are struggling.

One of the reasons you see President Obama talking about coming out with an enhanced small-business program bail-out type through the SBA is that small businesses are continuing to have problems. With unemployment at the levels that it is, those small businesses are going to continue to suffer.

So, I think anybody that thinks that the economy and the lending in the markets is going to dramatically improve in the next quarter is just being quite a bit too optimistic. I think we have several quarters ahead of us. I think we're going to be well into 2010 to see things hopefully stabilized and start to improve.

Fair enough. Fair enough. Thank you very much.

Frank Schiraldi, Sandler O'Neill.

Good morning. Just a couple of quick questions here -- first, on the CRE loan that migrated into nonperformers in the quarter, I think you had said, Dave, there was about $2 million. That represents the total relationship with that borrower?

There are other loans that we had previously classified as nonperforming with that borrower -- separate properties, separate loans. We're, as I mentioned before, working with that borrower to work through those issues.

Maybe you gave it before, I apologize if you did, but the total -- then what would be the total exposure in nonperformers to that borrower?

Total for that borrower, which is basically three separate lending relationships, is $5.2 million.

Okay. Was there a change in this quarter to the reserving for those three credits, or was that already in the reserve?

By and large, I believe we have had a reserve on those that has been adequate both at the end of the second quarter and continuing through the end of the third quarter.

You said those are all commercial real estate loans?

Correct.

Then just on the Wealth Management business, in terms of customer flows, I know it was a small number but -- a small amount of outflow this quarter. Is there anything seasonal to that or is there any sort of one-time issue for that? I would have just thought that you might see some inflows now with the markets picking up a bit?

Well, of course that is a net number. I think the Wealth Management people have been satisfied with the success of the new business and cash inflows. One thing that we have seen is that, because markets were somewhat depressed from earlier-year levels, is that a number of clients would be withdrawing higher levels of existing balances on an outflow basis than we had seen in the past, which anecdotally I would believe would explain why there would be a modest net outflow.

Okay. Then finally, just sort of a modeling question, the tax rate has been trending down a bit over the last few quarters. What is a good normalized tax rate to be using for 4Q and for 2010? Has anything changed I guess? I was using a 30% tax rate for 2010. It has been, like I said, trending down over the last few quarters. Is that still a good number to use or --?

Well, in general the lower the income, the lower the tax rate is because of the higher proportion of non tax-exempt income in the mix. So that as earnings have tended downward, the tax rate is lower this year than it in general was a year ago. There were some odd things a year ago that made the comparison a little bit difficult.

But 28% is probably about a fair rate for 2009 and maybe something in the 29% might be a fair assumption at this time for 2010. We just have to work through those issues and see what the level of taxable income will be, which is related to a number of issues, including credit quality and the path of wealth management income and other factors.

Okay, so there is nothing in this quarter particularly, it's just sort of true up the tax rate for the year?

There's a bit of a true-up in the quarter and that's why I'm saying that about a 20% level might be a fair assumption in the fourth quarter.

Okay. Thank you.

It appears that we have no further questions at this time. Would you like to make any final comments?

Just to extend our thanks to everybody for participating. If there is anything we can do in the future, feel free to give any of us a call to chat further. Thank you and have a great day.

Thank you, sir. You also have a great day. At this time, the conference is now concluded. We thank you again for attending today's presentation. You may now disconnect.