WesBanco Inc (WSBCP) 2011 Q1 法說會逐字稿

Good morning, and welcome to WesBanco's conference call. My name is Rocco and I'll be your conference facilitator today. Today's call will cover WesBanco's discussion of results of operations for the quarter ended March 31, 2011. Please be advised, all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. This call is also being recorded. If you object to the recording, please disconnect at this time. (Operator Instructions)

Forward-looking statements in this presentation, relating to WesBanco's plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The information contained herein should be read in conjunction with WesBanco's 2010 Annual Report on Form 10-K filed with the Securities and Exchange Commission, which is available on the SEC's website, www.sec.gov, or at WesBanco's website, www.wesbanco.com.

Investors are cautioned that forward-looking statements, which are not historical fact, involve risks and uncertainties, including those detailed in WesBanco's 2010 Annual Report on Form 10-K filed with the SEC under the section, Risk Factors in Part 1, Item 1A. Such statements are subject to important factors that could cause actual results to differ materially from those contemplated by such statements. WesBanco does not assume any duty to update any forward-looking statements.

WesBanco's first quarter 2011 earnings release was issued yesterday afternoon and is available at www.wesbanco.com. This call will include about 15 to 20 minutes of prepared commentary followed by a question-and-answer period, which I will facilitate. An archived webcast of this call will be available at wesbanco.com. WesBanco's participants in today's call will be Paul Limbert, President and Chief Executive Officer; Jim Gardill, Chairman of the Board; and Robert Young, Executive Vice President and Chief Financial Officer and all will be available for questions following opening statements.

Mr. Limbert, you may begin your conference.

Good morning. Thank you for participating in WesBanco's quarterly earnings conference call. We are pleased to be able to provide this information to all interested parties. I would like to make some opening comments. Bob Young will provide financial highlights of the first quarter 2011 and then, Jim Gardill will moderate the question-and-answer period. A press release was issued last evening, which has more details than the accompanying slides we are presenting today. A copy of the entire press release is available on our website.

Yesterday, WesBanco reported first quarter earnings of $10.2 million or $0.39 per share as compared to $7.9 million or $0.30 per share for the first quarter of 2010. Earnings per share on a linked-quarter basis were the same as the fourth quarter 2010. We did not experience any significant non-core items in the current quarter's income. We are pleased with the financial performance of WesBanco as compared to the prior year and as compared to the headwinds caused by the slowly improving economy and the regulatory environment.

The growth in net income was achieved by improving net interest income, a reduced loan loss provision, improving revenues from the trust, insurance, and mortgage business units, and a concerted effort to control costs without affecting either the quality of our operations or our revenue-generating capabilities.

The first couple of slides in our presentation this quarter are a reminder of the size and scope of WesBanco. We are a commercial bank with 112 branch offices and serve a geographical area, which includes Western Pennsylvania, portions of the State of West Virginia, and the southern half of the State of Ohio. We have diversified revenue sources, with insurance and securities divisions, and a significant wealth management and trust function.

Our wealth management function now manages over $3 billion in assets and has recorded an all-time high in gross revenue of $4.8 million for the first quarter 2011. Our family of mutual funds, the WesMark Funds, now exceed $770 million in size and continue to achieve excellent Lipper Ratings. Non-interest income of WesBanco was 26% of total revenues for the first quarter.

We are also pleased with our capital position. WesBanco's capital at the end of the quarter exceeds well-capitalized levels and based upon our preliminary computations, we anticipate having no problem complying with the Basel III 2019 guidelines, assuming of course their eventual applicability to smaller-cap banks even without the trust preferred securities on our balance sheet.

As of March 31, 2011, our tangible equity ratio has grown to 6.4% due to earnings. We have had earnings consistently through the recession. Because of our strong capital levels and the proven ability to increase equity, we believe WesBanco is well positioned for the current economic climate and future growth.

Credit issues remain in some of our market areas. Our quarterly loan loss provision, while declining, remains at an unacceptably high level. Charge-offs have been stubbornly consistent at historically high levels. We are continuing to work with our borrowers, assisting them in working through this recession. Our historical community bank philosophy has been to work with and assist borrowers to make it through difficult economic times.

We have shared the challenges of this recession with our customers, but believe that when economic times improve, those customers will emerge stronger and help drive economic growth in our communities. We are confident that as the economy grows, our impaired loans will also decline.

This quarter, we have seen our total non-performing assets continue their slow declines, and while our troubled debt restructure totals decreased, our non-accrual balances somewhat increased. While WesBanco does not have a large concentration of land development loans, these types of loans are continuing to lose their underlying value.

Our loan-to-deposit ratio has declined to approximately 78%, which gives us plenty of opportunity for growth going forward. In order to generate additional loan volume, we have hired additional commercial loan officers, mostly in the Ohio region and have begun to transition other loan officers from working solely on problem loans to generating additional new loan volume.

As we generate additional loan volume, we can continue to grow net interest income. This growth is important since we anticipate new government regulations, which will restrict all banks' abilities to maintain historical earnings opportunities. Each new year brings its own set of challenges to which management needs to adjust our approaches to add value to our shareholders.

Economic conditions in many of our markets are continuing to improve. We see the West Virginia market as being very consistent with the North-Central region as very strong with a low unemployment rate. Our market areas of West Virginia did not see a significant real estate bubble and therefore, real estate market values have not fallen as far as other markets. The Central Ohio markets are showing signs of recovery, with several new real estate projects by well-established developers beginning new projects. Our Western Ohio markets are beginning to show signs of recovery from the decline in manufacturing.

We are pleased to report that our stock price has held its value during the first quarter. The announcement of a dividend increase in February was received favorably by the markets. Our stock appreciation year-to-date was 3.9% as compared to a peer group of banks of our size in our geographical region of a negative 7.2%. Our current dividend yield is now 3.0%.

Would like Bob Young, our CFO, to discuss with you in more detail the financial results for the fourth quarter. Bob?

Thanks, Paul. Good morning, all. First quarter improvements in net income over the same period last year were primarily the result of an increase in net interest income due to a higher margin and a significant reduction in the provision for credit losses. We also saw growth in key non-interest income areas, as Paul mentioned, in trust, insurance and mortgage banking.

Our net interest income improved by 2.1% or $843,000, due primarily to a reduction in the cost of funds by some 47 basis points as compared to just 34 basis points of earning asset yield compression. A reduction in the rates paid on interest-bearing deposits, as well as significantly lower levels of higher-costing borrowings resulted in this cost of funds reduction.

The net interest margin improved to 3.67% in the first quarter from 3.57% in the same period last year and was slightly above the 3.66% recorded in the fourth quarter. In addition, the mix of deposits was more oriented towards lower-costing transaction accounts, now totaling 60% of total deposits with CDs decreasing to 40%. These compare to 56% and 44% respectively in the prior year.

Non-interest bearing checking accounts were up 11.7% in the first quarter as compared to the prior year's first quarter, resulting from increases in both retail and business demand deposits, due to ongoing campaigns and incentives and an increase in average balance per account.

Overall, we have successfully managed net interest income in the current low interest rate environment through control of loan pricing spreads, improved non-interest bearing checking account totals, the repayment of higher-cost borrowings and reductions in rates paid on deposit accounts. We would also note that in our Northern West Virginia branches particularly, we are seeing deposit increases from customer receipts of Marcellus Shale gas royalty and lease payments.

Our net interest margin and efficiency ratio have both improved substantially over the past two years, as we note in the slide deck. The margin has grown from 3.17% in the second quarter of 2009 after our last branch acquisition in Central Ohio to the 3.67% I mentioned earlier for the first quarter of 2011. While the efficiency ratio has dropped from approximately 68% that same quarter, that was the period when we had -- when the industry had an FDIC one-time assessment, to the current level of 62%.

Subsequent to mid-2009, our efforts to reduce expenses have resulted in an improving efficiency ratio, as most categories of expenses have decreased over that time frame. After the branch acquisition in early '09, we have successfully restructured the balance sheet and used additional liquidity from the acquisition to continue paying down higher-cost liabilities or invest at higher returns. And as a result, our margin has consistently improved quarter-over-quarter, even while loan demand has been soft.

Non-interest income was down 3.6% or $537,000, as a result of lower net security gains and deposit service charges, and the continuing effect of the implementation of Federal Reserve restrictions on overdraft fee income. However, trust fees were up 17.4% year-over-year, some $704,000, due to market improvements, new customer gains, and an increase in fees late last year. Electronic banking fees were also up $369,000 or some 19.3%.

Also contributing were lower losses on real estate owned, down 64.5% or $985,000. In non-interest expense, total expenses were flat year-over-year as increases in salaries and benefits and marketing were offset by decreases in occupancy, equipment, and restructuring charges. Other expense decreased just as the result of a continued focus on efficiency during an environment of slower growth and reduced lending opportunities.

Turning to the balance sheet, WesBanco's $1.47 billion securities portfolio remains a source of income and liquidity for the bank. The total portfolio yielded 3.9% in the first quarter. We carry no significant exposure to either trust preferred securities or non-agency mortgage-backed securities, and the state and local bond portfolio at 33% of the total investment portfolio is subject to defined purchase limits and an overall low average size of approximately $630,000 per issue.

All rated bonds are investment grade, with only 8% below an A rating. 88% of these bonds are local issuers, 73% are general obligation bonds, and 56% of total state and local bonds are currently in the investment classification of held-to-maturity to limit risk to other comprehensive income. Overall, the portfolio had unrealized pre-tax net security gains of approximately $6.4 million at quarter-end, which is up slightly from year-end's $5.0 million.

Municipal bond portion of the portfolio had an approximate $2 million gain at quarter-end versus a loss of $2 million at year-end. The duration of the portfolio was some 3.5% and the weighted average was 4.7 years, while 54% of the portfolio remains unpledged.

Deposits were up 4.2% in the first quarter as compared to last year and 1% from year-end as all deposit categories except CDs were up. Excluding CDs, other transaction accounts in total were up 12.1% as compared to last year. We continue to intentionally run off single-service CDs, as we focus on improving customer relationships and reducing single-service CD customers.

Total borrowings excluding trust preferreds were down $193 million or 32.5% from last year, as they have matured, funded by our increased core deposit position. While we have experienced a slowdown in loan originations during the past year, particularly in our Western Ohio markets, recently, customer demand has begun to pick up and we expect to see increases in loan volumes as we proceed through the year.

Our focus on improving the portfolio's credit quality has also mitigated gains in loan balances, but we are now starting to see our commercial pipeline build once again as rates have remained low for an extended period and we are seeing signs of economic recovery in some of our markets. As I stated earlier, cash flows from investment and loan portfolio runoff have been used to further deleverage the balance sheet.

WesBanco's loan portfolio includes approximately 54% in commercial real estate loans. The remaining portion of the portfolio represent a variety of consumer loan products and commercial and industrial lending. The total portfolio decreased by 5.6% from March 31, 2010 and 1.4% from year-end due to the continued intentional reduction of residential real estate loans through sales of most new mortgage loans into the secondary market and reduced commercial loans.

Consumer loans other than home equities declined due to reduced demand. We continue to focus on improving the overall profitability of the loan portfolio through disciplined underwriting and pricing practices. As Paul mentioned earlier, our loan-to-deposit ratio is 78%, allowing for plenty of liquidity to fund new loans as demand picks up. The recently hired commercial lenders in our Ohio regions should help to improve loan volumes as we move beyond the recession to a more moderate growth environment. We are also adding a suite of governmental unit lending and deposit-related products, and have recently completed training our officers to sell those new services.

In addition, our Eastern region, which we define as West Virginia, Eastern Ohio and Western Pennsylvania, continues to perform on plan, with improved closings towards the end of the quarter and a pipeline that suggests better second quarter production. We also continue to see growth in treasury management and business-related deposits early in 2011 due to an expansion of customer offerings, more focused customer calling efforts and incentive programs, and a greater number of calling officers.

Turning to loan quality, it improved this quarter, as Mr. Limbert mentioned, as both past due loans and non-performing assets decreased. Total non-performing loans were flat with both last year and year-end, but total non-performing assets decreased by $3.6 million from March of last year and $2.6 million from year-end. Past due loans were down from 0.98% at year-end to 0.84% at March 31.

Non-accrual loans decreased $8.9 million from last March, but increased $10.8 million from December. Continued work-out strategies and the sale of certain non-accrual loans in the third quarter of 2010 resulted in the year-over-year decrease. The increase from year-end was due to $4.9 million for two land development loans after partial charge-offs of $4.5 million were recognized during the quarter, with the remainder of the increase attributable to three commercial borrowers and additional residential mortgage loans.

Renegotiated loans increased $7.4 million from last year, but decreased $10.8 million from year-end, helping to keep overall non-performing loans flat, as one loan was restored to its original repayment terms and therefore removed from the TDR category and one of the land development loans mentioned previously was moved to non-accrual. Total classified and criticized loans, now reported in a footnote to our financials, decreased $32.2 million as compared to March 31 of last year and $10.6 million as compared to year-end.

Net charge-offs increased $1.3 million from last year and $1.7 million from the fourth quarter, but in general, remain well below the annualized quarterly charge-off rates for the past two years. Net charge-offs for the first quarter included $4.4 million related to the two land development loans that moved to non-accrual, as I mentioned previously. Both of these loans had been previously classified and reserved for.

Overall, the provision for credit losses decreased $3.5 million as compared to last year and it also decreased $1.6 million in comparison with the fourth quarter. Non-performing loans and loans past due 90 days or more as of March 31 decreased to 3.12% as compared to 3.16% at year-end. Non-performing assets to total assets also decreased from 1.96% to 1.90% over the same period. The year-to-date provision net of charge-offs increased the allowance to 1.89% of total loans at the end of the period compared to 1.86% at year-end.

WesBanco remains in a strong regulatory capital position, with a total risk-based capital ratio of 13.48% and tier I leverage of 8.53%. As Paul mentioned, our tangible equity ratio continues to grow, ending the period at 6.43%, an increase of 37 basis points from March 31, 2010 and 10 basis points from year-end despite lower other comprehensive security gains. A somewhat reduced average balance sheet size, higher earnings, and a lower dividend payout ratio have contributed to the increase in shareholders' equity and capital ratios in general.

As an overall summary of the quarter, management is very pleased with our operating results. Return on average assets on a pre-tax pre-provision basis was 1.67% and given the seasonality typical to first quarter results, that was very similar to the fourth quarter's 1.71%.

Net income has grown or remained stable for the past six quarters. We will continue to work on improving the quality of the loan portfolio, as was evident this quarter and have instituted internal changes, which we believe will reflect and continue to improve credit quality ratios as the economy continues to improve.

The bank is well capitalized, with all ratios exceeding regulatory requirements by at least 200 basis points and as well is very liquid, with balance sheet loan capacity and more than $1 billion in bank borrowing ability if necessary. This liquidity and capital strength positions WesBanco to move beyond the recent recession and be able to participate in the recovery as it occurs.

This does conclude our prepared commentary and we will now open the call for questions. Jim Gardill, our Chairman of the Board will moderate the question-and-answer session. We'll now turn the call back over to Rocco, the facilitator, for questions.

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Kenneth James from Sterne Agee. Please go ahead.

Hi, good morning.

Good morning, Ken.

Wanted to ask a couple of questions about fee income. First, on the deposit service charges, I think they're usually seasonal in the first quarter and then they were down pretty substantially, I'm assuming that's more customer behavior and seasonal issues than regulatory or Reg E at this point. Is that correct?

I think you're seeing a balance to that. And I'll have Bob speak to the detail about that a little bit. But we're seeing a mix, both from the Reg E impact and also from customer behavior, as our average deposit account balances have grown as customers have gotten more conservative and conserved cash. Bob, maybe some specific numbers?

I think Reg E does still have an impact. If you think about the fact that it didn't take effect fully until August 15 of last year, Ken. So we're down about the same as we were experiencing in the comparison for the third and fourth quarters of last year. There are seasonal factors to the first quarter particularly, but since we're comparing to the first quarter, the primary impact is a continuation of Reg E. And as Jim Gardill mentioned, the increased average balance per account for our non-interest bearing checking account customers.

Okay. And I believe, the last time we kind of talked about this issue, you guys haven't really done anything to -- or haven't implemented anything firm yet as far as any kind of deposit or account fee structures that might offset these kind of -- try to get some of these headwinds back. Is there any color on that or anything you guys are considering?

We continue to monitor the market and are continuing to assess the opportunity. I think that you should note that the electronic banking fee increase was pretty substantial during the quarter. We continue to try to orient our customers towards behaviors that reduce costs and increase our opportunities for fees where it's appropriate and where we could provide a good service.

Okay. And then, on the trust revenues, are they seasonally higher and are they all for some folks in the first quarter as well or is that kind of this number we've put up this quarter a sticky number that we can build off of?

Yes, we do have income tax fees that are usually realized in the first quarter, so they would have some impact, but we also a significant growth in trust assets, both from the market and as well by the new business assets acquired during the last two quarters, they start to impact fee income. And then, we had an adjustment in our fee schedule during the past year, which had an impact as well. Paul, any additional comments on that?

I don't have any additional comments.

Okay.

Okay. Thank you.

Our next question comes from, pardon the pronunciation, Steve Scinicariello from Macquarie. Please go ahead.

Thanks. Good morning, everyone.

Good morning, Steve.

Just a couple of quick ones for you. So on the loan growth side of the equation, I was glad to hear that you are seeing some of the pipelines building and you expect the volumes to go up over the course of the year. But I was just curious if you could kind of maybe quantify some of the goals or the magnitude that we might see as you look out for the year?

And I'll let Paul talk to that in just a moment, but I think basically, what we're seeing is a stronger demand in the Eastern markets of our franchise than we are in the Western. Unemployment rates are lower. We're seeing a little bit more growth. We've had really pretty good March and April in the East on commercial loan production. And that pipeline still looks pretty good. So a little stronger on the East and as Bob said during his presentation, these markets are -- seem to be recovering a little quicker. Paul, any --?

The only thing I may add to that, Steve, is we are seeing loan production this year that exceeds the production from last year. So we're seeing improved originations and we're really anticipating seeing improved originations this year as compared to last year.

Great. Now, that's very helpful. And then, I was just curious if maybe just give us some of the [toe-to-toe] drivers, positive and negative for the margin from here. I know the funding costs keep getting ratcheted down and just curious how much more we might be able to see on that front?

I'll let Bob speak to that a little bit. We do have challenges, of course, with this rate environment and I think we're being fairly disciplined in our new loan production to try to maintain margin. And I think we've seen a little bit of higher yield on investments which have had some impact, but Bob, maybe some details on that?

We were basically flat with the fourth quarter and as I noted earlier, 10 basis points higher than last year. I do think that there's a little bit more opportunity on the margin side as a result of some recent reductions in rates on certain of our core transaction accounts. For instance, early in the second quarter, we have taken actions to reduce our money market rate.

So I think there's still a little bit of pull on the cost of funds that will occur in the next couple of quarters, Steve. In addition, we have another $65 million worth of federal home loan bank advances that mature in the second and third quarter primarily, that will continue to assist in seeing lower funding costs.

Jim mentioned the securities and we have seen a higher average balance in that, partly as loans have run off and also to use up some of the existing liquidity on the balance sheet. So all of those factors together, as we look at our modeling, suggest that we'll continue to see a rather flattish margin over the next few months, the next quarter or two. We're not anticipating any Fed increases but as you know, intermediate and longer-term rates have jumped in the last couple of months.

Our March margin was a little bit lower than the 3.67% for the quarter and that suggests to us that we'll be around the 3.65% area over the next quarter or two, and as we proceed through the rest of the year, assuming no Fed increases, probably between the 3.60% and 3.65% area is what our most likely outlook is.

Great. That's very helpful. Thanks, again, guys.

(Operator Instructions) Our next question comes from Carter Bundy from Stifel Nicolaus. Please go ahead.

Good morning, everyone. Great quarter.

Good morning, Carter. Thank you very much. Appreciate your participation.

Bob, could you talk a little bit more about the margin in terms of how you're positioned for a rising rate environment?

We are positioned positively for a rising rate environment. At the -- I don't think we have that in our slide deck, but we've had that in prior slide decks and our asset liability position shows that in an up 200 basis point environment, between 1% and 2% positive.

Okay. And then, specifically, two questions on the margin. On the securities book, how should we sort of think about that from an absolute perspective and also what your expectations may be on the yield on that book, assuming a flat Fed?

Assuming a flat Fed, we have a barbell strategy in our investment portfolio. If you look in our press release, we talk about our tax-exempt securities, but you take tax-exempts in the Build America Bonds, that's our muni bond portfolio at about $450 million. And that has a total yield of around 5.5%.

The taxable securities which are shorter in duration and most of those are in the available-for-sale portfolio is closer to 3%. It runs at about 3.3%. So what I would focus on is an absolute level at about $1.5 billion and from here through the rest of the year, we should see a little bit of drift down in terms of yield, but not significantly. That portfolio is primarily fixed rate and while there is some call risk, we don't see a significant amount of that through the rest of the year.

Okay. And then, as we think about the [1% to 4%] runoff, is that something that we think is -- that you're targeting, you've largely sort of done that strategy or are you going to continue to move that off the balance sheet?

No, that's a good question. We only had $11 million of runoff in the first quarter and our run rate had been about $8 million to $10 million per month prior to 2011. Now, that is primarily because we're focused on a strategy now that we're down to just over 20% residential mortgages of maintaining about half of our current production on balance sheet and selling half into the secondary market.

Okay. That's very helpful. Final question, on your outlook for OREO cost, which came in pretty meaningfully on a year-over-year basis, obviously, I know you had some [toe-to-toe] maintenance costs prior to this quarter. What is your sort of outlook if you could peg that going forward?

It's certainly hard to [guide] to that because a lot of market drivers will move that number, but Carter, what we've tried to do is aggressively deal with credits when they deteriorate, as you've seen and as we've talked in prior quarters, we've worked hard to mitigate our credit issues. We've found that the quicker we move with the collateral, the better the result. And so, we have tried to aggressively move those off our list as quickly as we can or out of our ownership, I guess, better said.

Okay. And then, I guess, sorry, one more final question, anymore consideration on bulk loan sales?

I think we continue to evaluate the portfolio. We don't see anything at this point that looks so dramatic for us at the moment.

Okay. Thank you, all, very much.

Carter, I just wanted to mention that if you take a look at the risk, we're down from some $8 million in OREO total to just over $5 million. We sold some properties this quarter and so the losses you see there are reflective of those sales, but as you point out, they're much lower than the prior year. And so, I think given the lesser amount in OREO that that also reduces the risk of more significant charges going forward. I think we also do a pretty good job of writing them down to the reserve before we put them into OREO and then try to move them out as quickly as possible. So we don't see further diminishment of value.

We got $5.5 million in OREO properties.

It's certainly a good trend. I was just trying to get an idea on that though. Well, thank you, all, very much for the color.

Thanks, Carter, I appreciate.

Our next question comes from Doug Rainwater from Rodman & Renshaw. Please go ahead.

Gentlemen, good morning.

Good morning, Doug.

I guess we've touched on most of the questions about the margin. Bob, I guess just to reiterate, it sounds like we are eighth or ninth inning on CD re-pricing as far as the impact on the margin. Is that accurate statement?

That is accurate, yes. We still have some CDs that are re-pricing from the 1.6, 1.7 area. So there's a little bit, but I would characterize your baseball analogy as being fairly close to being correct.

Thanks.

There is a bigger -- the bigger impact is, as I said earlier, we've recently reduced rates given the continuation of low interest rate environment in some of our transaction account products.

Yes. And Doug, the other point that Bob made in his presentation is this re-mixing strategy that has been a part of our key business plan over the last year. You're really seeing some manifestation of that and I think the growing account balances on the lower-cost transaction accounts has made a huge difference, as Bob mentioned. And that's been a strategy that Paul and Bob have implemented over the past year, and it's a continuing strategy. So it will continue to assist us going forward in funding cost.

Sure. Thank you. Thanks for the color on that. Let me ask on the Marcellus Shale since you cited specifically in the release. I get the sense and of course spending some time with Bob recently on the road that you were still in sort of a phase where it's -- I guess the impact is on the deposit side, from a deposit gathering perspective. Do you sense that, a, is that true and, b, do you sense that there's a point where it may transition to more lending opportunities, if you could just give us a little of your thoughts around that?

Yes. Doug, it's amazing, when you initially started drill program like they are doing in our markets, you start to see a few rigs. Then, you start to see a few service vehicles, then you start to see materials, then you start to see production. And all of those things build economic momentum at various levels within our economy. And we've seen that manifestation in retail, we've seen it in housing to some extent, we've seen it in the lodging industry. And we are seeing some growth in deposits on the trust and security side as individual property owners have funds to invest. They have discretionary funds that they've not had in a long time.

So we are actively providing services in that area. We don't believe that we will see an immediate transformation into the lending side. We really don't do a lot of lending in the oil and gas drilling business. But the collateral impact is being noticed and we are seeing loan demand for those local businesses that service that industry and that's fairly broad based from trucking of just gravel aggregate, all of those things continue to show vitality.

So when we look at its impact on a region, it seems to be pulling up the economic strength of the entire region. We're seeing lower unemployment rates in this Marcellus Shale Basin. A lot of that is being driven by the variety of impact that this drilling program has had. So if that's responsive, but I think that's the view we see.

I might also comment that it was noted yesterday in a Pittsburgh paper that Southwestern Pennsylvania's unemployment rate is significantly below the national average. That rate in Southwestern PA dropped to 6.8% last month. That's a full one point lower than the entire State of Pennsylvania and attribution must be given to the jobs being created in the Marcellus Shale industry.

But the same thing is happening in Northern Virginia and we have -- I think one of our slides in the deck talks about our positioning in -- a top five deposit market share position in several of the counties, the 32 counties in West Virginia that have Marcellus Shale deposits. And we have a top five market share in several of those counties. So it is a significant factor. We have spoken about that in our investor presentations and we'll continue to speak of it. And I think that should help us as we move forward.

Good. Thanks, guys. One other question related to the land development loan that, it looks like had been renegotiated at some point and had migrated this quarter to non-accrual. Anything I guess in that experience that I know that in general, as you state in the release and stated many times, goal is to certainly work with customers and is there anything, I guess, if I'm asking this question correctly that can be -- there might be a learning experience, I guess, from that or is there anything that changed significantly from the point that it was determined that you wanted to renegotiate a loan to the -- maybe the point that entered non-accrual, just any color around that and that sort of thought process would be helpful?

Doug, what we see here, in any economic cycle in the development loans, it depends on how quickly the economy comes back and whether they deteriorate or improve and this is one where this particular land development loan had some ability to sustain itself its forecast for activity, it didn't materialize. So we had to move forward with it and address it and maybe Bob can provide the details on that particular credit.

This particular credit was in Southwestern Ohio in our Cincinnati market and it was an office condo development where the roads and the development portion were put in, but as Jim said, we didn't get the sales. So we have written that down from a -- well, we wrote that down by some $3 million and put the rest in non-accrual.

Okay.

Doug, those are almost individual transactions. So what we're seeing is, some are recovering and some are not. And so, we're making individual decisions on those. As Paul said in his comments, we try to work with our borrowers and assess the vitality of the project and if there is an opportunity to see the project through, we'll stay with it, work with the customer, but then we have to recognize if it becomes clear that it doesn't have vitality and it doesn't have the ability to recover quickly, then we move forward with the alternative processes.

Well, and to your point, Jim, we did have one significant credit move from restructured back in to its regular repayment terms also in Southwestern Ohio, actually in Northern Kentucky, an office building.

Okay. Good. Appreciate the color. And gentlemen, again, appreciate taking the time to have the call and a good quarter. Thank you.

Thanks, Doug.

(Operator Instructions) Our next question comes from [Julian Casarino from Prospector Partners]. Please go ahead.

Hi, good morning.

Good morning.

I was just wondering, if you could share with us your thoughts on M&A and what your outlook is on consolidation, sort of what are the constraints?

I think, and I can let Paul speak to this as well, but it's an interesting marketplace as we have seen a struggling economy, a slow recession recovery. It certainly is creating more dialog with the increasing regulatory burden and the challenges that we have in the industry facing us. It does certainly appear that dialog among our financial institutions has increased. We'll see how it plays out in the balance of the year.

I think institutions are going to be careful, there is still a lot of headwind in the economy. I think the acquisition opportunities may be many, and discerning those opportunities and making the right calls on those opportunities will be of course a key part of our strategy going forward. As Bob said, we think we are well capitalized. We've had strong earnings cycle. We think we are well positioned to take advantage of opportunities that will present themselves. And we will look at transactions very carefully.

I just may add that in our markets and we are focused within our own markets, but we have seen in West Virginia and the southern part of Ohio a large number of small banks that are actually doing reasonably well. So while I agree with Mr. Gardill that there may be opportunities coming our way, I think those opportunities are not going to be overwhelming. I think a lot of the small banks in our market areas are doing just fine. I think part of the issue will be what's known as management fatigue with the new regulations and the difficult economic times that some management teams just want to get out of the business. But I will say that there really haven't been very many FDIC takeovers of banks in our market and that has certainly limited the opportunities.

Thank you.

I'm showing no further questions at this time. So I'd like to turn the call back over to our speakers for any closing remarks they may have.

We thank everybody for participating today and we appreciate the opportunity to communicate with you concerning the results for the first quarter. We feel very good about the quarter. We think it was a very nice quarter and it's certainly nice to start the year out with that kind of a base. So again thanks, again, for everybody participating and Rocco, thanks for your assistance. I wish everybody a good day. Thank you.

This concludes today's presentation. Thank you, all, for attending. You may disconnect your lines now and have a wonderful day. Thank you.