Capital Bank Financial's CEO Discusses Q1 2013 Results - Earnings Call Transcript

| About: Capital Bank (CBF)

Capital Bank Financial Corp. (NASDAQ:CBF)

Q1 2013 Results Earnings Call

April 19, 2013 10:30 AM ET


Ken Posner - Chief, Investment Analytics and IR Executive

Gene Taylor - Chairman and CEO

Chris Marshall - Chief Financial Officer

Bruce Singletary - Chief Risk Officer

Jack Partagas - Chief Accounting Officer


Erika Penala - Bank of America

Paul Miller - FBR

Brady Gaile - KBW

Craig Siegenthaler - Credit Suisse

Mike Turner - Compass Point

Matthew Keating - Barclays


Please standby, we’re ready to begin. Today’s call is being recorded. Mr. Posner, please go ahead.

Ken Posner

Thank you, Vicki, and good morning, everyone. I’m Ken Posner, Chief of Investment Analytics and Investor Relations Executive for Capital Bank Financial Corp. I’d like to welcome you to our First Quarter 2013 Conference Call. Today’s call is being recorded. Please see the press release for instructions on accessing the replay.

In today’s call we will discuss core income and other non-GAAP financial measures. You will find the reconciliation of these measures to the financial results calculated according to GAAP in today’s new release and the slide deck. You can find the slide deck by going to the Investors page of our website and following the link to the first quarter earnings conference call.

As a reminder, this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements among others regarding Capital Bank expected operating and financial performance.

We caution that forward-looking statements maybe effective by risk factors including those set forth in Capital Bank’s filings with SEC and in this morning’s new release, and consequently actual operations and results may differ material results discussed in the forward-looking statements. The company undertakes no obligation to update publicly any forward-looking statements.

At this time for opening remarks, I would like to turn the conference over to the company’s Chairman and Chief Executive Officer, Gene Taylor.

Gene Taylor

Good morning. Thanks for being with us today for our first quarter 2013 conference call. In addition to Ken Posner, I’m here this morning with our Chief Financial Officer, Chris Marshall; our Chief Risk Officer, Bruce Singletary; and our Chief Accounting Officer, Jack Partagas. We’ll make some remarks about first quarter results and then we’ll take your questions.

Let’s start by addressing our first quarter highlights on slide three of the presentation. We reported net income of $5.6 million or $0.10 per share. On the core basis which we track internally is a measure of the company’s earnings power this translate into $9.4 million or $0.17 per share in line with the consensus estimate.

Chris will cover the non-core adjustments and they are listed in the appendix as well, but you should know that the most important adjustment this quarter was $2.6 million accrual for potential future payout on the contingent value rights for Green Bankshares our Tennessee acquisition.

This accrual is actually good new because it reflects the fact that our legacy Tennessee portfolio is performing better than our original expectations. While we take the CVR accrual immediately, the strong credit performance will show up in our financial statements as higher accretable income over the remaining life of the portfolio.

Let me summarize some of the key points in the quarter we see now. First, originations were steady at $251 million, just locking under the record level we generated in the fourth quarter.

As you know, the market remains intuitively comparative but we held our own in Florida and the Carolina, and in Tennessee where our teams has not been as productive that’s why we recruited six new commercial lenders in the life you know we, which will help us to beat volumes. We are working really hard to generate higher origination for the remainder of the year in all of our markets.

Second, we cut deposit costs by another 3 basis points by repricing our checking, saving and money market accounts. Our sales force is putting a special emphasis on selling checking accounts which are lowest cost in most stable source of earnings. I’m very pleased with the progress in building the strong deposit base.

Third, we enjoyed the redemption in the legacy credit expenses which declined from $12 million last quarter to $8 million this quarter, by early write-downs remained burdensome we benefited from better than expected performance on some of our legacy FDIC portfolio loan and as a result we recovered $3.1 million entire impairments. We expect legacy credit costs to decline further overtime which should significantly up our earnings, although as a reminder, the pace may not be even from quarter-to-quarter.

Fourth, we ended the quarter strongly capitalized with changeable book value at $17.89 and as we pointed out in the past, we estimate our fully more changeable book value is an excess of $20.

Now let’s talk about some of the challenges in the quarter. We took a $7.8 million provision to cover our exposure on the single commercial credits where the borrower being investigated for suspected fraud.

Our lending team’s extensive experience, commercial bankers and credit executives and we went through a great sort of underwriting process, by far it’s hard to detect. I’m very disappointed.

This litigation I will not comment further on this [creep]. The good news is that our originated portfolio in total is performing well and Bruce will take you through that in a moment.

Growing the portfolios also remain the challenge for us in quarter as our loan portfolio showing by about $90 million or 2% an improvement from the 3% decline in the fourth quarter but not as strong as I wanted to see.

Part of the reason is with our Special Assets teams were busy resolving legacy loans during the quarter and this accounted for most of the shrinkage. Reducing our Special Assets portfolio is a good thing although it doesn’t help us achieve positive growth.

With our commercial and consumer divisions working to further grow originations we remain cautiously optimistic about achieving positive portfolio growth at some point during 2013.

I’ll turn the call over to Chris to cover the financial details in a moment but before I do so, I’d like to talk about our progress in building out Capital Bank team. I’m very excited about caliber professionals that are joining our team and how they are going to help us get to the next level of performance.

Since the end of the year we have hired as I already mentioned six commercial lenders in Tennessee, new hedge book wealth management and SBA lending, a general counsel with significant public company experience and an experience manager to head our loan operations. These people were augmented very good team which we already have in place and help us go forward towards rest of the year in making our objectives.

I’ll be back with some further remarks in a moment but here is Chris to discuss our financial details.

Chris Marshall

Thanks Gene. Good morning everyone. I’m going to start on slide four which summarize the first quarter earnings. As Gene mentioned our core net income $9.4 million or $0.17 a share translates into a core return on assets of 52 basis points, which I believe is in line with all of the expectations but it fell somewhat short of ours.

There are few unusual items that depressed our earnings this quarter which I believe were non-recurring and I fully expect that will deliver better results in future quarters. Our core income excludes $3.9 million in after-tax adjustments. And those adjustments are listed on pages 16 and 17 on the both pre and after-tax basis.

Now, Gene mentioned that $2.6 million CVR accrual and that’s the largest in the non-core items. As you may remember, our purchase price for Green Bank included contingent value adds like a lavishly shareholders write the share in savings if cumulative losses in the acquired loan portfolio fell below a stipulated threshold of $178 million.

Now, our initial assumptions for Green Bank were more conservative than our other acquisitions due to the inconsistent underwriting data used by that bank. And we therefore waited a year until we were more comfortable with our analysis. And at year end, we adjusted our projections for Green Bank to be more consistent or be fully consistent with our standard estimating methodology. And as a result, we expect our purchase price for Green Bank to be $2.6 million higher.

Now, the good news is that the portfolio is performing better than our marks, which we believe will lead to a $24 million reduction in expected credit losses to drive higher accretable income over the remaining life of this portfolio. Now for your reference, we included the summary of our CVRs on page 19.

The other non-core adjustments included $1.6 million expense associated with the amortization of original founder equity grants. And we discussed this on prior quarters. And we remind you that the amortization of these grades holding material completed this year and have been steadily declining each quarter.

The other two small items totaled $400,000 and are related to our acquisition of Southern Community. We had a $300,000 expense associated with redeeming $34.5 million in trust deferred issued by that company. And we had about $100,000 of trailing integration expense.

Let me take a minute and highlight a couple of key loans in the income statement, beginning with the loan loss provision which was $6.9 million, up from $4.4 million in the fourth quarter. Now, there are three major components to the provision this quarter.

First, as Gene mentioned, there was a $7.8 million provision for the single commercial click. Second, there was a $2.2 million provision for the rest of our originating portfolio, which is performing extremely well. Bruce is going to discuss that in just a minute.

And then third, there was a negative $3.1 million provision, which reflects better than expected performance in our FDIC portfolio. Now, keep in mind this is largely offset by a corresponding $2.2 million reduction in indemnification assets which is included in non-interest income.

Next, you will see a significant $5.5 million reduction in core non-interest expense. Now, we’ve consistently told you and our investors that we will be extremely disciplined with regard to expense control. And hopefully, this is some evidence of that.

The expense reductions we recorded this quarter includes synergies experienced through the integration of Southern Community last quarter as well as the other head count reductions that we discussed to be on our last call as well as a small reduction in fourth quarter asset expense. As a result of core efficiency, ratio improved from 76% last quarter to 72% this quarter.

We’re going to see some additional expense in the next few quarters from the expansion of our commercial lending fee but we are confident that we’ll continue discipline and higher revenues that these new lenders will deliver that over time our efficiency will show marked improvement.

Core non-interest income was down sequentially for two reasons. First, as I mentioned just a minute ago, we reduced the indemnification asset by net $2.2 million because of the favorable performance in the covered loan portfolio. And then second, probably four, five mortgage volumes declined and I’m going to cover that in a little bit more detail in a minute.

Filing net interest income was up modestly in the quarter, which reflects a rebound in securities yields and lower deposit cost as well as the higher yield on the acquired Tennessee portfolio. So given this overview, let’s move into a little bit more detail starting with slide five which summarizes new loan productions.

Originations were steady at $251 million for the quarter. Carolinas and Florida generated very strong volumes. Tennessee continues to under perform. Now, Gene mentioned the six new commercial lenders that we hired in Tennessee, in just the last few weeks.

I’d point out that these are established relationship managers. And we expect them to start contributing to our origination volumes in the second and third quarters of the year.

Turning to slide six, you see that our loan portfolio shrank by just under 2% with $90 million during the first quarter, which was an improvement from the decline we saw in the fourth quarter. Now, although we didn’t quite get there this quarter, we are getting closer to the point of generating net portfolio growth. And we are very confident that’s going to occur this year.

On a positive note, we did benefit from a slowdown in payoff with commercial real estate loans, which declined from $138 million in the fourth quarter to $38 million this quarter. As we discussed in the prior quarter, our strategy has been to diversify our loan portfolio away from the over concentration in CRE that characterize our earlier acquisitions.

We made significant progress there and are now much more comfortable with our remaining CRE credits. And for the first time, we’ll begin into selectively look at high quality commercial real estate projects in our best markets.

Turning to deposits on slide seven, you can see that we reduced deposits up by three basis points as Gene mentioned earlier. This was driven by a 7 basis point reduction in core deposit cost during the quarter, which were down from 22 basis points to just 15.

As we mentioned last quarter, we took actions to lower rate on checking, savings, and money market accounts and were very pleased with the results. Core deposit balances were down slightly by about $23 million during the quarter. Half of this was run off in the legacy Southern Community footprint which is unfortunate that did not meet our expectations following the conversion.

The balance was in higher cost money market accountants specifically in products where we adjusted rates and expected some attrition. Overall, we’re very pleased with this makeshift. As you would expect, we believe checking accounts represent our lowest cost and most stable to raise the funds.

Core deposits now stand at 66% of total deposits, up from 65% last quarter as we continue to run off legacy high cost CDs. The company is now 97% deposit funded. We believe deposit basis is the strong possible foundation by mid-size regional bank and we are very pleased with the progress our consumer teams are making.

Turning to slide eight, let’s take a look at our net interest margin which increased from 4.11% in the fourth quarter to 4.41% in the first quarter. There were three major drivers of the expansion. 20 basis points came from higher loan yields as I mentioned the stronger performance of our acquired Tennessee portfolio, making it $24 million reduction in the expected credit losses, which improved our accretable yield and we got higher earnings over time.

Now, this is part of the reason why our fully marked tangible book value is in excess of $20 a share. Additionally, 5 basis points came from higher security bookers, higher securities portfolio yields, as we redeployed some of the ultra-short securities we acquired in the Southern Community portfolio into intermediate duration securities, which is consistent with our lowest investment strategy.

And finally, 5 basis points came from lower funding costs including the reductions in the deposits I mentioned and the redemptions of the trust preferreds. While, we are pleased with the improvements in the margins, we would expect some normal NIM pricing pressure on the NIM going forward.

Offsetting this pressure, we had over $500 million in cash equivalent, which we are gradually deploying into securities by using to payoff legacy high cost CDs. We are going to continue to work on lowering funding cost by shifting our CDs, leading to low cost stable core deposits.

Let’s turn to slide nine, which addresses core non-interest income. If you look at the indemnification line, which we think, is part of our legacy credit expenses. Our core fee revenues fell sequentially, principally due to lower revenues in our mortgage unit. Due to lower refi activity, our sold mortgage volumes declined sequentially from $66 million to $46 million in the quarter. As we move into the seasonally strongest spring months, our mortgage pipelines are now rising again and we feel very good about mortgage production in the second quarter.

Slide 10 shows you the trends in core non-interest expense, if you know is an important focus for us. Looking past the REO write-downs, which Bruce is going to cover in just a minute, we had a $3 million sequential improvement in other core non-interest expenses which primarily reflects reductions in salaries and benefits. This is principally synergies from the integration of Southern Communities we had previously mentioned and again going forward, we should expect some increase in compensation costs as we continue to build out our lending teams.

Finally and very briefly, I will turn to slide 11, which gives you some information on our liquidity and capital. I wanted to say that we have ample liquidity and a very strong capital base, we are pursuing a very conservative liquidity strategy and we remain in a very asset sensitive position.

Now at this point, let me turn the call over to Bruce Singletary, our Chief Risk officer who is going to discuss credit trends.

Bruce Singletary

Thanks, Chris. I will begin on slide four. Both, Gene and Chris mentioned the situation that cuts are now being vesicated far. Action and litigation is ongoing here and I’m not able to provide additional light on the situation.

However, I do want you to know, we have provision 100% of our exposure is not secured cash. Notwithstanding this isolate situation, I feel we have originated a high-quality book of business. Past dues for a loss of 25 basis points, [CRE pays] and special assets were less than 1% and classified non-performing loans of 0.8%, including this salary decline and only 0.5% excluding this customer.

Further, excluding the fall situation, we only have five relationships exceeding $1 million in outstanding that’s been downgraded to critical or classified standard. I have reviewed all of five of these relationships and we described all of them to be well secured, be 100% collectible. But I will say, our reserves for originated portfolio were 1.24% at quarter end.

Turning to slide 13, we benefitted from a decline in legacy credit expenses during the quarter which falls to $8 million from $4.1 million in the first quarter. While REO write-downs reman elevated at $6.1 million that declined from $7 million last quarter and $8.6 million in third quarter 2012.

Write-downs remain concentrated in non-urban land and there were lots. However, we will note of the roughly $5 million in land lots sold in first quarter, we realized 110% of book value. So, we actually had a slight gain on sale of land and lots in first quarter.

As Chris mentioned, we recorded a negative provision on the FDIC legacy portfolio, which has been performing very, very impressive and of course took a corresponding deduction to FDIC indemnification asset.

We do expect legacy credit expenses to continue to decline over time. As we wrote down special asset portfolios and then as original trough value continue to stabilize. Although, we’ve pointed out in the past, projects may not be steady from quarter-to-quarter.

Slide 14 will give you an update on our progress involving our special asset portfolio. We continue to solve problems at a fast pace without relying on bulks sales. Reductions in the quarter totaled $99 million, in line with previous guidance of $100 million. I do expect a similar spend in the second quarter.

REO sales were $15 million in quarter one. However, I’m encouraged by leasing activity. Currently, we have 75 properties under contracts, totalling approximate $28 million with projects scheduled in second and third quarter. This properties and new contracts represent approximately 20% of REOs.

Charges in write-downs in acquired portfolios continued to come in below our original projections. I do remain confident the occupancy of our malls.

I will now turn the call back over to Gene for concluding remarks.

Gene Taylor

Thanks, Bruce. I will close on slide 15 by reminding you that we were working to create on outperforming and dependent regional banks, serving Southeastern growth markets. As you already know we have a number of strategic objectives including profitability, organic growth, safe and sound operations and strategic acquisitions.

In our short existence, we have tried to be a thoughtful and discipline to core. During the first quarter, we took a look at several actionable targets that declined to precisions for a number of reasons. While we took a class on the, there are still many banks in the Southeast struggling with capital, credit, possibility and regulatory compliance problems.

Our reforms continue to win and we are in dialog with a number of companies looking for help in solving their problems. We certainly had our share of challenges. But when I look back on what we’ve achieved in less than three years of operation, I’m very pleased with our progress.

So, I want to thank you this morning for your time, your interest in Capital Bank and I will turn it back to Ken Posner.

Ken Posner

Great. Thanks, Gene. This completes the prepared remarks this morning and now I will ask, Vickie to open the floor to your questions.

Question-and-Answer Session


(Operator Instructions) And we will take the first question today from Erika Penala with Bank of America. Please go ahead.

Erika Penala - Bank of America

Thank you. Good morning. My first question, Gene is on your final remarks. Could you give us a sense of why the conversations didn’t work out this quarter, or is that a comment on pricing or was it just -- was it more of a fit issue?

Gene Taylor

Hey. Good morning, Erika and thanks for joining us. It is more of a fit issue. I think in terms of what we are trying to do now. The first seven banks we bought, the first three were from the FDIC as you all know. Then, we bought TIB which was more of a platform acquisition and then we did obviously, pretty quick order after that going -- Capital Bank going in Southern Community.

And the last one Southern Community came in to be a little bit better credit loss. So we are trying to continue to work with those that are really stressed, but we are working hard look at some company’s with little better profiles and as we do that we run into a number of challenges with them and the discussions that cause either they or we decide not to consummate the transaction.

So I would say it’s not one single thing, it just kind of the things you read too just we were very specific about what we want. We are very discipline around pricing and I’m confident. As I said earlier, you might heard me say we will continue to be a buyer.

Erika Penala - Bank of America

And I think I’ve seen from this earnings season across the banks that of all sizes that the revenue picture for 2013 is going to be much more challenging then we had imagine. Do you think that the level of conversation to accelerate as the year progresses.

Gene Taylor

Well, I’ll look at our situation and how hard myself and everyone in our teams working to generate in this very tough economic environment the kind of outcomes that we want. Yeah, my own think is that they look at your first, second and pro forma second and third quarter earnings. They are going to be challenge to generate the kind of level of returns, the investors, the owners, their Board won’t and so I do think that we’ll continue that.

I’m not at least worried about number of names that we could do the transaction with. We just have to do on our terms that make sense for our investors not make somebody else benefit disproportionately.

Erika Penala - Bank of America

Got it. And if I could just have one follow-up question for Chris, the offset of the CVR is that already fully recaptured in this quarter’s margin or will there be an additional, we are doing an incremental addition to the accretable in future quarters.

Chris Marshall

Good morning, Erika. No, in fact, the vast majority of it is not in this quarter, $24 million of additional accretable income which will come through the life of the portfolio which is down over the next three years, so we will see benefit in the balance of this year but just a small piece of it that was in this quarter.

Erika Penala - Bank of America

Got it. Helpful. Thank you.

Chris Marshall



And we’ll take the next question from Paul Miller with FBR. Please go ahead.

Paul Miller - FBR

Yeah. Thank you very much. On your lending teams, can you tell me, how many lending, how many lenders, commercial lender you have and also given your current lender employment, what do you think the good run rate for commercial loan should be?

Chris Marshall

Paul, good morning. We have 55 lenders. We just added six, so this is 61. I would say that it varies based on geographic market and what their experience has been that market. But clearly we look for people to be able to produce in the level to cover their cost and help us meet our target return.

So therefore the for Miami versus Johnson City, Tennessee is different because of the cost of employ, the credit profile, but we have specific target (inaudible) and we expect them meet in the coming quarters and we had no push back on that.

So I apologize I can’t give you exact numbers, if we only operate in the Miami, I only operate in the New Tennessee or just in Raleigh I’d be able to do it. But we’ve got the ability but we are very specific with lenders based on -- both on portfolio side, rate expectations, fee expectations.

Paul Miller - FBR

I mean most CEO’s come. It takes about a year before lender can really start adding value to the corporation. I know you’ve been really growing this. I say -- did you said you are at 61 now, what do you want to paying out that with those lenders.

Gene Taylor

I will say we want that all meeting their goal.

Paul Miller - FBR

61 won’t be there…

Gene Taylor

I have some…

Paul Miller - FBR

I’m sorry.

Gene Taylor

Yeah. Yeah. I’m not worried about whether its 50 or 70 I just want what I have doing what we have done and we have meetings every Monday morning with every lender and they know where they stand and I know where I stand, and our dialogues are very clear. We have clarity, we have focus and we have accountability.

Paul Miller - FBR

Okay. Thank you very much gentlemen.


The next question comes from Brady Gaile with KBW.

Brady Gaile - KBW

Hi. Good morning, guys.

Gene Taylor

Hi. Good morning, Brady.

Brady Gaile - KBW

The topline was a lot lower then I have forecast, is there anything abnormal that supporting that topline down or just kind of the new run rate or should we model that continue to come down as you continue to get kind of deal related efficiencies out of the topline?

Gene Taylor

While there are couple of things that drove down Brady, we have talk in the past about the amortization of this Founder Equity Awards which materially be fully amortized this year that down dramatically.

Second piece and probably biggest piece is the execution of the immigration with other community and I think we talked last quarter about some other headcount reductions we were going to take in the year.

So this is as projected. We will have some additional cost in the quarter as we add the lender and see that full expense but you should expect us to be very disciplined around those costs as we told you we would be.

Brady Gaile - KBW

Okay. And any comments on margin guidance, I hear what you’re saying on, you have the improvement with the legacy Green Bank. It should be a positive loan yields. But you also mentioned, you have normal repricing lower than you’re going to deploy the piece of $500 million of cash. When you’re kind of put all that together, would you expect your margin to be flat from year-on-year or down to a handful of basis points a quarter from year-on-year. How are you thinking about the margins through the course of the year?

Gene Taylor

I think our guidance that we gave you at the beginning of the year is really driven by the repricing. The securities are not going to have a big impact on it. There is a little bit of offset there but if you look at what we saw last year quarter-over-quarter for just typically pricing that’s what released our 10 basis points a quarter, 15 basis points a quarter. And I think that’s why fully depending on how yields perform.

Now, I would tell you that actually this quarter we saw a reversal in customer preference for fixed rate terms. And as a result, yields under origination actually went up for the first time in the long time, which is a very good sign for us. So I don’t want to give you specific guidance because it’s going to be driven really by what yields do and that’s moved around quarter-over-quarter.

Brady Gaile - KBW

Okay. And then finally, I’m just curious, six commercial lenders at Tennessee that you hired. Those all come from one other bank, where did you pick those guys and girls off from?

Gene Taylor

Right. It was guys and girls. Frankly, there -- hopefully they are working and the progress growing through six people, three different institutions.

Brady Gaile - KBW

Okay. Thank you guys.


And next is Craig Siegenthaler with Credit Suisse.

Craig Siegenthaler - Credit Suisse

Thanks guys. Good morning. There was a 5% quarter-over-quarter decline in negotiable order of the 12 accounts. I’m just wondering if you can comment on what you’ve done?

Chris Marshall

I’m sorry. The recap balance.

Craig Siegenthaler - Credit Suisse

Yeah. So within your deposit accounts, you demand deposits. There is one bucket which you guys call the negotiable order withdrawal account. It went down a little bit from the fourth quarter level. I’m just wondering if you can provide some commentary on which was that?

Chris Marshall

So we revised price in our dollar of our deposit product at the beginning of the year. For a variety of reasons, there is not one single reason but essentially our strategy has been to move customers from high cost CDs to money markets which we priced up above the competition to get people into accounts that are little more sticky and then we’ve been trying to get them to move out of those money markets, as we price those accounts and those specific products down to be closer to competition.

We’ve seen a little bit of attrition there, but overall we’re very happy with the shift. I mean, all along, our goal has been to get people from high cost CDs into core deposit products and that seems to be working.

Craig Siegenthaler - Credit Suisse

Got it. And then just a follow-up, looking at the securities portfolio growth and also at the very low yield on that portfolio today and you also have additional excess liquidity, should we expect additional securities liquidity deployment into this securities portfolio in 2Q and 3Q?

Gene Taylor

You should, Craig, but I would tell you that one thing, we are very disciplined about is we got a fairly short dated book about three year duration and it’s been largely comprised by Agency MBS and it’s a very conservative portfolio and therefore the yield is not great.

The other thing is our portfolio, which virtually hallmarks for us, recently purchased and that’s why the yield is so low. We will redeploy cash into securities, but in keeping with our existing low-risk strategy.

Craig Siegenthaler - Credit Suisse

Got it. And that investment yield of 1.43, didn’t that could move up at all?

Gene Taylor

I think yields don’t look like they are moving very much. I would say that probably close to what we will see in any reinvestment.

Craig Siegenthaler - Credit Suisse

Okay. Great. Thanks for taking my questions.

Gene Taylor

Good. Thank you.


And next up is Mike Turner with Compass Point.

Mike Turner - Compass Point

Hi. Good morning. Can you talk about the sort of what the ballpark gross origination yields are in the first quarter?

Gene Taylor

Yeah. Let’s say they were 430, yeah, 438 in the quarter and that’s was up. I want to say 5 or 6 basis, I’m sorry. We will just check the number here. They were 438 and they were up 10 basis points quarter-over-quarter, that’s strictly on originations.

Mike Turner - Compass Point

Okay. Great. And also looking at capital planning, I mean your stocks at low $16 range or about almost 80% of sort of your fair value. And as you look at where your stock price is and that’s sizable discount and looking at acquisitions, and the $50 million buy back and really, I guess you bought back about 2 million shares this quarter. What’s your priority there and thoughts about buybacks at this level?

Chris Marshall

Well. This is Chris, Mike. Let me be really clear one buyback. We announced the authorization in the middle of quarter and we didn’t begin buying back share until just before blackout. And so we had a plan in place that allowed us to buy, but we were restricted as any 105b and 10 BAT plan would suggest that we were limited in what we could buy back.

Having said that, you know the blackout will be ending in few days, we will be able to have a little bit more flexibility in what we buy back and I can tell you that at current prices our stock, U.S. buying back our stock is a priority and we will do that.

Mike Turner - Compass Point

All right. Thank you.


(Operator instructions) And we will now go to Matthew Keating with Barclays.

Matthew Keating - Barclays

Yeah. Thank you. I guess my question on buy back just asked and answered, but I did hear in your preferred remarks, I think you mentioned that you hired a new head of lending for the company overall and I think that’s the shift from your prior approach where it was regional in nature? Could you just talk about that executive and maybe sort of what the goals for that all are? Thank you.

Gene Taylor

Hey. Matthew, Gene. Yeah, I’m very pleased to say that, we did hire a guy to head a particular segment of our lending, not the overall lending. So you were correct in what you said, the person we hired is actually a government SBA lender and he will help us immensely. In the prior bank, we didn’t coordinate all those because they were individual companies across all of the entity and he has incredible experience in doing SBA lending.

And we would help someone bring together across all of our footprint the activity and in fact, frankly, just increase amount we are doing. And so it’s not a shift per say, it’s just a focus.

And additionally, I mentioned, we brought on person to do loan ops and we are incredible proud of him and he has big banking experience, I bet you could guess where he used to work and he is going to help us beat.

As we grow this portfolio, you need very capable people in the process. I mean so we are doing best. We are bringing on the people and to both originate them, to approve them and to process them, and execute them.

So we didn’t hire a person to run all of lending for the whole company for all lending or just the SBA component and all of loan op. So if I confuse you little bit, I apologize, but that’s the specificity.

Matthew Keating - Barclays

Got you. All right. Thank you for that clarification. And then just from your commentary, it does sound like you feel a bit incrementally more confident in driving periodic loan goal. I mean you kind of mentioned in last quarter that you expected that this year as well?

But given what you see in the marketplace, is it the case that, you do you expect that in the near-term and is that just from current levels or is that from the end of 2012 levels that we’ll see growth this year? Thanks.

Gene Taylor

Both, from the current level and the end of the year, meaning I’d like to make up a little bit that we did loose up. They are known for us Matthew, how much, we intend to continue with our Special Assets reductions in the range, you are seeing Bruce have obtained all about that, so don’t want to do anything to slow that down.

I’ve got to do better job of wage hedging to offset good work doing to bring that down but. Yeah, I’m pretty confident and that’s the plus point, it just take people six, nine, 12 months to get flowing on Board, that tell you and end of this how that will bring over immediately, but Paul was certainly on it. We past it all then and it takes a bit of time.

But I’m not discouraged at all about our ability to generate good on the assets. It’s just changing the mix. As you know we reduced the, as we pointed out those, all the commercial real estate exposures to make our company have a better risk profile and as we bought those down, as we had payoff in the Special Assets and everybody on the call knows the economic environment is such would raise this, many of our borrowers are going long-term and that brings down that net growth number. I had hoped that at this point frankly to have not just above where we were but movement above that. So that’s why we have hired six new people we are going to get there.

Matthew Keating - Barclays

Great. Thanks.


And there are no other questions. So I’d like to turn the conference back over to Mr. Taylor for any additional or closing remarks.

Gene Taylor

Thanks, Vicki. I want to thank everyone for being on the call well today and for your questions. Obviously, as we go forward anything you need clarification, please call Ken Posner, our Investor Relation Executive and he will work with you to make sure we answered them fully. So, with that, I’ll say thank and have a good day.


Thank you very much. That does conclude our conference for today. Thank you everyone for your participation. And you may now disconnect.

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