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StellarOne Corp. (NASDAQ:STEL)

Q4 2008 Earnings Call Transcript

January 28, 2009 10:00 am ET

Executives

Linda Caldwell – Director of Marketing

O.R. Barham – President & CEO

Jeffrey Farrar – EVP & CFO

Analysts

Allan Bach – Davenport & Company

Michael Rose – Raymond James

Steve Moss – Janney Montgomery Scott

Dave [ph] – Suntrust Robinson Humphrey

Bryce Rowe – Robert W. Baird

Carter Bundy – Stifel Nicolaus

Operator

Good day, everyone, and welcome to the StellarOne Corporation earnings conference call. Today’s conference is being recorded. At this time, I would like to turn the call over to Miss Linda Caldwell. Please go ahead, ma’am.

Linda Caldwell

Thank you, Dana. Today we have with us, O.R. Barham, Jr., President and Chief Executive Officer of StellarOne Corporation; and, Jeffrey W. Farrar, Executive Vice President and Chief Financial Officer of StellarOne. Mr. Barham and Mr. Farrar will review results for the fourth quarter of 2008. And after we hear comments from Ed and Jeff, we will take calls from those listening.

Please note, StellarOne Corporation does not offer guidance. However, there maybe statements made during the course of this call that express management’s intentions, beliefs, or expectations. Actual results may differ from those comments cited by those forward-looking statements.

Now, may I introduce our President and Chief Executive Officer, Ed Barham for comments. Ed?

O.R. Barham

Thank you, Linda, and good morning to everybody. My thanks to all the call-ins this morning. I’ll begin our call today by first making some general comments on StellarOne’s fourth quarter results, market conditions, portfolio performance, and outlook as we begin 2009. Upon the conclusion of my remarks, Jeff Farrar, CFO for StellarOne, will then provide some further financial details. Afterwards, as Linda has indicated, we’ll be happy to take any of your questions.

As you are already aware, StellarOne did post an $898,000 loss for the fourth quarter. For the year, StellarOne will earn roughly $9.4million. Despite these disappointing results, our company’s core operations have remained strong as evidenced by stable deposit and loan level and an acceptable net interest margin, albeit the decline in recent quarters.

Given these facts, StellarOne was able to absorb rather heavy charge offs and provisioning charges for the quarter. Jeff will give more details on this in a moment. As we have mentioned for several months now, our most serious credits for StellarOne have been in and around the Smith Mountain Lake area. This market is largely a resort and second home market. The market decline was early to this market and will likely be protracted due to its discretionary nature.

We have, through our focused efforts, seen some reduction in our NPAs related to this market. But overall, our NPAs still remained elevated and flat from quarter-to-quarter, ending the quarter at 1.66% versus 1.65% at September 30th. Our progress on reducing NPAs during the quarter was all set by the addition of one significant business relationship of $7.1million. I might add, this was not a real estate credit, but a commercial loan involved in the construction industry. While I have not examined the concentration of write downs and loans taken throughout the year, they would be almost exclusively real estate related with A&D providing the biggest drag.

Very little of any of our quarterly charge offs were surprises to us as we continue to monitor our portfolio closely. Overall, delinquencies remain below 2%, with residential real estate mortgages carrying the highest past due level at 3.7%. Loans over 90 days past due plus non-accruals stood at 2.1%.

More specifically, the commercial portion of our portfolio is performing well at this point, while with C&I at one half of 1% real estate commercial at 0.08%, and real estate construction at 2.3%. While I’m pleased with these past due levels, and especially at this time and in line with the current environment, there will be continued deterioration and historically higher credit calls during 2009.

While the future level of our credit problems will be largely dependent upon the unfolding economy, there are other areas that we continue to address for improvement on our earnings outlook. As we prepare for 2009, we took further steps during the fourth quarter to cut costs and find efficiencies. Most notable, as a continuation of the implementation of a common set of branch metrics, we closed three additional branches during the fourth quarter, and a third during this month. One additional facility will be scheduled to be closed early in spring.

Through our widely reviewed management position report, we have now been able to reduce company wide positions from well over 1,000 positions at merger date February 2008 to currently 848 positions. Health and welfare benefit programs are now consistent across the new company with management and Board eliminating legacy VFGs, pension plan, freezing legacy FMBs, ESOP, and termination of an existing retirement credit program. We are beginning to see continued benefit from these cost cutting efforts, as net non-interest expense for the fourth quarter further decreased by $1.1million or 4.8% from third quarter ’08.

A few bright notes on the business development side, we will be moving all of our retail on wholesale mortgage lending to a separate line of business for improved service and revenue generation on the coming weeks. The yet to be named executive will oversee this business activity and report directly to Greg Feldmann, President, CEO, StellarOne Bank. We have also beefed up our number of originators.

Despite the slowdown or the downturn of the real estate market, our combined mortgage areas remain profitable for the year. With the mortgage rates now at historical lows, we are seeing a tremendous inflow of refires [ph] and first home fires over the last few weeks. In fact, economic reports this week showed a 6.5% increase on home sales for the month. January looks as if this trend is continuing. This mortgage repositioning will help us take better advantage of this development opportunity.

In our wealth management line of business, despite the decline of the value of assets held for management and the decline in brokerage activity, wealth management still achieved a record breaking year profitability, earning roughly $1 million after tax for the year. Wealth management is also looking to add new business development candidates to take advantage of potential future increases in this line of business. While we see an improving future for the wealth management line of business, 2009 will be a challenging year until the market begins to recover. If these two areas were to continue to perform well throughout the year, they may prove to be potential early indicators of a recovering economy. We will certainly hope so.

Well, for our retail and corporate banking lines have also been successful in developing new business, with a special emphasis on attracting customers from some of the larger institutions that are going through a significant change. In particular, we are obtaining opportunities to look at more and more of the quality credits not real estate related. These new credit opportunities will hopefully allow us overtime to build more solid banking relationships and reduce our heavy reliance on the real estate, and then add granularity to the portfolio. Again, this will not happen overnight, but we must begin to do this on earnest now if we’re going to have a stronger, more durable company in the future.

In general, 2009 will be a difficult year for the banking industry and this will be the case for StellarOne. We will suffer the macro pressures of shrinking interest margin, additional FDIC premium cost, and added credit cost as stress on our loan portfolio continues for the foreseeable future. Our counter to all of these will be to continue to develop as much new business as possible, reduce cost, remain very active in managing our troubled assets. We have already begun to deploy our TARP funding by way of a continuation of lending to business and consumers, a reduction of foreclosures to a special mortgage refinance program, and fixed income investments providing the systems to municipalities.

We are fortunate that Virginia’s business climate is doing much better than most other parts of the country. With the planned Federal stimulus program, it is our belief Virginia should show a rebound when it counts, much sooner as well. The StellarOne’s strong tangible equity to assets ratio of 10.79% and a Tier 1 based capital ratio of 14.07%, we feel well positioned to deal with the challenges of 2009. We plan to use our capital at this time to manage our way for the challenges of 2009 and put our company in solid footing for the future growth that will come.

I will now ask Jeff to provide further detail on what I’ve just discussed.

Jeffrey Farrar

Thank you, Ed, and good morning everyone. I’d like to start first by reminding everybody that prior comparisons are difficult with the merger as we treated it prospectively. And thus, most of these comparisons that I’ll make are to sequential third quarter. As Ed indicated, we did have the loss for the quarter of $898,000 to common shareholders. That did include $53,000 of accrued dividends on first stock related to our TARP investment. That annual cost for us some $30 million – on a $30 million investment as $1.5 million, and that’s what we’ll anticipate for 2009.

Our biggest impact for the quarter, obviously, the loan loss provision for the $11 million, compared to $6 million for the third quarter was a significant impact. We also solved some revenue contraction of roughly $2.6 million, primarily related to margin compression. We’ll talk more about that momentarily.

Looking at net interest income, we had for the quarter, $25.3 million in gross net interest income. Netting out purchase accounting amortization that number was $23.7 million. So on gross basis, we were down $2.1 million or 7.7%. On a net basis, net of, again, purchase accounting adjustments, we were down $1.5 million or 6%.

Margin compression, we were down 26 basis points sequentially to 380. And if you look at it on a net basis, down 17 basis points to a core margin of 355 for the quarter. The margin compression was predominantly yield driven, meaning that we had some fairly stout contraction in our yield on assets. We went from 630 in the third quarter to 603 in the fourth quarter. And the biggest component of that was in the loan portfolios. We had roughly $771 billion in loans that are directly tagged to prime and LIBOR. And we also have roughly $575 million in loans that are directly tagged to Treasury. And so, those components really solved some fairly significant decrease in yield consistent with Fed easing and what we’ve seeing from the standpoint of that policy.

Purchase accounting, amortization amounts, I wanted to, I guess, point out that we continue to see some impact, but also it’s coming on down to a pretty manageable level now. If you look at the impact for the quarter, it was $1.7 million or 25 basis points. But looking to 2009 amortization for the first quarter of 2009, it’s expected to be $1.1 million amortization. For the second quarter, it’s $739,000, amortization for the third quarter is $537,000. So as we get into the second half of the year, we should see a lot less impact from the amortization on margin calc.

I guess, lastly on the margin, we do expect to see some continuing compression. One of the things that I think we’re seeing in terms of cost of funds is hitting some floors relative to how low we can go on our core deposit base. And we still predominantly fund their balance sheet to core deposits. And have reached levels that we just can’t push any further. So I think as we’d look at asset yields continuing to contract and a leveling off of our cost of funds. Xo we’re going to continue to see some margin compression for 2009.

Switching gears to non-interest income, we were down 502,000, or roughly we’re down to – excuse me, 502,000, down to $6.6million sequentially. We had some nice growth in retail fixed income despite of the pressures from the economy. And also, the deposit balance contraction, we had $127,000 of growth sequentially or 3.1%.

Mortgage revenue was fairly flat quarter-to-quarter. But the good news here is we’re seeing a real spike in pipelines, applications taken. And we also had a nice increase in loans held for sale in the balance sheet, representing loans that have closed that would sell on the first quarter that number was 15 – a little over $15 million at the end of the year.

Trust revenues continue to have some contractions. We were down $259,000 or 19.9% for the quarter. Biggest component of that is our provisionary revenues directly related to the market valuation of the assets under management. Obviously, a pretty tough quarter for the market, and of course, finally a tough quarter for us on the revenue stream. In the end, it was profitable. It continues to be profitable, albeit at a reduced level.

Let’s talk about overhead now for a moment. Non-interest expense, as Ed alluded to, we were down $1.1 million for the quarter sequentially. Of that $1.1 million, $686,000 of that was related to comp and benefits expense. The other large component of that was the decrease in professional fees of $458,000. The efficiency ratio for the quarter ended out at 69.23%. It continues to be elevated somewhat by the revenue contraction that we’re experiencing.

I think Ed touched on most our cost saving initiatives. There are currently a couple of things that I’ll also mention that we’ve done. We’ve expectedly created a higher increase. So we did not budget any new FTE for 2009. We’re managing that very tightly to the extent that we need to add personnel. We are moving all the way to the top of the management group to evaluate and require some metrics to be provided if you will justify the addition of the position. We did suspend merit increases for 2009 in light of the economic conditions, and that was obviously a tough decision for us, but one we felt we needed to do for the time being. We spoke to the branch closing. So we’ve got a couple of others that we’re evaluating as we move down the road.

I went back and looked at – for the sake of just getting a sense of how we did for 2008 over 2007. I went back and looked at the overhead for the Legacy, VFG, and SMV as of 12/31/2007, adjusted out merger expenses. And we ended up having a reduction of gross overhead 2008 over 2007 of $7.7 million or 8%. So that’s a number I think we feel pretty good about.

There were a lot of expenses in 2008 that were not direct merger expenses, but I know were directly associated with the merger, so I think that number’s actually much higher. It speaks well to our ability to drive some efficiencies, really in just six months when you consider that we didn’t put our banks together until mid year. So I think that works well with our ability to draw efficiency throughout the organization and mitigate, if you will, the impacts of potential highland loss provisioning and continue revenue contraction for 2009.

If I could speak to asset quality for a couple of minutes, it covers that well, but I do want to point a couple of things out. Level of non-performing assets is $49.9 million. That’s 1.65% of assets. That’s an increase of $658,000 over third quarter NPA levels of $48.4 million or 1.62% of total assets. Level of NPA is – we’re certainly held by the charge off activity. We had two credits that we were moving to active liquidation on. And thus, decided to take charge offs for the period. And as you heard that gross charge off number was over $12 million. So that certainly helped our level of charge offs to some extent. But as Ed mentioned, we have a number of NPAs that we were able to move out in the fourth quarter as well. And I think we feel pretty good about that component. Had it not been for the $7.1 million addition, we would’ve seen some noticeable improvement and NPAs for the quarter.

As far as breakdown on NPAs, $42.9 million represents non-accruals, $4.6 million other real estate earned, past due 90 days of $855,000, and then loans held for sale of $724,000.

Charge offs for the period our fourth quarter $2.22 on an annualized basis, compared to 0.44% compared for the third quarter. Again, indicative of the $12.6 million in net charge offs for the quarter. We do expect to see continuing some charge off activity – elevated charge offs activity as we move through the course in 2009.

Reserve, at the end of this quarter, was down slightly to 135 versus 140, but our allowance calculations tell us that it’s adequate. If you look at the breakdown on our allowance, allowance currently is about $30.5 million. We got $5.5 million of that $30 million or roughly 20% is that specifically reserved now. So everything else is based on, what I’ll call satisfy factors, which includes historical loss experience factors associated with our anticipation of what our losses would be in the recessionary in our environment, and other factors such as past due levels and what have you. Again only 20% is truly, specifically reserve to TARP line credits at this point.

From a capital perspective, obviously, we got a nice TARP on our ratios from TARP. We did include the first time a tangible common equity calculation to show with and without. And as you can see, the tangible equity became flat at calculation of 9.75%, and still in our minds, demonstrate a very strong capital position.

A couple of quick comments on the balance sheet, pretty stable. I mean we’re still seeing some contraction. But in our minds, it’s soft. It’s nominal. It’s not really hurting us right now. It’s more a function of market conditions than anything. Weaken as deposits, it’s really been in the CDs, the non-interest PDA bounces.

And particularly, with non-interest PDA, if you look at our concentration of commercial accounts. We’ve got, certainly, a concentration of accounts that are directly to the real estate market. And so, what we have seen as a drawdown in average balances and not a run off on accounts. And so we’re helpful that that will come back as things start to improve.

From a liquidity standpoint, cash and cash equivalents of almost $117 million. Securities portfolio increased to $327.3 million, certainly indicative of strong liquidity position, and helped, obviously, by our TARP investment. We did get some short term borrowings paid off during the quarter of $33 million. Related to TARP, we’re investing in units and mortgage backed securities, to some extent. And we’re also tracking new production and consumer mortgage portfolios. Basically, our long term strategy for TARP investment. And then, the fixed income investments will peel off as we are able to redeploy them, if you will into the loan portfolio. With that, I’ll stop, and turn it back over to Linda.

Linda Caldwell

Thank you, gentlemen. We will now move to the question-and-answer portion of this conference call. And please limit your questions to one primary and one follow up. At this time, I will ask our operator, Dana, to open the call for your questions.

Question-and-Answer Session

Operator

Thank you, Miss Caldwell. (Operator instructions) And we’ll go first today to Allan Bach with Davenport & Company.

Allan Bach – Davenport & Company

Hey, guys. Good morning.

Jeffrey Farrar

Good morning.

Allan Bach – Davenport & Company

I wondered if you wouldn’t mind touching on the overall deposit gathering environment that you’re seeing right now.

Jeffrey Farrar

Well, Alan, it’s difficult where, I would say, from a pricing standpoint, there certainly have been some moderation. And Linda sits with me on a pricing that meets every other week to talk about this. There has certainly been some moderation. And in pricing, we haven’t the proverbial flight to quality that we would have hoped for. Even with the increase in FDIC insurance coverage, I do think the increase in coverage has mitigated some of the concern. And the pressure we’ve had on run off from concentration from particular customers.

But all in all, I would have to say, fairly stable right now. The only real issue, I guess, we’re having is just drawdown on balances because folks are using up cash positions rather than borrowing money.

Allan Bach – Davenport & Company

Very good. Thank you very much.

Operator

And we’ll take our first question from Michael Rose with Raymond James.

Michael Rose – Raymond James

Hey, good morning.

Jeffrey Farrar

Good morning.

Michael Rose – Raymond James

I was wondering if you could talk a little bit about some of the differences in your geography in terms of economic trends, Legacy versus acquired markets.

O.R. Barham

In terms of what we’re seeing relative to credit quality and some metrics we’ve looked at.

Michael Rose – Raymond James

Yes.

O.R. Barham

I would say, as a hope, again, with the exception around the recreational market of Smith Mountain Lake, everything is fairly stable. I think the more northern markets, I was just looking at some statistics that the Fed puts out yesterday. The past due ratios are a little higher. If you look at the map of the whole state of Virginia as you are moving more toward the northern part of the state, toward B.C. and all that.

So to the extent we have exposure or our footprint in the Fredericksburg cold [ph] paper market, which is as far north as we go, I would tell you, past dues on mortgages, consumer loans are a little higher in that area. But you get back down in the Charlottes full market, central Virginia, and over in the Valley, you don’t really see much of that. It’s a very stable, pretty moderate past due market.

Michael Rose – Raymond James

Okay. And as a follow up, how much more exposure do you have in Smith Mountain Lake? And how much of your specific reserves are for credits in that market?

O.R. Barham

Well, as we’ve mentioned earlier, we’ve had $50 million worth of exposure in that market. And obviously, we haven’t been running anymore money into that market. We’ve been exiting that market as much as possible. I can’t tell you, off the top of my head, maybe, Jeff, do you have a sense of what the percentage of the reserve is?

Jeffrey Farrar

Michael, (inaudible) and going back and looking, but I would say, roughly, 30% of that is directly attributable to Smith Mountain.

O.R. Barham

That would probably about right would I guess as well, Michael.

Michael Rose – Raymond James

Okay. Great, thank you.

O.R. Barham

You’re welcome.

Operator

And we’ll take our next question from Steve Moss with Janney Montgomery Scott.

Steve Moss – Janney Montgomery Scott

Good morning, guys.

O.R. Barham

Good morning.

Steve Moss – Janney Montgomery Scott

With regard to non-performing loans, I’m wondering, what is the mix as of year-end?

Jeffrey Farrar

Well predominantly, it’s going to real estate, without any question, predominantly. I couldn’t give you a percentage off the top of my head. I’d be a little bit afraid to do that. But I have a little more opportunity to study that. But clearly, it’s a real estate issue, A&D in particular.

O.R. Barham

Yes. I would agree with that, Steve. Outside of the $7.1 million C&I credit. We haven’t begun to see, though there is, I guess, that potential. But again, as I shared with you on the past due ratios, we’re not seeing that on the commercial portion of our portfolio yet, our consumer to any great extent. It is currently not somewhat let’s do at very acceptable levels.

Steve Moss – Janney Montgomery Scott

Hey, and with regard to the loan loss reserve going forward here, as Jeff indicated net charge offs will be elevated for ’09. What does that – what shall we expect for the loan loss reserve ration in terms of the methodology and historical charge offs going forward.

Jeffrey Farrar

Well, I would say that, to the extent you see historical loss extraneous ratios going up, you would expect to see a larger reserve requirement. I can’t tell you what that coverage factor is going to be. But I can tell you, as we look at our more recent charge off activity and start modeling that in, invariably, it’s going to require a larger allocation, if you will. And then the wild card, obviously is on the soft factor adjustments that we make as conditions either deteriorate or improve. If you know the answer to that one, let me know.

O.R. Barham

As Jeff said, the FAS 5, which is what he is referring to, that portion of our reserve is really growing as the economy deteriorates. And we have to beat those up. And that’s from that represents the majority of what our allowance happens to be now as opposed to specific reserves.

Steve Moss – Janney Montgomery Scott

Okay. Thank you very much.

Operator

And we’ll take our next question from Jennifer Demba with Suntrust Robinson Humphrey.

Dave – Suntrust Robinson Humphrey

Okay. Good morning, guys. This is Dave [ph], Jennifer’s associate. Just filling in for Jenny real quick this morning. I wanted a follow up question on the C&I NPL that you mentioned. Just wanted to confirm, that was a construction related credit?

O.R. Barham

It’s a construction related industry, Dave. Yes.

Dave – Suntrust Robinson Humphrey

Okay.

O.R. Barham

They’re a supplier of product to the construction industry.

Dave – Suntrust Robinson Humphrey

Supplier to construction industry. Okay. Is it early to tell what the resolution path on that looks like?

O.R. Barham

It’s a little early at this point.

Dave – Suntrust Robinson Humphrey

Okay. All right. Then I just want to–

O.R. Barham

We got a good stimulus plan. It would benefit it greatly.

Dave – Suntrust Robinson Humphrey

Okay. All right. And just to switch gears just a little bit, looking at the non-interest expenses, do you have any info – I’m sorry, if it was in the release and I missed it but, any info perhaps on the FDIC premium activity towards the end of the year, and then your outlook on that for ’09?

O.J. Barham Jr.

The FDIC insurance, obviously, is something that we anticipate, a rather significant increase in for 2009. And I believe, if you look at the earnings, you’ll see for the fourth quarter, we had roughly $643,000 in expense. We are modeling $3 million in increase in FDIC insurance over our run rate for 2008. So I think that – I have to go back and look, but I believe the gross is approximately $4.5 million of FDIC insurance coverage expense for 2009. That answer your question?

Dave – Suntrust Robinson Humphrey

It does. Thank you. Thank you very much. I appreciate it, guys. Thanks.

Operator

(Operator instructions) We’ll go next to Bryce Rowe with Robert W. Baird.

Bryce Rowe – Robert W. Baird

Thanks. Good morning, guys.

O.R. Barham

Good morning.

Jeffrey Farrar

Good morning.

Bryce Rowe – Robert W. Baird

A couple of questions. One, on the salary and benefits for the fourth quarter there, is that a good run rate, Jeff? Was there some level of incentive accrual that was reversed in the fourth quarter?

Jeffrey Farrar

It wasn’t a reversal of incentive accrual, but we did have some things jumping around. But I would say that, all in all, they pretty much netted out. So I would say, it’s not far off from a pretty good run rate. We had a couple of adjustments. Ed mentioned the elimination of a medical premium supplement plan that Legacy SMV had. And we recorded a gain associated with that. But then we also had some additional expense associated with some one time payments we made. They pretty much mitigated the impact of that. So that’s a rather long answer, but I would say that it was pretty close to a reasonable run rate.

Bryce Rowe – Robert W. Baird

Okay. Next question on credit and some of these construction loans. What are you guys seeing as far as having these – I guess the properties are reappraised concerning (inaudible). What kind of deterioration in value are you seeing, maybe with the Smith Mountain Lake properties and any other properties that are at risk right now?

O.R. Barham

Well, the more severe write downs, obviously, are in the Smith Mountain Lake area because they’re A&D type credits. And the buyers for that are not going to be consumers, they’re going to be other investors. So we’re seeing pretty significant discounts. I would say, probably, somewhere in the 40% to 50% range. Outside of that, again, we really don’t have a lot more to compare as far as A&D, maybe on the consumer side, and you’re seeing anywhere there from up again in the northern part of the state, maybe a 20% – 15% to 20%. You come back into central Virginia, I think over in the Valley, the downturn is a lot less. I really don’t have a sense of that, but it’s certainly less than the 15% to 20% in the northern part of the state.

Bryce Rowe – Robert W. Baird

Okay. And one clean up question. Jeff, I missed the projected purchase accounting marks for the second quarter, are there none?

Jeffrey Farrar

Sure, $739,000.

Bryce Rowe – Robert W. Baird

Okay. Thanks, guys. Appreciate it.

Jeffrey Farrar

Welcome.

Operator

(Operator instructions) We’ll go next to Carter Bundy of Stifel Nicolaus.

Carter Bundy – Stifel Nicolaus

Good morning, Ed. Good morning, Jeff.

O.R. Barham

Good morning.

Jeffrey Farrar

Good morning.

Carter Bundy – Stifel Nicolaus

You all suggested that deposit pricing – it sounds like it’s largely reached floors right now. Did that include your projections also for CD costs going forward?

Jeffrey Farrar

No. I think the focus of that comment was on the non-maturity deposits.

Carter Bundy – Stifel Nicolaus

Okay. What kind of flow of CDs do you all have re-pricing this quarter? What kind of rates are they re-pricing into, and what is the current rate in there?

Jeffrey Farrar

I don’t have that, Carter, handy. I would say that we’re continuing to see some higher cost funds priced down to current levels. But I don’t have specifics relative to rate or spread.

Carter Bundy – Stifel Nicolaus

Okay. Secondly, could you all give me an idea of what the estimated warrant amortization cost is going to be for the year?

Jeffrey Farrar

I could circle back with you. I don’t have it in front of me.

Carter Bundy – Stifel Nicolaus

Okay. Finally, I guess the next question would be, is the Board right now considering looking at the dividend and lowering the dividend right now? And where might it go?

O.R. Barham

Well, we obviously are having that discussion and do have that discussion. The only thing I could tell you is that the situation we evaluate from quarter-to-quarter because of the uncertainty of the market. We’re just looking at where we are relative to now.

Carter Bundy – Stifel Nicolaus

Okay. Finally, if you could just speak to some of the loan growth opportunities. Obviously we’ve seen some contraction in the balance sheet. How are you all thinking about going into ’09? Would we suspect that loan balances might continue to ease or are we seeing some good opportunities out there.

O.R. Barham

I think it’s going to be pretty flat overall and – let me go back on the dividend thing because I didn’t get to finish. We did go ahead and declare and will for this quarter.

Carter Bundy – Stifel Nicolaus

That’s okay.

O.R. Barham

But back on the long question now, I could tell you that, again, we see very slight increase over the whole year for us.

Carter Bundy – Stifel Nicolaus

Okay. Thank you all very much.

O.R. Barham

Welcome.

Jeffrey Farrar

Thank you.

Operator

And we have a follow up question from Steve Moss with Janney Montgomery Scott.

Steve Moss – Janney Montgomery Scott

Sorry, guys. My question was just answered there.

Operator

Thank you, sir. And at this time we have no further questions. Miss Caldwell, I’ll turn the call back over to you for any additional or closing remarks.

Linda Caldwell

Thank you, Dana. Everyone, thank you for joining us and for your questions today. We appreciate your participation. And this concludes today’s teleconference.

Operator

Thank you. And that does conclude today’s call. Thank you for your participation. You may disconnect at this time.

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