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StellarOne Corp. (STEL)

Q2 2010 Earnings Call Transcript

July 21, 2010 11:00 am ET

Executives

Linda Caldwell – Director of Marketing

Ed Barham – President and CEO

Jeffrey Farrar – EVP and CFO

Analysts

Allan Bach – Davenport & Company

Steve Moss – Janney Montgomery Scott

Avi Barak – Sandler O'Neill & Partners

Jennifer Demba – SunTrust Robinson Humphrey

Michael Rose – Raymond James Financial

Carter Bundy – Stifel Nicolaus

Operator

Good day, ladies and gentlemen, and welcome to the StellarOne Corporation earnings call. At this time, all participants are in a listen-only mode. Later we will conduct and question-and-answer session and instructions will follow at that time. (Operators instructions) As a reminder, this program is being recorded.

I would now like to introduce your host for today's program, Ms. Linda Caldwell, Director of Marketing. Please go ahead ma'am.

Linda Caldwell

Thank you, Jonathan. Today we have with us, O.R. Ed Barham, Jr., President and Chief Executive Officer of StellarOne Corporation; and, Jeffrey W. Farrar, Executive Vice President and Chief Financial Officer. Mr. Barham and Mr. Farrar will review results for the second quarter of 2010. And after we hear comments from Ed and Jeff, we will take questions from those listening.

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

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

Ed Barham

Thank you, Linda, and good morning to everyone. As we have done in the past I will begin today's call with a brief overview of our company's financial results with some detail on asset quality and outlook. I will be followed by Jeff Farrar, Executive Vice President and Chief Financial Officer for StellarOne Corporation, and he will provide further remarks and further financial results in detail.

StellarOne for the second quarter 2010 earned $1.6 million on a per share basis to our common shareholder, which excludes dividends and discount accretion on preferred stock, we earned $1.1 million or $0.05 per share. This marks the third consecutive quarter of profitability for the company. StellarOne's earnings continue to be muted as we work through asset quality issues which are still largely concentrated in the residential and construction portion of our portfolio.

We continue to be active in our approach to dealing with problem credits by holding frequent auctions. This approach to dealing with troubled assets does have a negative effect on the level of current earnings as we experienced some auction shortfalls in exchange for resolution of these troubled loans.

Evidence of this practice can be seen in our historically low levels of OREO. I might add, our ability to hold frequent auctions also underlines the strength of our current earnings and capital position which allows us to take this liquidation approach.

I will provide more color to asset quality matters in a moment. Our second quarter 2010 results does compare favorably to the $785,000 loss or $0.03 loss per diluted common share for the same period 2009. Net income to common shareholders first quarter 2010, as you will recall, stood at $1.4 million or $0.06 per diluted common share. Year-to-date earnings now stand at $2.5 million or $0.11 per diluted share.

Strong non-interest income contributions from all business segments offset higher provisioning and losses on foreclosed assets, which resulted in earnings comparable to first quarter 2010. Pretax preprovision earnings amounted to $8.8 million for the second quarter. This is an increase of $42,000 or 0.5% compared to first quarter of 2010, and also an increase of $3.1 million or 54.8% compared to the same period a year ago. It should be noted that first quarter 2010’s PPPT number did include $1.1 million in gains on sale of assets. The bulk of that gain came from the sale of our Farmville branch location.

Net interest income increased sequentially as well as compared to a year ago for the same period. Our net interest income improvement was accomplished despite the fact that we continue to have a decrease in loans of roughly $35 million from first quarter. Our net interest margin increased to 3.59% for the second quarter 2010, bettering first quarter 2010 by 7 basis points and 28 basis points above the same time last year.

Net interest income on a tax equivalent basis amounted to $23.8 million for the second quarter 2010 versus $23.1 million for first quarter 2010, and $22.6 million for second quarter 2009. Our ability to increase our net interest income despite a shrinking loan portfolio was achievable due to the repricing sensitivity of interest-bearing liabilities outpacing interest earning assets.

During second quarter, we were able to reprice approximately $230 million of the CD portfolio as well as achieve a repricing on cost of funds related to checking and money market accounts. As we look further out, our ability to continue to reprice our CD portfolio appears favorable through third quarter, with some slowing in repricing opportunity in fourth quarter of this year. Jeff will give more details relative to this in a moment.

A few brief comments about operating noninterest income. Mortgage Banking revenue totaled $2.1 million second quarter 2010, or up $90,000 or 4.6% on a sequential basis. Retail Banking fee income was $4.3 million for the second quarter 2010, an increase of $374,000 or 9.6% over first quarter 2010.

Wealth management revenues from trust and brokerage fees improved by $79,000 to $1.3 million for the second quarter 2010. This was up by 6.6% when compared to the $1.2 million realized first quarter 2010.

Before leaving the topic of noninterest income, I want to share with you the news that we have hired a new Director of Wealth Management. This individual has a proven track record of new business development. More detail on this new Director of Wealth Management can be seen on the posted press release. The hiring of this individual is critical for us to grow this wealth management line of business and as another example of our continuing commitment to continually look to retain and recruit all the best talent available to us. With this new leadership, we look for further growth in the wealth management area to help offset some of the losses of fee income and other banking areas.

Let's discuss assess quality trends. On the positive, past due loans between 30 and 89 days totaled $41.4 million at June 30 or down $17.8 million or 30.1% compared to $59.3 million at March 31, 2010. While this is favorable, we did have some migration to non-performing assets. Non-performing loans increased by $4.9 million to a total of $64.1 million, or an 8.3% increase when compared to $59.2 million first quarter 2010.

Second quarter 2010’s increase in NPL reserves – reverses – excuse me – a steady decline in the level of NPLs from the previous two quarters. Second quarter 2010 is still favorable to one year ago this same time. We are down by $8.9 million or 12.2% from the $77.1 million at June 30, 2009. Non-performing assets for the second quarter 2010 stood at $70.6 million, up from March 31, 2010’s total of $62 million or an $8.5 million increase. June 2009 NPAs stood at $77.1 million.

Foreclosed assets increased to $6 million, the highest level for us in well over a year. Roughly $4 million of this increase was one development loan located in the Christiansburg area that quickly moved to OREO from NPL as a deed-in-lieu. We spoke of this credit last earnings call and the fact that it would be going to OREO rather quickly. We feel positive about the resolution of this credit due to the maturity of the development, its quality, location and available amenities.

Of the total of nonaccrual loans of $64 million at June 30, 2010, approximately $30.7 million are residential development and construction loans, of which approximately $13.8 million are located at Smith Mountain Lake, Virginia, of which we have often spoke. The non-performing loans at Smith Mountain Lake are down $2.4 million from first quarter 2010, with an additional reduction of another $3 million coming at the end of this month from foreign purchase contracts. Unfortunately, we could not get these closed by June 30, 2010.

As of June 30, 2010, total real estate exposure at Smith Mountain Lake has now been reduced to under $30 million from a peak level of over $50 million at merger consummation in 2008. Our TDRs continue to grow, being primarily driven by our residential mortgage modification program. I would say approximately 80% of the TDRs are residential modifications and they are performing well with roughly only a 10% redefault rate.

A couple of final points; as to our recent shelf filing and TARP repayment plans, our comments are that we continue to have active discussion between the Board and Management relative to this topic. I would expect that a final position would be decided by our next earnings call. StellarOne's earnings picture largely hinges on our ability to reduce loan provisioning from our current levels.

I make the following conditional statement excluding any other significant economic shock, we continue to believe that the unfolding quarters may bring with them some moderating of new NPLs and a reduced level of current non-accruals. Our ability to reduce current levels of NPAs has been improved as we are now better staffed to effectively work through our trouble credit list.

If the near-term outlook continues to be favorable, we will continue to use auctions to move more properties. This could easily result in an overall reduction of NPAs by the end of third quarter, again if conditions remain stable to improving.

I conclude my prepared comments now and would ask Jeff Farrar to provide us further detail.

Jeffrey Farrar

Thank you, Ed, and good morning everyone. Thank you for joining us today. I have several topics I would like to cover today and we will start with some additional color on the revenue growth that we experienced for the quarter.

We continue to see some reduced funding costs that drove some margin improvements and supported some pretty decently revenue growth for the quarter. Our growth in net interest income amounts to just over $700,000 sequentially and $1.3 million compared to the same quarter prior year.

In addition, non-interest income or revenues showed solid improvement, up $624,000 compared to first quarter and up $269,000 compared to the same quarter prior year. Our retail, mortgage and wealth management lines of business all experienced improved growth rates and topline revenue for the period, which is encouraging.

Mortgage revenues and profitability were impacted by approximately $539,000 resulting from indemnification losses that were recorded through loss on sale of OREO in the second quarter. But the segment still reported earnings of $132,000 for the quarter and $475,000 for the six-month period. Wealth management reported earnings of $217,000 for the quarter and $360,000 for the six-month period on the strength of some improved pricing.

As discussed in last quarter's call, we continue to get some improvement in the cost of liabilities associated with our CD repricing with about 25% of the total portfolio repricing during the quarter; in addition, we experienced the anticipated improvement in cost of funds associated with our money market and interest checking accounts, which coupled with the CD repricing resulted in a 19 basis point reduction in funding costs for the period. We have another $196 million of CDs repricing in the third quarter with a blended rate of 255. So with current pricing at around 125 on average, we would expect some continued lift here.

We also conducted a $15 million bond portfolio reinvestment during the quarter to absorb some excess liquidity in the balance sheet, which resulted in a weighted-average yield on the purchase of just over 3.5%, with most of those funds coming out of Fed funds at roughly 25 basis points.

Margin expectations for the remainder of the year continue to be some modest expansion, and we feel pretty good that we can get some additional lift for the remainder of the year.

A few points on asset quality, some of this Ed has already covered, but I would like to point out that we are encouraged with the pipeline of pending NPA liquidation with over $13 million under contract to fund in the third quarter. While we are certainly encouraged with the drop in past dues, we are also not ready to declare a trend. There is still much volatility out there. We do want to acknowledge a yeoman’s job on the part our lenders, credit risk management and workout teams during the quarter as they managed these challenged credits and past dues.

We are making progress in reducing exposure at Smith Mountain Lake with gross exposure, as Ed mentioned, now approximately $30 million. Ed noted also the reduction in NPLs sequentially and we do have another $3 million under contract expecting to fund in third quarter. We are cautiously optimistic that provisioning levels and reserve build are at or near peak, and think we stand a good chance of seeing some improvement in the short-term.

Let’s switch to overhead or non-interest expense. We again experienced little growth in the level of overhead on a linked quarter basis and saw a solid improvement of the level of overhead as compared to the same quarter of 2009. Primary drivers for the increase on a linked quarter basis included $213,000 in increased FDIC insurance costs, $166,000 increase in marketing costs and another $66,000 increase in professional fees primarily associated with workouts.

These increases were somewhat offset by a $214,000 decrease in compensation costs and $139,000 decrease in occupancy costs. Our efficiency ratio for the period came in at 69.35%, which is 288 basis points better than the first quarter of 2010 and over 800 basis points better than the same quarter prior year. The improvement was driven primarily by improved revenue growth as well as some good cost containment.

Overhead as a percentage of average assets came in at just over 3% and continues to be impacted by the level of professional fees associated with these workouts as well as the elevated FDIC insurance.

A few comments on the balance sheet, despite the economic challenges capital levels remain well and strong. Tier 1 risk-based capital came in at 13.95%. If we exclude our TARP investment, this ratio still represents a healthy 12.67%. Tangible common equity was 9.57% at quarter end and tangible book value per common share was at $12.06.

We had some contraction in the balance sheet for the quarter with average loans down 1.6% and average deposits down $10 million or less than 1% linked quarter. Average deposits amounted to $2.41 billion for the quarter. Average securities grew to $372.9 million for the quarter and finished the quarter at $413.1 million.

Cash and cash equivalents at quarter end amounted to $126.3 million, and that's down $39.1 million from the first quarter.

That concludes my prepared remarks, and I will now turn it back over to Linda for the Q&A discussion.

Linda Caldwell

Thank you, gentlemen. Now we will move to the question-and-answer portion of the conference call. And at this time, I will ask our operator Jonathan to open the call for your questions. Jonathan?

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from Allan Bach from Davenport & Company. Your question please.

Allan Bach – Davenport & Company

Hi, good morning, Ed and Jeff.

Ed Barham

Good morning.

Jeffrey Farrar

Good morning.

Allan Bach – Davenport & Company

I was wondering – I saw the non-owner-occupied balance was up sequentially, albeit slightly. Could you talk to that topic a little bit?

Ed Barham

Certainly. In terms of specific –

Allan Bach – Davenport & Company

Sure. I guess a lot of the other loan portfolios are sort of in run off a little bit, and [inaudible] that portfolio, you guys have seen an increase. And I just – was that more of a function of demand, or are you guys just seeing some good opportunities there?

Ed Barham

I would tell you it’s nothing more than good opportunities. We are not looking at anything unless it skews upon Stellar and so I can assure you that’s what it is.

Allan Bach – Davenport & Company

Okay. Fair enough. Thank you.

Operator

Thank you. Our next question comes from the line of Steve Moss from Janney Montgomery. Your question please.

Steve Moss – Janney Montgomery Scott

Hi, good morning guys.

Ed Barham

Good morning.

Jeffrey Farrar

Good morning.

Steve Moss – Janney Montgomery Scott

Just a couple things. I guess one with regard to – it looks like there is a little bit more of a mortgage repurchase reserve during the quarter. A little color around that, and if there are any – if there is a pipeline of repurchase reserve requests that may be coming.

Ed Barham

Yes, Steve. It’s Ed. As I am sure you’ve heard from other, there is certainly an elevation of indemnification claims coming through in the secondary mortgage arena, on both traditional retail secondary as well as wholesale. We started reserving in the second quarter for us in claims that were coming in and have a process in place where we evaluate whether or not we think we have a position or not, assign probabilities and then assign loss reserves accordingly.

We got in aggregate between $3 million and $4 million that we are working in that regard. We have a current reserve on the books of about $680,000 for that portfolio. I would expect to see some additional losses come through. We feel like we’ve gotten reserved adequately for what we know right now. But I would anticipate that we would receive additional claims and would have some additional losses associated with that.

Steve Moss – Janney Montgomery Scott

What are the loss rates that you're seeing with regard to the stuff that is coming in?

Ed Barham

It’s all over the place. We had, I think, one claim that we actually paid in the second quarter and it was an $89,000 claim on roughly a $250,000 loan. So that kind of gives you a sense of the mark. You typically – you have a case where typically the buyer will have already worked through a foreclosure and sold it off. So you have that shortfall. You also potentially have the shortfalls on un-accrued or uncollected interest, settlement costs, what have you. So it tends to run fairly steep.

Steve Moss – Janney Montgomery Scott

Then I guess just generally, you mentioned you guys are conducting frequent auctions here. It sounds like there is a gain in a fair amount of interest with regard to the auctions. What are you seeing in terms of general economic activity and resolutions?

Ed Barham

Improved scenario, in particular at the Smith Mountain Lake area, which again, we’ve spoken to frequently in past calls as being sort of our ground zero as far as troubled loans. We've seen a marked improvement in that market, not only in terms of auctions we've held but other banks as well. So I guess we’ve kind of hit a point of capitulation there where prices and purchases are kind of net at a good place now. And so we are encouraged by what’s occurred over the last 60 days, and I think the remaining sales season we hope to see the same.

Steve Moss – Janney Montgomery Scott

Okay. Thank you very much.

Ed Barham

You are welcome.

Operator

Thank you. Our next question comes from the line of Avi Barak from Sandler O'Neill. Your question please.

Avi Barak – Sandler O'Neill & Partners

Good morning, guys.

Ed Barham

Hi, Avi. Good morning.

Avi Barak – Sandler O'Neill & Partners

Quick question for you on the TDR portfolio. Just hoping you could give us a little more detail – for example, how many loans are on TDR, who is eligible for TDR, what your policy is for when you put it back on performing status. And sort of a caveat to that, have you gotten any feedback from the regulators or guidance from the regulators on TDRs just in general?

Ed Barham

Avi, first of all let me tell you we tend not to give on the rate as much as we do in extension of terms to make the credit work for the borrower and to help them out. By doing that we are able to allow the TDR – residential TDR, I am talking about, to perform over a period of time, and I believe, Jeff, is it a year or –?

Jeffrey Farrar

Six months. You got to pass a calendar year end to pull it out. That’s a regulatory requirement.

Ed Barham

So that calendar-year end passage if they perform then we’d look to see some of that move out, and as I said in earlier comments roughly about 10% of that is having some problems. So based on what we’ve seen on other mortgage modification programs it’s been – we’ve had a good program here, very successful program and we are pleased with it. I don’t have the number of TDRs off the top of my head, unless you remember it Jeff. Jeff says he might know it here.

Jeffrey Farrar

Yes, let me – I feel like make couple points. First of all, Avi, I would tell you we’ve got a pretty formal process in place to evaluate TDRs. Any loan that comes up for negotiation where the borrower is under duress is forced to our Finance group, whereby we scrub the TDR conclusion, if you will, relative to whether or not we are charging a market rate, whether or not the borrowing cost for the borrower is going to be improved under the proposed terms. And so we assess that outside of credit process, if you will, to determine TDR classification.

We’ve got up to six to eight relationships that are outside the mortgage arena that we’ve got on TDR classification on right now. We did have some uptick in the second quarter. We had, one that comes to mind was a case where we had borrower owned interest only and we were going to extend the interest only period which in effect through it into a TDR because his borrowing cost improved enough, if you will, to warrant TDR classification.

So and that’s in a nutshell kind of the process we go through. We had set in this time last year and we got an early introduction to kind of where their heads where on TDRs. And so we’ve been on top of it for an extended period of time now.

Avi Barak – Sandler O'Neill & Partners

Okay. That's very helpful. I appreciate it. And then just switching gears quickly, could you give us an update on your progress implementing Reg E and the new overdraft policies? What kind of opt-in rates are you seeing? Are you targeting the heavy users of the product or just your entire customer base? Any color there would be appreciated.

Ed Barham

We have roughly 25% as of this date of all mailing who have opted in. But I think the more significant is the high use overdraft customers, and that number is north of 40%. I can’t really give you the exact number, but last time I looked, which was a week or so ago, is 39%, and we continued to work those.

Jeffrey Farrar

We're getting ready to do a second mailing as well. We also have our call center actively working on the customer base. So I think we are cautiously optimistic here that we are going to minimize the impact, if you will.

Ed Barham

Unfortunately, I think the really final number won’t be known until everything is out there and people are beginning to experience the new opt-in or opt-out scenario, and the first time they go to an ATM and are denied or their purchase, we are going to get some more opt-in activity.

Avi Barak – Sandler O'Neill & Partners

Okay. Thanks so much.

Operator

(Operator instructions) Our next question comes from the line of Jennifer Demba from SunTrust Robinson. Your question please.

Jennifer Demba – SunTrust Robinson Humphrey

Thank you. Do you have specific guidance as to what kind of service charge hit you think you are going to take from Reg E?

Ed Barham

Jennifer, we don’t. I am sorry.

Jennifer Demba – SunTrust Robinson Humphrey

Do you think a 10% sequential hit is reasonable?

Ed Barham

Yes, I would say so.

Jennifer Demba – SunTrust Robinson Humphrey

Okay. And a question on expenses, Ed. With the whole industry experiencing loan contraction or very slow demand, how do you think about your expense base going forward, if this environment of kind of low demand is protracted?

Ed Barham

Well, obviously, we keep an eye on that very closely and we will deal with it accordingly, Jennifer. I will tell you that we have all lines of business and departments on a profitability measurement now, which is out there on the desktop of the respective parties that need to see it. So we are very keen on making sure that we understand where we are covering expenses and getting a return for what we doing. That has translated as we’ve shared with you in past earnings calls that we closed or consolidated up to eight branches. That's a scenario that we continue to evaluate and it could likely be that we will see more facilities that we will look at consolidating or in fact closing at some point if the need arises.

Jennifer Demba – SunTrust Robinson Humphrey

Thank you.

Ed Barham

You are welcome.

Operator

Thank you. Our next question comes from the line of Michael Rose from Raymond James. Your question please.

Michael Rose – Raymond James Financial

Hi, good morning guys. How are you?

Ed Barham

Good morning.

Jeffrey Farrar

Good morning.

Michael Rose – Raymond James Financial

Ed, can you talk about your loan pipelines and utilization rates and how kind of some of your newer markets, like Fredericksburg or Richmond, kind of plays into your thought process over the next couple quarters?

Ed Barham

Well, we are putting emphasis into both of those markets, the Richmond/Fredericksburg market, and I would say the Roanoke market, all are really the strongest markets for us. And again, as we relayed to you in I think an earlier call, we've hired new commercial lenders, C&I lenders, into those markets. They're having good results.

In the Richmond market, we've added two new people. Our head of new wealth management actually, by the way, is going to be located in an office there. He is from in the Richmond market. Roanoke, we've hired new personnel. In Richmond, we are getting ready to ramp up a new marketing program and some new advertising and looking to increase staff there. We're interviewing as we speak for new personnel there.

So as to how that plays out, those markets are the markets we look to to get the lift. We are picking up here and there very good new pieces of business. I just sat down with a customer yesterday that we picked up a new $5 million piece of business in one of our smaller markets and that’s nice and those are always welcome.

But clearly, we are shrinking the portfolio relative to construction lending. We are down over a $100 million in that area in that category. We are really not actively going out and look to replace that. We are trying to, again, diversify and pick up a different mixture of loans. I will tell you the yield we are getting on what we are booking is better and we are getting more fees than we’ve seen in the past, even though we are not doing more real estate. So from a contribution aspect, commercial actually looks better than it did a year ago if you really looked at bottom line on a standalone basis even though the portfolio is down.

So that tells me that even though we’ve got this contraction going on we are doing all the right things and feel good about that.

Michael Rose – Raymond James Financial

Okay, that's helpful. And just switching gears a little bit, what are your current thoughts on acquisitions? It has been about two years, a little over two years since the MOE, and a lot of bank management teams have said recently that they expect M&A can actually pick up before people think. What are your current thoughts?

Ed Barham

Well, I think that we, first of all, want to get through our strategic planning session in September. We are and continue to have ongoing contact with prospective acquisition candidates. None of that has ever stopped. But right now, I think we’d all agree there is a little uncertainty and unknown out there. And we first want to deal with the TARP issue and get that cleared up so that we can move on with our plans. And our plans are to look at acquisitions and to continue to grow the company. So near terms, I can’t see anything happening really this year.

I don't have a crystal ball, but I would feel pretty confident that is likely not to happen. But I can certainly tell you I have never, in my 30 years, seen so much conversation going on right now between bankers with all the new financial Reg that’s coming out. There is a lot of banks that have realized – and the economic situation we are in – that a lot of banks are just getting fatigued and worn out from the battle. And so there's going to be a lot of activity I predict over the next 18 months, 24 months and probably some of the highest, in my opinion, of M&A activity we've seen in some years.

Michael Rose – Raymond James Financial

Okay, thanks. Tell Jack I say hi.

Ed Barham

All right. Hi, thank you. We will do it.

Operator

Thank you. Our next question comes from the line of Carter Bundy from Stifel Nicolaus. Your question please.

Carter Bundy – Stifel Nicolaus

Good morning, everyone.

Ed Barham

Hi, good morning.

Jeffrey Farrar

Good morning.

Carter Bundy – Stifel Nicolaus

Ed and Jeff, just sort of trying to get some color on the shelf that you have out there right now. You've got a $60 million shelf, you got $30 million of TARP. It sounds like you are having pretty regular discussions at the Board level in terms of repaying it. It sounds like the decision might not come until 3Q. Given where you are running on TCE and you're running the Parent and you're running the Bank right now, just trying to get some color on why the shelf is out there. And will you likely – I guess the next question would be is will you likely raise common to offset or to repay TARP dollar for dollar?

Ed Barham

Well, I think that remains yet to be determined, and the shelf filing is there merely for flexibility and to go ahead and make sure that we can act when there is time to react. Nothing more, nothing less and the SEC has reviewed it. We are good and we are ready to roll and so it’s just good planning.

Carter Bundy – Stifel Nicolaus

Okay, so it would be more for an acquisition opportunity, or is this more for TARP repayment? I guess just where you are running on capital levels – and I know you all historically are very conservative, which has been wonderful in today's environment – but you're running a lot of capital. The balance sheet is not expanding meaningfully and it is not expected to anytime soon. So just trying to understand why you would have to raise dollar for dollar to repay TARP. Or is that not really the internal discussion?

Ed Barham

That’s part of the discussion, but there is no decision been made on how that works and the other half of that question has to be answered by the regulators themselves. It is not a unilateral discussion. If you are believing that that is a unilateral discussion or a one-way discussion I am here to give you a bit of information today. It’s not a one-way discussion. So that – it is a balancing act, and that is really what we are into here, and trying to figure out the right balance and the best balance from a shareholder perspective as well as our balance sheet perspective. And you are right, we are not growing the company nearly where we need to be. We need to leverage it and so I think that goes back to the earlier question, we've got to do acquisitions to leverage this company up and move it forward.

Carter Bundy – Stifel Nicolaus

Ed, would it be fair to say that there is some pressure from regulators to repay TARP with a common raise?

Ed Barham

I don't know if pressure is the right word. I mean, you could sit here with TARP as long as you want and I guess – there is not really a black and white answer. It is a matter of each individual, as we’ve been told as we sit down and have individual conversions. There is no uniform answer here. There is a case by case situation.

Jeff Farrar

And I would say it is a topic.

Ed Barham

It is a topic.

Jeff Farrar

It’s certainly a topic.

Carter Bundy – Stifel Nicolaus

Okay. Well, thank you all very much.

Ed Barham

You are welcome.

Operator

(Operator instructions) I am not showing any further questions at this time.

Linda Caldwell

Jonathan, thank you for that. Everyone thank you for joining us and for your questions today. We appreciate your participation as always. And this concludes today’s teleconference.

Operator

Thank you. Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. You may now disconnect. Good day.

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