WesBanco Inc (WSBCP) 2015 Q1 法說會逐字稿

Good morning and welcome to WesBanco's Conference Call. My name is Keith and I will be your conference facilitator today. Today's call will cover WesBanco's discussion of results of operations for the quarter ended March 31, 2015. Please be advised, all lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer period. (Operator Instructions).This call is also being recorded. If you object to the recording, please disconnect at this time.

Forward-looking statements in this report relating to WesBanco's plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of Private Securities Litigation Reform Act of 1995. The information contained in this report should be read in conjunction with WesBanco's Form 10-K for the year ended December 31, 2014, which is available at the SEC's website, www.sec.gov or WesBanco's website, www.wesbanco.com.

Investors are cautioned that forward-looking statements, which are not historical facts, involve risks and uncertainties, including those detailed in WesBanco's most recent Annual Report on form 10-K filed under the SEC under Risk Factors in Part I, Item 1A. Such statements are subject to important factors that could cause actual results to differ materially from those contemplated by such statements, including without limitation, that the businesses of WesBanco and ESB may not be integrated successfully or such integration maybe take longer to accomplish than expected, the expected cost savings and any revenue synergies from the merger of WesBanco and ESB may not be fully realized within the expected timeframes, disruption from the merger WesBanco and ESB make it more difficult to maintain relations with clients, associates or suppliers. Effects of change in regional and national economic conditions, changes in interest rate, spreads in R&D assets and interest bearing liabilities and associated interest rate sensitivity. Sources of liquidity available to WesBanco and its related subsidiary operations, potential future credit losses and the credit risk of commercial, real estate and consumer loan customers and their borrowing activities. Actions of the Federal Reserve Board, the Federal Deposit Insurance Corporation, the SEC, the financial institution regulatory authority, the Municipal Securities Rulemaking Board, Security Investors Protection Corporation, other regulatory bodies, potential legislative and federal and state regulatory actions and reforms, including without limitation the impact of the implementation of the Dodd-Frank Act. Adverse decisions of federal and state courts, fraud, scams, schemes of third-parties, internet hacking, competitive conditions in the financial services industry, rapidly changing technology affecting financial services, marketability of debt instruments and corresponding impact for value adjustment and/or other external developments materially impacting WesBanco's operation and financial performance. WesBanco does not assume any duty to update forward-looking statements.

WesBanco's first quarter 2015 earnings release was issued yesterday and is available at www.wesbanco.com. The call will include about 25 to 30 minutes of prepared commentary followed by question-and-answer period, which I will facilitate. An archive webcast of this call will be available at Wesbanco.com. WesBanco's participants on today's call will be Todd Clossin, President and Chief Executive Officer; Robert H. Young, EVP and Chief Financial Officer, both will be available for questions following the opening statements. Mr. Clossin you may begin your conference.

All right. Thanks, Keith. Good morning. Thank you for participating in WesBanco's First Quarter 2015 Earnings Call. We're pleased that you've joined us this morning to hear about our strong operating results, I'll be making some opening comments, Bob Young, our CFO, provide some highlights and I'll moderate the question-and-answer period. The press release detailing the results of our first quarter was issued last evening; copy of the entire press release is available on our website. We closed our transaction with ESB on February 10, after we announced the deal near the end of last October. This timeline represents a quick three and a half months from deal announcement to deal closing and we're pleased to be able to complete such a significant merger in such a short period of time. It was the seventh largest bank transaction completed during 2014 and it was our second transaction in two and a half years, the Fidelity transaction closed in late 2012. Due to the closing of the deal mid-quarter, we'll be discussing our first quarter numbers both with and without the impact of the merger. This presentation will demonstrate the strong results we are seeing in our legacy WesBanco Franchise and we also highlight ESBs nice growth trends from deal announcement right through deal closing and deal conversion. Combined, we have a pretty good early story to tell. WesBanco had a strong first quarter. Our core earnings were $0.59 per share compared to $0.56 per share during the first quarter of last year and $0.59 per share during the fourth quarter of last year. This performance represents an earnings increase of 5% when compared to the first quarter of last year. Core earnings exclude the impact of a $0.19 per share restructuring and merger related charge attributable to the ESB acquisition. It should also be noted that due to our mid-quarter deal closing, we carried an extra $0.01 of salary and IT expense in our first quarter run rate that will be gone as of the end of April. Our increased earnings are being driven by strong loan growth, excellent core deposit growth excluding CDs, disciplined expense management and continued strong credit quality. We also continue to drive positive operating leverage during the first quarter with net revenues up double digits during the period, excluding merger-related expenses. The performance also improved our efficiency ratio to 58.2% for the quarter as compared to 60.6% during the first quarter of last year, excluding merger-related expenses.

We have demonstrated strong loan growth over the past 12 months with first quarter annualized loan growth of 8.7% not including any impact from ESB. An interesting point to note is that ESB experienced loan growth during the first quarter as well. This bodes well for our combined asset generation momentum. During the quarter, we completed a five person commercial lending team lift out from a Western Pennsylvania area bank, that was somewhat influenced by the merger announcement. Our C&I loan growth continued to grow at a double-digit pace during the first quarter after posting a 15% growth rate during 2014.

Over the past year, we've hired 10 C&I lenders and managers into our larger markets. These hires are very much in keeping with our C&I growth initiative as described during previous earnings calls. We continue to reallocate lending resources from lower growth markets to higher growth markets. This reallocation of resources allows us to drive increased production while keeping salary expense growth to moderate levels. Our commercial real estate and construction portfolios continue to perform very well and we've been replacing loans refinanced in the permanent market with new construction production.

Non-interest bearing deposits are up 17.8% over the past year, core deposits exclusive of ESB and excluding the CDs have increased $169 million or 4.5% since year-end with all deposit categories excluding CD's increasing. First quarter deposit growth was up 10.7% on an annualized basis exclusive of ESB. We continue to see nice deposit growth coming from our Marcellus and Utica Shale initiatives during the quarter. We're taking advantage of the balance sheet liquidity that share related deposits are providing, and we continue to see share related deposits growth hold at a steady eight figure monthly rate even with lower natural gas prices. Wells already drilled continue to produce nice royalty streams as their breakeven costs are pretty low and makes economic sense to keep them producing.

We experienced good momentum in our non-interest income categories, up 6.7% when compared to the first quarter of last year. Brokerage revenues are up 12.6%, trust revenues are up 7.2%, and electronic banking fees are up 10.4% for the quarter. Our debit card revenue continues to top $1 million per month on a pre-merger basis, which represents a number greater than our combined overdraft NSF fees. Given the low penetration rate on debit cards and trust services in the former ESB franchise, we have much opportunity ahead of us in these fee generation areas.

Our margin at 3.59% has continued perform in a steady range over the past five quarters. We continue to stay disciplined in our asset pricing, while continue to capitalize upon our lower cost share related funding advantage. Expenses continue to be managed closely. Last weekend, we converted the former ESB franchise and a significant portion of the planned salary and staff expense reductions will be realized by the end of this month. There will be additional salary and staff [redemptions] realized over the next few quarters as normal attrition will allow us to reduce branch staffing levels.

Our use of technology, mainly teller cash recyclers allows us to operate our branches at lower staffing levels than a typical branch. A high percentage of ESB executive in back office salary saves are also contractually tied to the end of April. All remaining employees know their roles; staffing decisions were made and communicated several months ago. Communication and transparency was a high priority during this merger with both ESB employees and customers. We are pleased to have been able to close ESB transaction so quickly. As I mentioned, we have very good momentum heading into the second quarter. We have met with ESB's largest customers and we've sent welcome packages to all customers.

We are developing planned revenue synergies from both sides of the merger. WesBanco has established trust, wealth management and securities capabilities. We also have more fully developed commercial and C&I capabilities. We're moving those capabilities quickly into our expanded Western Pennsylvania territory. ESB has a strong municipal business, and a strong title insurance business that we are now expanding and we'll also build upon. I'm also looking forward to working with our leadership team to capitalize upon these synergies in the coming years. We will have gone from deal announcement to deal closing to deal conversion in just six months. So it's a large deal for us, we take the successful integration of it seriously. I'll now turn it over to Bob Young, who will cover the financials in more detail. Bob?

Thank you, Todd. Good morning all. Per share earnings exclusive of merger-related expenses were up 5.4% over the first quarter of last year at $0.59 versus $0.56 per share. Despite including ESB's operating expenses from February 10 to March 31, due to the earlier than projected closing of ESB, we recorded similar results to the fourth quarter.

First quarter EPS calculated on a GAAP basis were $0.40 per share with $6.3 million of after-tax or $0.19 per share of merger-related expenses. Core return on average assets was 1.17% versus 1.16% last year and return on tangible common equity was also comparable to last year at 15.3%. Both of these measures are above fourth quarter peer averages of 1.05% and 12.1% respectively.

In addition, the peer core operating efficiency ratio was 62.8% as compared to our core ratio of 57.5%. Pre-tax, pre-provision return on average assets without the merger-related expenses was 1.69% for the first quarter versus 1.71% last year. Net interest income grew 16.1% with the acquisition and loan growth over the past year are the primary reasons for the increase. Net interest margin decreased four basis points from 3.63% to 3.59%, but it was higher than earlier expectations post merger. The margin was influenced positively by purchase accounting accretion from the mark-to-market of financial assets and liabilities. The margin net of all purchase accounting accretion in both periods from either ESB or Fidelity in the prior year would have been 3.49% the first quarter of 2015 and 3.58% last year.

Factors influencing the growth include approximately 16.9% higher average earning assets for the quarter with 16.2% growth in average loans and lower cost of funds at just 43 basis points versus 56 basis points last year. The cost of our interest bearing deposits were just 34 basis points for the quarter versus 45 basis points last year, despite a higher percentage of certificates of deposit to total deposits after the ESB acquisition. CDs do continue to reprise downward, ending the quarter at 71 basis points versus 98 basis points last year. Non-interest bearing checking accounts grew 22.2% year-over-year and approximately 8.3% or $84 million on an organic basis. First quarter annualized deposit growth excluding ESB was a robust 10.7% led by strong non-interest and interest bearing demand growth. In addition, also influencing the margin was a one-time cash dividend received from the Federal Home Loan Bank of Pittsburgh during the quarter totaling $610,000 accounted for in other interest income.

Portfolio loans increased $987 million over the last 12 months with $699 million from ESB and $288 million in core organic growth representing percentages of 18% and 7.4% respectively. Organic loan growth for the first quarter was $89 million or 8.7% annualized. Loan originations in the first quarter up $357 million were up 31% over the more severe winter influenced results in the first quarter of 2014. And over the past year, total loan originations were $1.5 billion. Loan growth was driven by increased business activity in our markets, additional lending personnel in our larger urban markets, focused marketing efforts and continued improvement in loan origination processes. In addition, we achieved our business plan goals of increasing both commercial and industrial lending and home equity lending. C&I loans, before adding any ESBs commercial portfolio increased 16.1% over the past year and 8% annualized since year end. Legacy residential real estate loans increased 5.8% year-over-year and 5% annualized since year end as mortgage originations improved in the first quarter as compared to last year. Legacy home equity lines of credit increased 18.1% year-over-year and 7.7% annualized since year end, due to consumer marketing campaigns and a restructured more competitive product offering that we put in place in April of last year.

Turning to non-interest income. In the first quarter, non-interest income increased $1.1 million or 6.7%. Such increase was primarily from a 7.2% increase in trust fees to $6.1 million, partially influenced by seasonal higher tax fees and a 2.7% increase in trust assets since last March. We also experienced a 12.6% increase in securities brokerage revenue and a 10.4% increase in electronic banking fees, which were somewhat assisted by adding the debit card and ATM fee income from ESB. Also helping the growth was a 43% increase in bank-owned life insurance income from a death benefit recorded totaling $339,000. Service charges on deposits continue to decrease, mostly due to lower overdraft fees, which is an industry-wide issue and due to higher customer average transaction account balances, better use of internet and mobile banking tools and overall customer preferences.

Turning to expenses. Total expenses were up 9% in the first quarter were $3.6 million, exclusive of the aforementioned merger-related expenses, reflecting the addition of ESB's normal operating expenses for a little over half of the quarter post acquisition. Merger-related expenses of $9.7 million this quarter, and another $1.3 million in the fourth quarter result in a total of $11 million to date and break down as follows; $6 million in change of control payments, $2.7 million in investment banking and other professional fees, $1.4 million in employee related termination cost and $1 million in conversion, accounting and valuation fees and other miscellaneous expenses. We expect to incur another $1 million to $2 million of these merger-related expenses in later periods primarily in the second quarter.

You may recall that upon announcement, we disclosed an estimate of about $25 million in expected merger-related expenses. About half of the expenses comprising that expected charge were booked by ESB prior to closing. Most line items in non-interest expense were influenced from the acquisition with salaries and wages up 11.5% due to an 8.6% increase in full time equivalents, normal salary increases, plus additional brokerage commissions. Employee benefits up 28.2% due to a higher pension, healthcare and other benefit costs. Equipment expenses up 6.8% and intangibles and amortization up 14.3%.

But even after the acquisition, net occupancy expense was flat with last year due to less seasonal maintenance and utility costs, while marketing was down 3.8% due to product campaign timing. Other operating expenses were also lower by some 1.5% due to lower REO, miscellaneous taxes, communications, customer fraud related charges and electronic banking expenses.

As noted in the press release about $700,000 in salaries, benefits and IT-related costs that were incurred in the first quarter will be immediately saved after our customer data conversion, which was completed just this past weekend, and our overall cost savings plans are on track to achieve 50% of ESB's pre-acquisition run rate expenses by the middle of next year. Due to settlement -- on income taxes, due to settlement of prior year's federal tax returns, WesBanco reversed $484,000 from tax reserves during the quarter reducing the effective tax rate to 24.6%. For the balance of the year, we expect the effective tax rate to range between 26.5% and 27.5%.

Credit quality. Net charge-offs were only an annualized 16 basis points or $1.7 million for the first quarter, as compared to 43 basis points or $4.1 million last year. Non-performing loans to total loans were 1.20% versus 1.31% last year, even with the acquisition of $10.1 million in NPLs from ESB. And NPAs were also lower at 79 basis points versus 90 basis points of total assets last year. Criticized and classified loans were down as a percentage of the loan portfolio from 3.3% to 1.9% even after including $9.6 million from the acquisition.

Overall, these categories decreased $36 million or 28% from last year. The allowance for loan losses was 0.91% at the end of the quarter versus 1.17% last year as the pre-existing allowance from ESB is not able to be transferred to our allowance under acquisition accounting rules. However, if the credit portion of the loan mark from the ESB and prior Fidelity acquisitions were added to the reserve, the total would represent 1.34% of total loans. The credit portion of the total net loan mark represented 3% of total ESB loans or some $22 million with approximately $4.5 million allocated to impaired loans. The decrease in the provision for the quarter from $2.2 million to $1.3 million was supported by lower net charge-offs, the criticized and classified loan reductions, and a decrease in overall portfolio delinquency.

Turning to shareholders equity. It increased some $303 million or a 38.5% from year end due to the acquisition, retained earnings and improved other comprehensive income. The Tier 1 leverage ratio was 10.62% at quarter end versus 9.88% at year end. Tier 1 risk-based capital was 14.09% versus 13.76%, and total risk-based capital was 14.92% versus at year end. The new Tier 1 common ratio, otherwise known as set one was a strong 11.49% upon initial implementation. Tangible equity dropped slightly from 7.88% at year-end to 7.78%. All of these ratios were higher than we initially forecast at the date of announcement, even with the adoption of BASEL III this quarter. This is due to the lower than forecasted risk weighted assets, lower goodwill than expected and -- at lower goodwill on core deposit intangibles than expected from the acquisition as well as certain BASEL III adjustments that were not initially anticipated. Our strong equity ratios permitted to board declaration of an increased dividend of $0.01 per share to $0.23, or 4.5% paid on April 1, 2015 as well as the coming May 11 payoff of $36 million in junior subordinated debt from ESB that we previously announced, the remaining top security.

In summary then, we are very pleased with our overall performance for the first quarter, which should set the tone for the rest of the year with our closing of the ESB acquisition and recent conversion, all of this as Todd said completed within six months of announcement. First quarter results for are now $8.2 billion asset size bank showed we were able to hold core ROA and ROTCE at last year's levels post acquisition and well above peer averages, even before establishing revenue synergies or the planned cost savings in our now expanded Southwestern Pennsylvania market.

Strong organic loan and deposit growth and higher wealth management income contributed to improve net revenues that more than offset acquisition related expense growth, providing significant core operating leverage of one and a half times the percentage of net revenue growth compared to expense percentage growth. Of course, this excludes merger-related expenses.

A lower core operating efficiency ratio down to 57.5% from 59.8% in last year's first quarter and a relatively stable post-acquisition net interest margin of 3.59%, despite balance sheet mix shifts in assets and liabilities reflecting ESBs more savings bank oriented acquired balance sheet were also highlights for us. Legacy credit quality metrics improved overall resulting a lower loan loss provision. These factor have positively influenced core profitability and earnings per share growth and we look forward to our continued growth prospects for the rest of 2015 from improving loan pipelines and our wealth management and retail businesses. We are off to a great start in Southwestern Pennsylvania after integrating the former ESB offices and their back office into ours. This will enable the achievement of quicker cost savings and provide for a focus on revenue growth through tactical business plans, that will coordinate our business partners from ESB with new hires in lending and wealth management businesses, trust, private banking, securities brokerage and insurance.

This concludes our prepared commentary, and we will now open the call for questions. Todd Clossin will moderate the Q&A session. We'll turn the call now back over to the facilitator for questions.

(Operator Instructions). Catherine Mealor, KBW.

Good morning, everyone.

Good morning, Catherine.

So, you've only had a partial quarter of ESB and you still have a really strong 50% cost savings coming through next quarter, but the efficiency ratio is still down to 58%. So how should we think about the efficiency ratio, as you've got more cost savings coming on over the next couple of quarters, but as you continue to reinvest in new talent and continue to hire like the team lift out, that we saw this quarter in Pittsburgh? Just looking for some maybe guidance on how low you can bring the efficiency ratio down to?

We've been very disciplined about managing expenses and moving lower productive resources to higher productive markets and that's part of how we're funding a big part quite frankly, of how we funded the lift out that I mentioned, and how we are funding other talent acquisitions the 10 C&I lenders and managers have come on over the last year. So, there's two sides to that ratio, as you know it's a revenue side and the expense side and we expect to make continued improvements on both sides of that going forward.

Okay. Thanks. And then can you also give us an update on what you're seeing locally in the Marcellus Shale region. Are you seeing any signs of slowdown or credit stress at lower energy costs and more thinking about how that's impacting the lending side more so than the deposit or the trust side?

Yes. And as you know, Todd talked about on prior calls, our play there was really on the deposit and the wealth management and the trust side and that's really where we've been playing strong and we continue to see very good results there as I mentioned in my comments. On the lending side, we never lend to the large oil and gas companies, just wasn't part of our cup of tea. But if you were to look at our kind of our part of our portfolio that would be correlated to the oil and gas industry, directly related to it, it'd be less than a 1% of our portfolio. And then if you look at the ancillary services, companies related to the oil and gas industry it'll be only another 2%, so it's a very, very small number. We haven't seen much in the way any kind of downgrades. We've got a few smaller credits that we're watching. But they equates a couple of million bucks $2 million or so. So very, very small numbers for our bank. So we really haven't seen any stress, we haven't seen any deterioration in credit quality. We've talked to our customers and we watch that very, very closely and and the portfolio just continues to perform very, very strongly. So again, the concentration level is very, very small 1% core or less than 2% ancillary and those companies continue to perform well. Again, we were very conservative in how we underwrote, how we are into this business and always was for us the deposit play, it always was for was the wealth management play. And as you remember, I mean we showed mid-single digit loan growth numbers over the last couple of years, when some of the banks out west we're showing 15%, 20% loan growth. Where they were putting on, they were taking advantage of the oil and gas business in their markets, we weren't, if we were you would have seen higher loan growth numbers from us. We just stayed away from that stuff that, we felt we didn't want to do.

All right. Thanks. So maybe one more for Bob, how should we think about the size and the yield on the securities portfolio next quarter with a full quarter of ESB and some of the restructuring activity you've done?

Yes, Catherine. I think probably looking at it in terms of where we are at the end of the quarter. We have a $2.4 billion portfolio and a plan to get to about $2.5 billion. The rest of the growth is related to municipal securities, it'll take some time to melt into the portfolio or to purchase. So, it was coming down in terms of yield throughout the quarter. But we ended the quarter in March, for the month at [276]. So that's I think primarily where you should look going forward for the yield in the portfolio. We did anticipate a little bit higher yield, when we initially modeled ESB, but as we know, rates are down some 50 basis points, a compressed yield curve. We did restructure about half of the portfolio and that did pick-up a few basis points with the restructuring as opposed to say just to bring all the securities across and do the mark-to-market.

Thank you. And the next question comes from Scott Valentin with FBR.

Good morning, Todd and Bob. Just a quick question following-up on that securities question. I think Bob if I heard you correctly, securities at a $2.4 billion, and you said your goal is to get to $2.5 billion and then so following upon that, just curious as a percent of assets, that seems I think that's close to about 30% of assets, 29% of assets, if my math is right. Just wondering, that seems a little high, wondering if there is opportunity to bring that down and with that, if you could improve the margin, if you got securities down to say 20%?

You're right on math. If you look at our historical relationship in terms of the percentage of our portfolio that might be in securities, it's in the mid 20% range, that would be the ideal percentage range for us to get back to. I am not going to put a timeframe on that. It's just something that we're going to continue to watch. And I think one of the nice things about this is as we grow organically or if we were to do another deal or two, we have the opportunity to shrink that portfolio as we showed over the last year. We'll continue to do that, but that's also part of why I want the loan growth to be strong. Why we are executing on the C&I initiatives, as I want the loan growth to grow and fund that through shrinkages securities portfolio that then will bring that down more into the mid 20% range over time, allow us to grow organically, do another couple of deals and still stay under a $10 billion threshold, that's the plan.

I just wanted to remark that there's over $400 million of cash flows coming from that investment portfolio over the next year, so there's plenty of opportunity to move into the loan side.

Okay. Thanks. And then on kind of the Marcellus, I guess kind of activity, you guys seem to have good loan growth seasonally, I think the first quarter typically is the slowest for the year, given the weather in your markets, but just wondering in terms of mix if we're seeing any differences I know you guys have emphasizing C&I and the other markets. Just wondering if you're seeing more success on those two initiatives?

We are continuing to see really nice growth in both C&I and in home equity. Big part of what we are trying to do in home equity is, leverage our distribution franchise. I got 142 stores now across the three state area and I've got all this distribution that I then can have this product move through. So we came up with a competitive product last spring. It's a product that we feel really good about, it's a product that we're selling in the marketplace. I held a meeting yesterday with all the Presidents to talk about specifically tactics, how do we position that product, so that's a big part of our growth. I like it because it tends to be more variable rate as well. On the C&I side spending an awful lot of time on the talent side of that as well too and with specific tactics to grow C&I across that the major areas. So we expect that to continue to have the same kind of success we've had in the last year or two with that. The more real estate oriented kind of legacy portfolio, we still like it, it's still growing, but it's not going to grow as a percentage of the pie as quickly as C&I and home equity. So over time, what we do is we rebalance the portfolio over the next five, six, seven years, a little bit at a time.

Okay. All right. And then one final question. You mentioned the lift out of five loan officers out of a bank. How much more opportunity is there for that and then post ESB acquisition, you guys a little bit bigger, does that help in going out and reaching out to lenders to join WesBanco?

Yes. That definitely -- it definitely helps a lot, because when you got a smaller market share in a major urban market, you look at that as a job, not as a career. And when you got the size that we've got now top 10 market share in the Pittsburgh area, top 10 market share in the Columbus area, we're now a big enough organization that we matter there and we can have various levels of relationship managers and team leaders and commercial heads and going to be a sizable organization that -- we become very appealing to lenders that might have been with some bigger banks or even smaller banks, but had careers there that might have been headquartered in that marketplace. So it gives us the heft, it gives us the credibility. At the same time, we're continuing to advance our product sophistication on the C&I side, treasury management areas like that. So it improves not just the yield on the loan, but the yield on the relationship because of the fee services that are coming in and the markets see that and that's part of our story that we're telling talent to come in. So we added 10 C&I lenders and managers over the last year. Our expectation would be is to continue to bring talent on, but we watch it closely. One of the things we drive hard here is operating leverage, and I want to see positive operating leverage. So if I am bringing the team on, they're going to pay for themselves pretty darn quickly and we're going to find ways to fund it, so that we don't build a team and then wait for the revenues to come, they've got to happen simultaneously.

Okay. Thanks very much.

(Operator Instructions) William Wallace, Raymond James.

I just want to maybe dig in a little bit to some of the moving parts as it relates to margin. As far as your purchase accounting accretion, can you tell us what your scheduled accretion is for the second quarter or for the remainder of the year?

I'll take a stab at it. I'd say we still feel that that's a nicely accretive transaction for us (inaudible) we talked about earlier. We also have [of course] book value dilution on this transaction that was modeled as well as a big benefit for us. We're also picking up lower funding costs. We're also picking up bit of an accretion on the acquired loan portfolio. And we still have some of the former ESB investment portfolio yet to invest. So there's a lot of things that are going on in the organization to continue to drive the earnings growth forward. So, we still feel very good about the deal and feel it's very nicely accretive for us.

So, while Todd was leading that off. I was looking it up Wally and it will stay at a high level here, excluding the investment portfolio, which has seen a substantial restructuring and I've given you some guidance on that from where the yield was at the end of the first quarter. So, again excluding that, but looking at accretable yield on the loan portfolio, CDs, we restructured all the borrowing, so there's really nothing there and CDI for instance in non-compete, when you do all that together you end up with a number that's about $3 million for the year. And we gave you the number for the first quarter in terms of the margin impact. So that will -- I didn't hear you.

But $3 million, is that netting out the amortization on the CDI?

It's part of that. Yes.

Okay. So the impact, I'm just looking -- I'm just trying to think about margins, so the impact of net interest income is going to be closer to about $6 million for the year?

I have -- again excluding investments, I have closer to $5 million.

Okay. And then your prepaying, is it a sub-debt of $36 million?

That's right.

And what's the cost of that?

The mark-to-market cost would be between 6% and 7%, that's not the contract cost, but like Fidelity we are terminating it because mark-to-market would produce a higher cost of funds and we want to absorb going forward.

And there's still -- is the prepayment penalty on that $11 million, is that number still correct?

The prepayment penalties were absorbed pre-merger because they were all on either Federal Home Loan Bank advances or repos. We're not in a prepayment period with this particular [TRUP]. It's a variable rate security or a variable rate instrument at this point.

So as far as thinking about merger costs then in the second quarter or just moving forward, are we -- is the lion's share of the $25 million gone then?

Yes. I disclosed another million to two, that would occur. So there's no -- when we talked about the $3 million, which $5 million if you net out non-compete in CDI, we talked about investment separately because of the significant restructuring and the borrowings are not in that, because they were completely restructured or paid off as well.

Thank you. And as there are no more questions at the present time, I would like to turn the call back over to Todd Clossin for any closing comments.

Great. I want to thank everyone for their time this morning and look forward to giving you continued updates in quarters to come. Have a good day.

Thank you. The conference is now concluded. Thank you for attending today's presentation. We now disconnect.