People's United Financial, Inc.
Q4 2011 Earnings Call Transcript

Published: 20 Jan 2012

[Operator:]

Good day, ladies and gentlemen, and welcome to the People's United Financial, Inc. Fourth Quarter Earnings Conference Call. My name is Carris, and I will be your cooperator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And I would now like to turn the presentation over to Mr. Peter Goulding, First Vice President of Corporate Development and Investor Relations for People's United Financial, Inc. Please proceed, sir.

[Peter Goulding:]

Good afternoon. And thank you for joining us today. Jack Barnes, President and Chief Executive Officer; Kirk Walters, our Chief Financial Officer; along with Jeff Hoyt, our Controller, are here with me to review our fourth quarter results. Before we get started, please remember to refer to our forward-looking statements on Slide 1 of our presentation, which is posted on our website, peoples.com, under Investor Relations. With that, I'll turn the call over to Jack.

[John P. Barnes:]

Thank you, Peter. Good afternoon, everyone. We appreciate you joining us today. Now is a good time of the year to reflect on the past year, as well as our goals for 2012. You will recall that throughout 2011, we have had 2 primary objectives

[Kirk W. Walters:]

Thank you. On Slide 4, we provide an overview of our fourth quarter results. For the quarter, operating earnings were $58.7 million, or $0.17 per share; with a net income of $43 million, or $0.12 per share. The net interest margin improved to 4.16% compared to 4.11% in the third quarter. The improvement in the reported level is the result of cost recovery income resulting from better-than-expected performance on certain acquired loans in the Bank of Smithtown portfolio. Operating net interest margin, excluding cost recovery income, was 4.07% for the quarter compared to 4.11% in the third quarter. Total loan growth including runoffs in the acquired portfolios amounted to 5% on an annualized basis, which was entirely funded by deposit growth. Deposit rates declined by another 6 basis points to 50 basis points in the quarter. The efficiency ratio for the quarter improved to 62.7% from 63.1% in the third quarter. Capital ratios remain strong. We continue to deploy capital through organic growth. The tangible equity ratio stands at 12% as of fourth quarter 2011. On Slide 5, we discuss recent revenue growth initiatives. We continue to focus on commercial lending growth given our strength throughout the financial crisis, our larger balance sheet, broad operational capabilities and our expansion into new markets. Our goal is to leverage our expanded footprint in both the Boston MSA and Long Island in order to build upon renewed commercial, residential mortgage and Home Equity momentum and drive asset-based lending. Another key to revenue growth will be the ability to leverage our broad fee income product set, which includes cash management, asset management, brokerage, insurance, merchant and payroll services. We are also actively redesigning our incentive plans to objectively reward cross-selling within and across division lines. On Slide 6, we move to an overview of recent expense initiatives. You'll see a clear emphasis on cost reduction. As we mentioned in October, we successfully completed the Danvers core system conversion in the fourth quarter, our fourth successful Core System conversion in 2011 and our sixth over the past 2 years. During the fourth quarter, we further rightsized our employee base following the 4 acquisitions we closed in 2010 and the Danvers transaction in 2011. The combined actions announced in the third and fourth quarter will result in compensation savings of $13 million in 2012, and over $15 million annualized as some of that savings will come later in the year. We continue to realign our branch network following the acquisitions of Butler, RiverBank, Smithtown and Danvers and the de novo success we've enjoyed in Westchester and Boston. We expect to consolidate approximately 15 branches during 2012, which will result in $4 million of operating expense savings and approximately $5 million annualized. But again, some of that savings coming later in the year. We are also actively working on real estate consolidation efforts to best utilize existing office space across the franchise. Further, we've identified IT contractor and other consultant savings of approximately $3 million in 2012. Lastly, we've identified another approximately $9 million of annual cost savings throughout the franchise. We strongly believe that these savings will not impede revenue growth. Everyone at People's United is focused on continued steady progress as we move forward with a constant goal of increasing our recurring operating income. On Slide 7, you can see a breakdown of the elements contributing to our 4.16% margin results for the quarter. As you'll recall, third quarter net interest margin was 4.11%. The effects of lower loan yields reduced the margin by 10 basis points. We picked up 9 basis points in the Bank of Smithtown cost recovery income and experienced the benefit of 6 basis points as a result of lower deposit rates and the fourth quarter benefit from the payoff of acquired FHLB advances, which occurred late in the third quarter. On Slide 8, you can see that our operating net interest margin declined slightly in the quarter as a result of a continued environment of low interest rates and pricing pressure in the market. The differences between reported margin and operating margin this quarter is due to the 9 basis points of cost recovery income associated with certain Bank of Smithtown acquired loans. Our strong margin is the product of our low-cost stable funding, good loan mix and solid capital levels, all of which means we do not need to stretch our credit. In addition, our margin is and will continue to be supported by $1.3 billion of accretable yield resulting from 5 acquisitions closed within the last 2 years. Let me provide you a little more detail on the next Slide. Slide 9 links closely with our discussion in the net interest margin. For the quarter, interest accretion on acquired loans total approximately $68 million, and the carrying amount of acquired loans at period end totaled $3.6 billion. As a reminder, the carrying amount of acquired loans is based on expected cash flows and reflects an inherent discount attributable to both the accretable yield and the nonaccretable difference. These expected cash flows are regularly reassessed as they were in this quarter for the Bank of Smithtown portfolio. Generally speaking, expected cash flows are impacted by the following

[John P. Barnes:]

Thank you, Kirk. On Slide 20, you can see our operating return on average assets for the fourth quarter was 86 basis points. As we've outlined, the primary reasons for the decline are reduced noninterest-related income and a larger average balance sheet. Clearly, the low rate environment is limiting the positive effect of our organic growth. In addition, regulatory reform is negatively impacting our fee income. However, we're making progress in offsetting lost fee income resulting from regulatory reform, and expect to make up a majority of the negative impact of financial reform during 2012 by accelerating growth of other fee income products. As we've outlined, we're undertaking a number of initiatives to rightsize our cost base, and believe we will reach our 125 basis point return on average asset target in 2014 assuming the current interest rate and economic environment. On Slide 21, we expect to see an increase in return on average tangible equity as we improve profitability and thoughtfully deploy capital. Our significant capital levels remain approximately 425 basis points above peers, which produces below industry return on average tangible equity. Normalizing our equity base shows that the core bank is performing well at 11% return on average tangible equity. On Slide 22, consistent with the outline of some of our financial targets, we expect to see our operating dividend payout ratio trend lower through 2012. On Slide 23, we have updated our capital ratios for both the holding company and the bank. Capital levels remain very strong with our tangible common equity ratio at 12% and our Tier 1 common ratio at 14.3%, which compares well to our peers at 7.7% and 11% as of the third quarter, respectively. Slide 24 summarizes -- 2011 illustrates the power of our sustainable competitive advantage. Despite the low growth, low rate environment and increased regulatory headwinds, we delivered return on average asset improvement that is likely to be in the top quartile of our peers. It is our outstanding people and platform and the related momentum, which positions us so well for the quarters and years ahead. This concludes our presentation. Now we'll be happy to answer any questions you may have. Operator, we're ready for questions.

[Operator:]

[Operator Instructions] And your first question comes from the line of Damon DelMonte with KBW.

[Damon Paul DelMonte:]

Kirk, I was wondering if you could talk a little bit about the increase in the securities portfolio. I just saw balances went up quarter-over-quarter.

[Kirk W. Walters:]

Yes, they did. During the quarter, we did put on a little over $500 million in some relatively short CMOs. With the expectation of rates continuing to be down here in the near future, we chose to put a little bit of money to work. But these are short CMOs, average life, of around 2 years based off of a 10-year paper.

[Damon Paul DelMonte:]

Okay. What kind of yields are we getting on that?

[Kirk W. Walters:]

They were around 1.25 to 1.30, somewhere in that range.

[Damon Paul DelMonte:]

Okay. And can we expect you to employ the same strategy in the upcoming quarter?

[Kirk W. Walters:]

I don't expect that we will see the securities portfolio move up much from here. We're fortunate to have had, and continue to have, good prospects for strong loan growth. And depending on deposit growth, we expect some of that cash may get put to work in our -- funding some of our loans.

[Damon Paul DelMonte:]

Okay. And then with respect to the margin, if we exclude the 9 basis point impact starting off at about 4.07% level, can you give a little outlook for what you're expecting this coming quarter?

[Kirk W. Walters:]

We haven't given any outlook quarter by quarter. What we have given is an outlook that we expected, which we gave last quarter and reaffirming this quarter, that we expect that we will remain above 4% or close to 4% through the first half of the year, and then we'll dip slightly below that as we get into the second half of the year.

[Damon Paul DelMonte:]

Okay, great. And then just lastly, did you buy back any stock this quarter?

[Kirk W. Walters:]

In terms of the quarter itself, we did not buy back any stock.

[Damon Paul DelMonte:]

Okay. And what are your thoughts on reengaging in the buyback on the coming quarter?

[Kirk W. Walters:]

Well, the -- we never really say when we are in buying stock or not in buying stock. As you know, we have an existing authorization out there for a 5% stock buyback. We were quite active in the third quarter in terms of buying in shares. And so it's an evaluation of various levers that we pull as we go forward. It was certainly one we utilized in the third quarter. And as I mentioned, we have an existing authorization out there.

[Operator:]

And your next question comes from the line of Collyn Gilbert with Stifel, Nicolaus.

[Collyn Bement Gilbert:]

Just in terms of the loan growth, Kirk, you just said that the prospects were strong in loan growth. And Jack, you had sort of referenced mid-single to low double-digit loans. Can you just talk about where you're seeing that growth and kind of drill down a little bit more into the specifics of that in terms of loan size and just kind of where you see the opportunities there?

[John P. Barnes:]

Well, we really -- at this point, we've been seeing the loan growth in a very balanced way. I think we described the various growth rates in C&I, commercial real estate, and in the residential areas in particular. And as you drill into those activities, whether it's by business line or geography, we're really making some steady headway on all fronts, which we're very pleased with. I would say in terms of your piece of your question about loan size, again, very consistent with our history. We are very active in the middle-market lending but also have a strong business banking, small business lending program, which is also very active. And we've actually been putting a lot of effort into strengthening that program. Very promising pace in the Boston area, very nice progress in Maine. We've taken on some new personnel there that have done a great job for us. And some steady progress, less pace but steady progress as we get familiar with Long Island and that new market as well. So pretty nice balance across the front.

[Collyn Bement Gilbert:]

Okay, that's great. And then just on the initiative that you guys have on the fee side to help to offset the Durbin pressure. I know, Jack, you said you'd expect that kind of to come through to 2012. Will we see the effects of that starting as soon as the second quarter?

[John P. Barnes:]

Yes. We would like to think that you absolutely will. I think there are some things kind of in motion. We mentioned there that we think we've offset 20% already, and some of that, I think, depends on basic activity in accounts. And we are growing our -- the number of our accounts. And aside of that, then, we're really strongly pushing a cross-sell effort, both kind of management effort, employee direction and incentive program comp modification, to get everybody very focused in making progress across all of our fee businesses. We've demonstrated nicely throughout the last year, but these things, once you get momentum, it makes a great deal of difference in people's confidence. And we've landed some nice business that is beginning to show that the emphasis is paying off. And that's where we get our projection, if you will.

[Collyn Bement Gilbert:]

Okay, that's great. And then just finally, on the M&A comment. Maybe could you just run through what type of institution would be an appropriate target for you guys? Or what you'd be looking for as it relates to supplementing the growth with M&A?

[John P. Barnes:]

Well, I mean, I think we've historically said we -- I think everybody's familiar with our comments about our market and expanding within our geography and adjacent to our geography, so I would start there. We remain focused in that manner. We have historically expressed and continue to feel strongly that commercially oriented banks are a nice match for us, but we do not exclude thrifts by any measure, and just a different type of undertaking. And we want to be opportunistic where we continue to be open to the idea that it may be a large transaction that is now in front of us, and we'll be opportunistic in terms of responding to that kind of opportunity, or it may be a smaller transaction that we think is a good strategic fit in that broader outline I just gave you. And we're certainly continuing to feel that those -- the acquisitions we've undertaken have been very beneficial, and the future ones can be as well.

[Operator:]

And your next question comes from the line of Ken Zerbe with Morgan Stanley.

[Ken A. Zerbe:]

Obviously, I heard the answer that you did not buy back stock in the fourth quarter. But I guess my first question is why? Is it -- I mean, was the stock price too high? I mean, are you saving it for M&A? What kind -- what was the thought process for not buying back stock?

[Kirk W. Walters:]

Ken, we never have commented in detail on the specifics of what we go into when we're buying stock or not. We have been clear that it is one of the levers that we expect on a -- to pull on a go-forward basis, that we were very active in the third quarter and that we have an existing authorization out there and expect it to be one of the activities that we'll continue to do as we go forward in managing our capital.

[Ken A. Zerbe:]

All right. I guess I was just hoping to share the rationale, not whether or not you're buying, but that's fine. The other question, Kirk, when you recently came into the bank not so long ago, you identified a lot of expense-saving opportunities. And I do see the improvement in the efficiency ratio over the last several quarters. But is there -- can you just comment about over -- or since you joined, do you still see the same magnitude of expense saves, more or less? And kind of where should we be thinking about the expense ratio over, say, the next 12 months?

[Kirk W. Walters:]

Well, I think we gave quite a lot of detail in my commentary in terms of the expense initiatives that we embarked on this quarter. As you know, we've been, I think, pretty good at giving you some detail every quarter about where we're heading. Obviously, we now have a stated goal, as Jack mentioned, getting the overall expense level down to a total between $790 million and $810 million. If you think about where our run rate was in the third quarter, which included a full quarter of Danvers, it was about $210 million or it would've been $840 million for the year. So coming down within that run rate, it was a pretty significant reduction while still growing many, many revenue lines and not impacting the revenue growth. So we are doing what we outlined earlier, which is we're very carefully and thoughtfully managing the expense base down with the goal of getting to a 55% efficiency ratio by mid-2013.

[Operator:]

[Operator Instructions] And your next question comes from line of Matthew Kelley with Sterne Agee.

[Matthew Brandon Kelley:]

Just talking about the margin, if you look at the $68 million of accretion, you back out the $3.6 million of total carrying costs. I mean, the acquired assets are adding roughly 60 basis points to the margin. As we track towards that 125 basis point ROA target, how will that benefit decline over time? I mean, is it more gradual and linear? Or will it be lumpy along the way? How should we be thinking about the decline in that benefit from the acquired assets on your margin?

[Kirk W. Walters:]

The way that we have described that in the past and I think is the same, and we have as you look at sort of what we would refer to as a normalized or margin originated assets and liabilities we have. But that has tended to hover around at 360. So your 60 is close, probably a little less than that, but is close. And that's if you took out all the acquired loans and deposits as if we did no acquisitions. And if you think about the $1.3 billion in accretion that we have to bring in overtime, we don't give an actual estimated life for that, but we do give you what we brought in this quarter. And so that you can make the assumptions with the other information. I think what's important to consider is if you look at the entities we've acquired, with the exception of Fin Fed, they are largely banks that have assets that you're quite familiar with in terms of life. And I think the long and short of it is that we know we may not have the accretion forever, but it's not going away that quickly either.

[Matthew Brandon Kelley:]

Okay, okay. One quick one, were you restricted at all during the quarter on your ability to buy back shares?

[Kirk W. Walters:]

Well, as other questions came in, we don't comment on why, or why we don't buy back shares during the quarter. We were very active in the third quarter. We have an outstanding authorization out there, and we intend for it to be one of the levers that we'll utilize and manage in the capital as we proceed forward.

[Matthew Brandon Kelley:]

Okay. And then last question. Could you just talk about just kind of your view of the M&A market? What you've been seeing and hearing for discussions just over the last quarter versus what you were seeing come across your desk, and what bankers were showing you over the summer and early fall and your outlook for transactions based on this and that activity. Not for you in particular, but just for the market in general.

[John P. Barnes:]

So this is Jack. I think I would characterize that, that I would say the level of relationship building that we have been doing has been pretty consistent and active through the time period. So our behavior, if you will, has been steady and consistent. The level of opportunities that seem to be discussed in the market does seem to be ticking up a little bit. We -- when we discuss it, we think that the fatigue factor that we reference in our comments is showing up, intensifying. Because of the headwinds that we're talking about, it certainly is a difficult environment to operate in. If you don't have new opportunities, new markets, new businesses that you're working, it can get very challenging. So I would say the pace, if you will, and the level of activity is more active.

[Operator:]

And your next question comes from the line of David Darst with Guggenheim Partners.

[David Darst:]

The $840 million that you referenced for the cost base with Danvers, is that including the originally expected cost saves? And the $800 million that you're talking about now for the expense base, is that above and beyond the original assumptions?

[Kirk W. Walters:]

The number that we gave was what we incurred in the third quarter, which was roughly $210 million in terms of where that run rate was at that point. In terms of our overall operating expenses, that included some level of Danvers expenses. And we've taken out some more as we went into the fourth quarter. And then, there'll be a little bit more that we'll see come through in the first quarter.

[David Darst:]

Okay. Are you getting more than you originally anticipated?

[Kirk W. Walters:]

Yes, I think we're getting a bit more in Danvers than what we originally thought we would. And probably the other note just to think about when you think about the number we reported this quarter, the $207 million, we did indicate that we thought the run rate was closer to $205 million for the quarter, and the primary difference was the impact of what we had to pay on the Visa litigation.

[David Darst:]

Okay. And then looking at the decline in the carrying amount and the remaining nonaccretable difference from the third quarter to this quarter for Smithtown, any additional color there? And did you see greater than expected paydowns in that portfolio?

[Kirk W. Walters:]

Yes. We went through the reassessment of the Bank of Smithtown, and obviously on these acquired portfolios we do it at least annually. And the major items that impacted that was the individually accounted for loans. I think I gave in my commentary a fair amount of detail that within Bank of Smithtown we had 6 pools, but we had 147 individually accounted for loans that totaled a balance of $131 million. And as we went through the reassessment and such, those loans have now been either sold, settled, paid off, et cetera, and are down to under $40 million. So we had a pretty significant reduction in that, which did impact the overall levels of accretable and nonaccretable discount.

[David Darst:]

Okay. And those -- that $131 million was all in the fourth quarter?

[Kirk W. Walters:]

No. The $131 million occurred over the year, but the reassessment was in the -- I mean the $131 million was the beginning number for the individually accounted for loans. It's down to $40 million by the end of the year. That drop of $91 million occurred throughout the year, and the reassessment was done in the fourth quarter. So as you saw throughout the year, we recorded some gains in sales of loans in the first and second quarter, recorded some losses in sales of loans. We had a number of pieces of activity going in different directions.

[Operator:]

And your next question comes from the line of Mark Fitzgibbon with Sandler O'Neill + Partners.

[Mark T. Fitzgibbon:]

It looks like from the average balance sheet, the commercial real estate yields rose by 16 basis points in the quarter. Was that a function of the Smithtown recovery?

[Kirk W. Walters:]

It was, it was. That's where the bulk of the cost recovery income that we described on loans that got settled for more than we thought, that's where that went through.

[Mark T. Fitzgibbon:]

Okay. And then just to follow up on a comment that Jack made earlier about the dividend payout. I know that you said in your prepared remarks that the payout ratio should come down in coming quarters, but it's still fairly high. Do you worry that the regulators could force you to cut that? And what gives you confidence that they won't?

[John P. Barnes:]

Well, we think, and hopefully you folks can see, that with our momentum, we believe that, that will continue and that the ratio will come down. As I think I've said in the past on these calls, I think I'm going to speak for our regulators. We continue to communicate with our regulators on a very regular basis, and we're very pleased with that communication. But the last thing we'll do is predict positions regulators would take now or in the future.

[Mark T. Fitzgibbon:]

Okay. And then lastly on the acquisition, just to follow up on earlier questions. Are you finding that seller expectations are starting to become more rational? And you've obviously done a bunch of deals recently, both clean institutions and troubled institutions. Which ones have worked generally better, would you say, for people?

[John P. Barnes:]

Well, I think on the last part, it's a great example that -- I think that we feel great about the clean ones, if you will, but also very good about Long Island and the way we're working through the Bank of Smithtown. I think the pace that Kirk described and working through the original problems is telling of our execution there. And for a good price, we got a very nice deposit franchise that we're working very effectively. The folks on the ground in Long Island have growing deposits. They're responding extremely well to training. And we're starting to produce both commercial and consumer loans. So each is different, and we think it's really a matter of doing the business assessment and then executing on the plan, much more than whether it's a troubled bank or not.

[Operator:]

And your next question comes from the line of Mike Turner with Compass Point.

[Michael Turner:]

Could you talk a little bit about the increase in NPLs quarter-over-quarter? I mean, it doesn't seem to be on a dollar basis, huge, but it does seem kind of broad based.

[John P. Barnes:]

Actually, when you look at the increase quarter-over-quarter on the NPLs, it was in our commercial portfolios. If you look at that, I think I noted in my commentary that of the increase of a little over $30 million, $25 million related to 2 credits. They were credits that we've been watching, working closely with, did in fact go to nonaccrual. But I think we are, at this point, operating with such a relatively low level of NPAs that we see this bumping around a little bit quarter-to-quarter. You might recollect in the second quarter that little bump up with one particular credit and it came down in the third. We sort of bumped up here. And probably underlying all of this is that we have a high level of comfort with our portfolios and knowing what credits we should be concerned about and are very concerned about, and neither of these were a surprise to us.

[Michael Turner:]

Okay, thanks. And then also on your residential mortgage portfolio growth. Can you maybe break up the types of loans or categorize what your balance sheeting is? Is there maybe a large...

[John P. Barnes:]

Sure. And that's just something that we -- I highlighted in my commentary as well. But 95% of what we booked were hybrid loans, 3/1s, 5/1s, 7/1s and 10/1s. Average loan size is about 616,000 in terms of what is booked into the portfolio, and certainly with very high FICOs and excellent LTVs.

[Operator:]

And your next question comes from Mac Hodgson with SunTrust Robinson Humphrey.

[Michael Young:]

This is Michael Young in for Mac. I just had a couple of quick questions, one question on NIM and one on the Dodd-Frank impact. On the NIM, we see a 4-point kind of core, if you will, compression this quarter. And I was just curious, obviously, if that trend holds for the next 2 quarters, you'd stay roughly above 4. But then going forward beyond that, would you expect that trend to sort of continue? Or will you run out of kind of the funding mix weather?

[John P. Barnes:]

I think as we have given the guidance before, we expected to stay above or around 4 up through the first 6 months and then come slightly under in the latter part of the year. One of the factors that's important in that is that about 20% of our deposits are from acquired institutions. And the cost of those deposits is still a little over 1%. So as we continue to ratchet those down, as well as our other deposits and some of the deposit initiatives that we mentioned in my commentary in the commercial arena that's coming in at rates lower than our overall cost of funds, I think we still have opportunities. It gets harder, without a doubt, and that's one of the reasons that we're saying that we may not be able to keep up, but we're working real hard to minimize it.

[Michael Young:]

Okay. And then also just had one clarification. The $5 million of reduced interest income this quarter from Dodd-Frank, did that include the 20% offset? Or was that x the 20% offset? Will the 20% offset, in effect, be seen in 1Q?

[John P. Barnes:]

So if I heard you right, it did not include the 20% offset. So it was a $5 million drop in the interchange fees related to our portfolio. We have made other changes, so the 20% refers to other changes we've made in a variety of ways within our bank service charges to offset that anticipated $5 million.

[Kirk W. Walters:]

And the $5 million is very consistent with our forecast of $20 million for the year, so...

[Operator:]

[Operator Instructions] And your next question comes from the line of Casey Haire with Jefferies.

[Casey Haire:]

So just to clarify, so the Dodd-Frank impact is interchanged only, correct? It's not Reg E or anything?

[John P. Barnes:]

So the $5 million reference is Durbin related. There are other impacts in Dodd-Frank, so as we're referring to the headwinds and the challenges, things like Reg E are included. I think, seems like going through last year, we described kind of how that gradually came through. But it is a variety of -- if you will, identified as well as -- in terms of -- when we talk about headwinds with Dodd-Frank, we're naturally also talking about anticipated impacts on the expense levels that will come from new regulations, some of which we're not totally clear on how it will impact us yet. But we are ramping up capacity to deal with things like that, for instance, in compliance and other areas, if that's helpful to put perspective on it.

[Kirk W. Walters:]

Casey, it's Kirk. Just to be clear. The $5 million you're referring to is just the interchange piece. But as Jack is indicating, embedded throughout other pieces of our fee income and such, we obviously have impacts greater than that from Reg E and different aspects of the Dodd-Frank bill.

[Casey Haire:]

Right. And I guess that's what I'm -- those identifiable -- that's the number I'm looking for that you're hoping to recapture, 50% up.

[Kirk W. Walters:]

I see, no, our reference of recapturing 40% to 60% was just in relation to the interchange.

[Casey Haire:]

Okay, got you. All right. So just to follow up. So I mean, assuming all goes well, I appreciate the clarity on the cost cuts, this will definitely put you closer to that 55% goal. That said, it is a little bit short. Do you guys expect, I mean, is the plan to let this run out and then hopefully get some M&A? And if you don't, is it possible to get there without M&A, I guess is my question, by the middle of 2013?

[Kirk W. Walters:]

Yes. I think we've been pretty clear in our discussions that we, to get that 55% efficiency ratio, we're not betting on M&A or interest rate moves, et cetera. So this is, what we have done, is every quarter we continue to report the new actions we've taken. I think this is another quarter with all the detail that I just gave you of a number of cost initiatives, all of which largely been enacted, or we know exactly when they're going to be enacted, which will continue to move us down closer to that 55% goal. And our expectation to get there is to continue to work very hard at maintaining and growing revenue and, at the same point, continue to crank down costs.

[Operator:]

And ladies and gentlemen, since there are no further questions in the queue, I'd now like to turn the call over to Mr. Goulding for closing remarks.

[Peter Goulding:]

Thank you for joining us today. We appreciate your interest. If you have any questions, as always, feel free to contact me at [phone].

[Operator:]

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.