Oct 23, 2012
Executives
Cindy Christopher – Manager, IR Vincent Delie, Jr. – President & CEO Gary Guerrieri –Chief Credit Officer Vincent Calabrese – CFO
Analysts
Tom Frick – FBR Capital Markets Damon DelMonte – KBW Mac Hodgson – SunTrust Robinson Humphrey Matthew Breese - Sterne Agee
Operator
Good day and welcome to the F.N.B. Corporation’s Third Quarter 2012 Earnings Conference Call.
At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session.
(Operator Instructions). As a reminder, today's conference is being recorded.
And now, I would like to turn the conference over to Cindy Christopher, Manager of Investor Relations for F.N.B. Corporation.
You may begin.
Cindy Christopher
Thank you and good morning everyone. Welcome to our third quarter of 2012 earnings call.
This conference call of F.N.B. Corporation and the reports that are filed with the Securities and Exchange Commission often contain forward-looking statements.
All forward-looking statements involve risks, uncertainties and contingencies that could cause F.N.B. Corporation's actual results to differ materially from historical or projected performance.
Please refer to the forward-looking statement disclosures contained in our third quarter of 2012 earnings release, related presentation materials and in our reports and registrations statements F.N.B. Corporation files with the Securities and Exchange Commission and available on our corporate website.
F.N.B. Corporation undertakes no obligation to revise these forward-looking statements to reflect events or circumstances after the date of this call.
I would now like to turn the call over to Vince Delie, President and Chief Executive Officer.
Vincent Delie, Jr.
Thank you, Cindy. Good morning everyone.
Welcome to our third-quarter earnings call. Joining me today on the call are Vince Calabrese, our Chief Financial Officer; and Gary Guerrieri, our Chief Credit Officer.
I will be highlighting -- I will be discussing highlights of our third quarter financial results and the strategic rationale behind the acquisition of Annapolis Bancorp. Gary will then discuss our asset quality and Vince will provide a detailed review of the operating results and our outlook for the last quarter of the year.
The third quarter was another great quarter for F.N.B. We delivered strong performance through our continued ability to generate sustained loan and deposit growth while managing risk and expense.
Net income was $31 million or $0.22 per diluted share. This represents a 16% increase in earnings per share over the prior year period.
Return on average tangible assets was 115 basis points which also compares favorably to the year ago period. Additionally revenue growth, excluding the benefit of accretable yield was 4% annualized, consistent with the 4% growth we saw last quarter.
The net interest margin was 3.7%, in line with our previous guidance. Vince will provide details and guidance for the next quarter in his remarks.
We are pleased to see continued progress in the efficiency ratio as we closely manage expenses and fully realize cost savings from the Parkvale acquisition. The third quarter’s level 56.8% is on target with our expectation and has been trending downward through to 2012.
Again this metric shows year-over-year improvement. Looking at loan and deposit results, our portfolios further expanded through strong organic growth in loans, transaction deposits and customer repurchase agreements.
Total average loan growth equalled to $135 million or 7% annualized when excluding the Florida portfolio and reflects growth in both our core commercial and consumer portfolios. Our core Pennsylvania commercial portfolio grew nearly 9% annualized and continued to be the primary growth engine accounting for 68% of the current quarter’s average growth.
We are seeing positive results and market share gains across our footprint and we continue to add new client relationships. Year to date significant new commercial relationship growth is 12% higher than last year at this time.
This growth only includes significant middle market relationship that meets specific revenue threshold. Our small business unit has also had great success this year.
Through the end of September, small business production is 16% higher than 2011’s full year production. This middle market and small business relationships will continue to benefit us in the future through additional revenue opportunities as the economy improves when we begin to see an increase in line utilization.
The consumer portfolio experienced an excellent quarter with 12% annualized. Production was strong and the pipeline is at a record high going into the fourth quarter.
If you look at slide 6, you can see these positive loan growth trends. It’s worth noting that we have achieved 13 consecutive quarters of total organic loan growth even with the planned declines in the Florida portfolio and the acceleration of prepayment speed in our residential mortgage portfolio.
Despite these factors we continue to generate meaningful growth. For the third quarter loan growth net of this portfolio reduction was nearly 10% annualized.
We believe that the quality and consistency of our earnings is a differentiating factor as demonstrated by our positive pre-provision net revenue trend. Year to date this measure has increased 21% over the prior year on a net revenue basis and 9% on an earnings per share basis.
In addition to our third quarter earnings, we are pleased to have announced the acquisition of Annapolis Bancorp. Annapolis Bancorp is a well-respected bank with eight branches based in Annapolis, Maryland.
We expect the deal to be highly accretive on a marginal basis given its overall size relative to F.N.B.’ s total asset base.
It should be slightly accretive to operating earnings per share. What we gained from this transaction is an attractive entry point in a market characterized with very favorable demographics and long-term growth potential.
Prospects for retail and commercial growth are strong and the relative proximity to the DC and Baltimore areas present further opportunity for our corporate banking groups, asset based lending team, leasing and our wealth platform. There are over 35,000 commercial prospects with revenue exceeding $1 million located within a 50 mile radius of Annapolis Bancorp’s headquarters.
In addition, Annapolis Bancorp’s markets are expected to see further economic benefit from the base realignment and closure or BRAC program. This is mainly the reason the center of homeland security and defence function, the relocation of the cyber and information assurance centers and other government organization are projected to create significant economic growth.
This is a great opportunity for F.N.B. to expand beyond the southern border of Pennsylvania into Maryland.
And we believe we will be successful for several reasons. We have a scalable sales driven business model that has proven success and these higher growth markets should work well for us.
There is a heavy concentration of commercial prospects in the market. This bodes well for our core competency as commercial bankers.
Secondly, we will leverage our regional model by creating a fifth F.N.B region. Annapolis Bancorp has strong local ties to the community and we intend to further develop these relationships.
Lastly, there are ample opportunities in the greater region to build scale through future consolidation. Now I would like to turn the call over to Gary for his remarks on asset quality.
Gary Guerrieri
Thank you, Vince and good morning everyone. During the third quarter, our credit quality performance for the overall portfolio exhibited continued positive movement.
In the Pennsylvania and Regency portfolios we experienced stable to slightly better metrics on a linked quarter basis while our activity in Florida was very positive, providing further benefit to the company’s solid performance. I would now like to direct you to slide 9 as I cover some of the quarterly highlights with a focus of my commentary around the originated loan portfolio followed by some brief remarks on the acquired book.
At the end of September, originated delinquencies stood at 1.66%, improving 13 basis points on a linked quarter basis with the reduction in the level of Florida non-accruals and the ongoing consistent improvement in the Pennsylvania portfolio as the drivers. The reduced levels of Florida non-performing loans as well as lower Pennsylvania commercial non-accruals moved the company’s non-performing loans and OREO to 1.69% at September ending 24 basis points better than June.
For the Pennsylvania portfolio, NPLs and OREO improved 10 basis points to stand at a very solid 1.14% for September. Net charge-offs were relatively flat from last quarter at $7.4 million.
However as a percent of the originated portfolio, they improved 3 basis points to end September at 42 basis points annualized or 37 basis points when measured on a GAAP basis. Our reserve position on the originated book ended the quarter down 6 basis points at 1.43%, remaining directionally consistent with the performance of this portfolio.
Touching briefly on Florida, we were very pleased to report that we successfully resolved a $9 million non-performing land related credit during the quarter. The pay-off of this loan brings our total Florida exposure including OREO down to $92 million.
As it pertains to the acquired book, the loan portfolio last ends at $1 billion. The amount of contractually past due accounts decreased during the quarter by $2.8 million to end September at $55 million with the majority of the May quarter reduction attributable to principal payments received on another performing commercial relationship.
The portfolio did require a provision of 2.2 million following a re-estimation of cash flows and was the result of some downward migrations in certain homogenous small business loan pools (ph). The larger specifically identified credits that are individually marked to fair value outperformed the better than expected.
Any benefit of accretable yield that results from these accounts will be recognized over the expected life of these loans. In closing, our portfolio demonstrated stable to improving trends across our key credit metrics, reflecting the strength and consistency of our portfolio.
As we move towards closing out another successful year, we continue to be very pleased with the current position of our book relative to this stage of the economic cycle. I’d now like to turn the call over to Vince Calabrese, our chief financial officer for his remarks.
Vincent Calabrese
Thanks Gary and good morning everyone. I will focus my remarks this morning on additional highlights of our operating results and our expectations for the remainder of the year.
Let’s begin with balance sheet highlights on slide 10. As Vince mentioned earlier, the third quarter marks the 13th consecutive quarter of organic total loan growth.
Excluding expected reductions in the Florida portfolio, total growth was a strong 6.9% annualized. Positive results were seen in both commercial and consumer portfolios.
Through the market share gains commercial growth for the Pennsylvania portfolio was strong while the commercial line utilization rate remained stable at historical lows. Consumer loan growth was also strong benefitting from 13.7% annualized growth in home equity related products.
On the funding side, growth for total deposits was 3.4% annualized, with strong growth of $154 million or 8.7% annualized in relationship based transaction deposits and customer repurchase agreements which was partially offset by continued managed decline in time deposits. Our efforts remain focused on growing transaction deposits and customer repos with these balances supporting our net interest margin.
Non-interest bearing deposit average balances grew $109 million, or 27.5% annualized linked quarter, reflecting new account acquisition and clients’ increased liquidity. Our deposit mix continued to strengthen with transaction deposits, customer repos comprising 74% of the total and our cost of funds declined 3 basis points linked quarter.
The net interest margin of 3.70% included a 5 basis point benefit from $1.5 million in accretable yield due to better than expected cash flows on acquired portfolios. As I commented last quarter, this is only the second quarter that we’re now using the new acquired loan accounting system we implemented last quarter.
So it will still take some time to increase our comfort level with predicting expected results for the future quarters as we get a few more quarters under our belt. Even with that though, actual results with or without accretable yield will equal to the guidance that we provided last quarter mid 360s with upside depending on the level of accretable yields.
Non-interest income increased 3.2% in the third quarter after adjusting for $1.4 million gain on the sale of a building and modest net securities losses. Overall our fee income results were favourable.
Specifically insurance commissions and fees benefitted from seasonally higher revenue and gain on the sale of loans increased given a higher volume of residential mortgages we generated during the quarter. Turning to non-interest expense on slide 12, total non-interest expense decreased 1.8% through continued expense control, cost savings related to the Parkvale acquisition and lower OREO costs.
The overall efficiency ratio improved to 56.8% compared 57.7% last quarter. Looking at our capital position on slide 13, regulatory capital levels at September 30 are all higher than last quarter end and the TCE ratio at quarter end increased slightly to 6%, continue to exceed all regulatory well capitalized thresholds.
Now turning to our outlook for the fourth quarter of 2012, we have had solid results through the first nine months of the year that are largely within our expectation. With this in mind, our expectations for the last quarter are consistent with our previous guidance.
We expect to achieve continued solid growth results for loans, transaction deposits and customer repos. Core net interest income was in line with our expectation and we are still expecting the full year core net interest margin to be in the mid 360s and the full year as reported net interest margin in the 370 range.
In the context of fourth quarter expectations, we are looking for modest compression in the margin given the continued pressure from reinvestment rates and the impact of accelerator prepayments on our residential mortgage portfolio. We look for non-interest income to be comparable to second-quarter levels as the third quarter included the gain on sale of a former headquarters building and the fourth quarter typically has seasonally lower insurance commissions.
Through the realization of cost savings related to the Parkvale acquisition and our culture of expense control, we reaffirm our expectations for the full year efficiency ratio to be in the high 50% area, with the fourth quarter expected to be comparable to third-quarter levels. This is on a run rate basis.
Non-run rate items expected in the fourth quarter include costs associated with our previously announced branch consolidation scheduled to occur in early November. As previously disclosed we project these one-time costs to total $2.5 million pretax next quarter.
As Gary discussed, we’re very pleased with our credit quality results through the first nine months of the year. Looking to the fourth quarter, we expect overall credit quality to demonstrate continued consistent performance and believe that provision will be closer to $7 million pending on acquired loan accounting results.
On a full year basis, this range represents nearly a 15% improvement over 2011. For taxes, we expect an effective tax rate between 28% and 29% on a GAAP basis next quarter.
Now I would like to turn the call back to Vince for his closing remarks.
Vincent Delie, Jr.
Thank you, Vince. We are very pleased with the third quarter as well as our year-to-date results.
We continue to generate sustained loan growth and attracting clients. We've also maintained disciplined expense control while continuing to invest in future growth initiatives.
Our continued execution of these strategies will benefit us in the future and continue to contribute to top line revenue growth. This past year has been especially busy and productive.
Through the first nine months, we’ve achieved a number of important strategic accomplishments beginning with the integration of Parkvale acquisition. The acquisition has gone as we envisioned.
According to the most recent FDIC data we maintained our number 3 retail market position and grew deposits over 3.5% in the MSA. This growth was accomplished despite the consolidation of 17 branches.
We also gained tremendous ground in executing in our e-delivery strategy with close to 30,000 mobile users to date. We are still in relatively early stages of this initiative with additional enhancements slated for release throughout the fourth quarter.
On last quarter’s call, we formally announced an acceleration of our branch optimization plan. We are on target with our plans to reduce our retail branch network 7.5% realizing run rate cost savings of $2.5 million.
Keeping in mind that this is an optimization strategy, not just the cost cutting measure, we have opened several de novo retail location in high-growth potential markets. Early-stage results for the branches are favorable and we are tracking well.
We have also built on the success of our proprietary sales management system by deploying our scorecard tools to our wealth and private banking platforms. This is another example of how goal setting and performance tracking and monitoring are embedded in the F.N.B.
culture. We were also honored to recently receive two Pittsburgh area employer awards.
For the second consecutive year, First National Bank has been named a top workplace by the Pittsburgh Post-Gazette and the best place to work by the Pittsburgh Business Times. We are very pleased with the announcement of the acquisition of Annapolis Bancorp and expansion of our footprint into the adjacent state of Maryland.
We expect to close on this transaction at the beginning of the second quarter. I am very excited about the progress we've made and our prospects for the future.
I would also like to congratulate our team on another great quarter. We look forward to replicating our success in the new market and continuing to gain share in our existing markets.
I would now like to turn the call over to the operator for questions.
Operator
(Operator Instructions) We will take our first question from Bob Ramsey with FBR.
Tom Frick – FBR Capital Markets
This is actually Tom Frick for Bob. I just had a couple questions on the acquisition.
I know you mentioned that the deal would be neutral to tangible book. Should we assume that it’s also neutral to your TCE ratio?
Vincent Calabrese
Yeah I would say so. It would be neutral to that also.
Tom Frick – FBR Capital Markets
And then can you give us an estimate of how much goodwill you’re expecting to be created from the acquisition?
Vincent Calabrese
Let me come back to you on that. I will find that in my notes.
Tom Frick – FBR Capital Markets
And then one last question, on the cash credit related adjustment to $0.36 per share, ending the resolution of certain credit. I was just wondering if you could give us some color on that credit.
Vincent Delie, Jr.
We really don’t want to get into the discussion on the credit but I can tell you little bit about the mechanics. We basically – in doing our due diligence and we have a fairly extensive process.
So we covered a great deal of their commercial portfolio.
Gary Guerrieri
We actually covered 90% of the commercial portfolio as well as 40% of their retail book which is a very heavy coverage from that perspective.
Vincent Delie, Jr.
So there was one credit in particular that’s fairly large that we decided that we would sign a mark to that, they believed had higher values. So basically we agreed to permit some upside in moving that asset out and that’s what you are seeing in that structure.
Tom Frick – FBR Capital Markets
And would the credit mark then go down assuming that as a result?
Gary Guerrieri
It will go down depending upon the resolution if a resolution does occur. And that’s why we’ve kind of given a range in terms of where we are looking at this one from a large standpoint.
Vincent Delie, Jr.
So essentially when you look at it, the adjusted price to tangible book declines if that asset’s moved out because there is an adjustment – corresponding adjustments to the credit mark.
Vincent Calabrese
I think just to go back to your question on goodwill, it’s preliminary obviously because it’s not going to be final we actually book it but kind of preliminary number is in the low $20 million area that we would be booked.
Operator
We’ll take our next question from Damon DelMonte with KBW.
Damon DelMonte – KBW
Vince, I was wondering if you could just kind of take us through the process of looking to expand for now and versus maybe the western markets of Ohio or the eastern side of Pennsylvania, and what really led you to seize market as being attractive extension of your footprint?
Vincent Delie, Jr.
Sure, Damon. As we discussed our M&A strategy in the past, we have often mentioned that expansion into the adjacent markets around Pennsylvania were appealing to us.
In the past we have looked at other opportunities in the Maryland market but we passed on those opportunities. What we found here was a unique situation in that we had a company that has a great sales culture, the leader of the company is a very good leader.
He’s agreed to stay on through a transitional period. The demographics in that particular market were appealing and attractive to us.
So when we looked at the landscape, we felt that moving into the Annapolis market would be smart move for us given that it’s not truly DC or Baltimore, it’s its own market. We felt this operation would give us a significant enough presence to build the team and we have identified several people in the market that we have interest to help us there.
So all the stars are aligned. And I think when you look at it, the underpinning there in terms of their local economy with the BRAC going on and that being cyber command for the U.S., there will be a continuous support in terms of job creation and businesses moving into the area.
And as we have discussed in the past, we analyzed the market that we’re going to move into based upon the number of commercial opportunities that exist in addition to the demographics for the consumer side of the bank. And we felt that given the high number of businesses located in close proximity to the headquarters, I mentioned 35,000 over a million in revenue, it was a very appealing area to move into.
Now obviously Ohio is still of interest to us, end market acquisitions would be of interest to us. But this was an opportunity that popped up that really was pretty compelling and we felt that it made long term strategic sense for us.
Vincent Calabrese
Damon, I would just add that it’s – given the relative size of it, it’s a low risk entry point into that market. And one of the things that we talked about is and that Annapolis becoming part of us we can introduce our variety set of products, wealth management and also have the opportunity to do some larger loan deals that they have the opportunity to do today that they could not do as part of a larger organization.
So there are lot of opportunities just right there in that market that we felt it was compelling.
Damon DelMonte – KBW
And I guess just a one more question here on loan growth, could you just talk a little bit about the dynamics you are seeing in your market for – in terms of pricing in the commercial real estate side, what are you seeing in the way of spreads and structures?
Vincent Delie, Jr.
Yeah I think pricing as I said is still slugfest out there. People are trying to grow earning assets.
So now yields just come in a little bit, we talked about that on the last call. I don’t think that’s changed.
I think we will see that for the foreseeable future given the margin compression that banks are experiencing. So the one thing I will say is this, what we try to do is invest heavily in our ability to execute in the markets that we are in.
And it’s evident in the loan growth that we have. So we spent a good deal of time and energy and resources on our internal sales management process and identifying prospects and systematically pursuing those opportunities.
I think given the markets that we are in which are not high growth markets, I think we have done very well and it’s proven in the results that you have seen from a production standpoint. But it’s still tough out there and for us it has been the last four or five years.
So it really – this isn’t anything new. I think we just make sure that we put the right people in the right seats and we have put a very good sales management system to manage the process and we will just keep moving forward.
Operator
We’ll take our next question from Mac Hodgson with SunTrust Robinson Humphrey.
Mac Hodgson – SunTrust Robinson Humphrey
Vince, curious to get your thoughts back on the entry in Maryland, get your thoughts on how big you’d like to be in that market and how big of a bank do you feel like you need or to compete effectively and kind of – I am assuming if we should expect maybe some more deals down the road in that market, just kind of curious how large you would like to be in that region?
Vincent Delie, Jr.
I think the beauty in this particular deal is we don’t really have to look too far down the road. I think we’re going to be able to achieve all the results that we forecasted with the enterprise that we have and the focus on Annapolis.
Having said that there are 20 plus banks in the market from $500 million to $3.5 billion. So we don’t really manage ourselves.
We don’t shoot for a particular asset size. We just try to make sure that we are doing the right things to create shareholder value and improve earnings per share.
And I would say long term I think there are lots of opportunities to expand in that market and I think short term or intermediate term, we have a pretty good platform to leverage to continue to provide EPS growth. So this is kind of how we look at it.
So I guess a little above we think we have a great platform today, we can add to and there are some talented people in that market that we know from our past that may want to join us, and we can build out a platform. We will see how it goes.
And as Vince Calabrese indicated it, for us that’s a low risk entry point into a new market, and we’re going to make it go at it.
Vincent Calabrese
I would add too, Mac, just that, I think you guys know us that we don’t have a arbitrary size targets that we have up on the wall here. I mean we really look at each deal that stands on its own, we focus on maintaining top quartile profitability and we will be opportunistic as deals come up but there is not – we have to get the exercise by certain period of time.
Let’s just do deals that make a lot of sense that are compelling like this and to Vince’s point, there will be opportunities in that market as we go forward and we will just evaluate each one and stand on its own.
Mac Hodgson – SunTrust Robinson Humphrey
And then can you give us any color on expectations for your cost savings and then weigh that against potential hiring you will have to make to maybe build out the team there?
Vincent Delie, Jr.
Well, some of the modelling that we have done included -- a preliminary modelling included adding several people to the platform, and really that’s what it entails. Augmenting what’s already there with some folks that can call up market, CRE lender for example that could move up market because their internal thresholds are relatively low.
There are a number of asset based lending opportunities in the market that we could pursue, there are commercial deals that would require different expertise, better than how the wealth platform, so we would probably be looking to add a few wealth people on a private bank or two. But the management team there, there is a great CEO.
He is a very bright articulate man who understands the business pretty well, and he’s agreed to transition to help us find a leader in the market and to transition for a year and that gives us enough time to build out the team. But from a modeling perspective, Mac, we don’t have significant incremental increases in expense outside of what we presented to you.
Vincent Calabrese
No, in fact, Mac, I mean our model with the accretion that we have it fully bakes in to add (ph) to staff in those areas that we would supplement the team that’s there, and lot of those are producers, so they will generate revenue and it’s all baked in. So we don’t have anything beyond what’s within our model that we need to add on top of that.
We think there is a strong team that’s already there.
Mac Hodgson – SunTrust Robinson Humphrey
Just one last one, I know this is a small transaction but does this deal preclude you from doing the other transactions in the near term or you still thought you have the ability to do more than one a year?
Vincent Delie, Jr.
What we have done in the past, we have done – we did a $600 million deal and here with a $2 billion deal simultaneously. So I would say we had capacity to do transaction, this single transaction would not prevent us from doing anything further.
Operator
We will take our next question from Matthew Breese with Sterne Agee.
Matthew Breese - Sterne Agee
Maybe sticking with the expenses for a bit, just to clarify was there anything one time this quarter that was in there?
Vincent Calabrese
In our expenses?
Matthew Breese - Sterne Agee
Yeah.
Vincent Calabrese
No, I won’t say there was anything one time. Pretty clean quarter.
The only real one time item we had on the income side, the gain on the sales of former headquarters building.
Matthew Breese - Sterne Agee
So from that $77.1 million, looking into the branch cost savings, so that’s a $2.5 million annual fee, correct?
Vincent Calabrese
Yes.
Matthew Breese - Sterne Agee
And then from what I am gathering with Annapolis, it sounds like they run at $3 million a quarter kind of expense run rate, it seems like can we expect this tap (ph) on top from third quarter, second and third quarter next year?
Vincent Calabrese
When we give our guidance in January, Matt, we will give you kind of full guidance with this fully baked in, into the model. I mean there is cost savings in the low to mid 20s to kind of bake in but once we kind of rolled it up, then we will give you that guidance.
I am not really prepared to get into the modeling of next year at this point because we will just wrap it all into our guidance for next year.
Matthew Breese - Sterne Agee
And then maybe we could hop to the margin for a minute. The core margin was down 5 basis points from second to third quarter with a couple basis points more, it sounds like in guidance for next year.
Looking into 2013, is there anything really stop the margin from kind of putting down 2 to 3 enticed by basis points a quarter through 2013?
Vincent Calabrese
Matt, as I just said, we will give full guidance in January. I think our goal overall as we talked about in the past is really neutral from an IRR position.
We spend a lot of time managing the margin. I think the fourth quarter expectation is it’s just based on with how low rates are, the impact of reinvestment in our securities portfolio and the impact of prepayments in the residential mortgage, now the prepayments will – those don’t continue forever.
Fourth quarter will probably still be having – that will probably get back to more normalized level as we go forward. But as far as the way we are managing the margin, I mean we continue to have some leverage available to us, continue to have a significant amount of CDs, $450 million in the fourth quarter that it will pick up 75 basis points on average.
On the other way, on investment portfolio, we’ve basically given up about 100 basis points on reinvesting about 150 million a quarter. So smaller size but that’s rolling through the numbers.
So it’s early for me to give you guidance for next year but our job is to manage the margin and to manage it to be relatively stable, given the environment that we are in and focus on bringing in loan and the demand deposits to help to support the margin and that drive the net interest margin. So that’s – even with the challenging environment, that’s our job to manage that.
So we will continue to do that.
Matthew Breese - Sterne Agee
Is there any large expiration of CDs or borrowings coming due over the next few quarters?
Vincent Calabrese
No, it’s been – it’s regularly between anywhere -- between $400 million, $500 million a quarter. So it’s not some big slug, it’s kind of laddered over time.
Matthew Breese - Sterne Agee
Maybe hopping two different items, first on the BRAC, the last I heard on that program it was really a couple of years ago that, that was put in place, and I thought it had run through. But it sounds like there is still some benefit there.
Could you remind us what – how many jobs are relocated to the area and some of the impact to the DC surrounding markets?
Vincent Calabrese
I mean they are on track right now, they have building up to 50,000 jobs by 2015 is really the underlying –
Vincent Delie, Jr.
I will tell you having read a little bit about this and having a better understanding of it, what’s really driving the local economy down there are the businesses that are relocating to support the cyber command. So there are a lot of IT companies that are relocating in that market to support those activities, and given what you are hearing with North Korea, China, other countries investing heavily in their ability to conduct cyber attack, I would expect that, that line item in the budget military spending to continue to grow over time.
And I would expect there to be a considerable amount of support required for those activities in the market, and that’s one of the aspects of it. It’s pretty interesting but there has been a fairly significant growth in the market because of the initial wave of base consolidation.
I think it’s more about the future and what that area would forbid in the cyber command means for the business community longer term. And again, our growth – remember, we are used to competing in markets that don’t grow at all, in many instances have shrunk over time, I have been in that environment where I have to compete in a shrinking market for years.
So having any growth at all like we have with Marcellus shale and Utica shale here, believe me it makes a big difference. And those markets already are much more dynamic than we have, more competitive but more dynamic.
So I expect us to continue to product at the levels that we produced up there or greater in those markets. And that’s all we really model.
So we weren’t reaching for the stars.
Vincent Calabrese
And they are continuing to build that out. I mean the 60,000 they are on pace to, they are still adding jobs to get to that figure.
And when you are down there in that market, talking to people, the BRAC is their Marcellus shale, is the way they talk about it because it’s really added such a strong underpinning to the economy and still more of the vintage point is going to get build out in those support businesses. So there are still more – definitely significant more developments to happen there.
Vincent Delie, Jr.
Yeah, I don’t grab on even with the Marcellus situation. I mean I have gone on a number of road shows and people have asked specifically what, how many jobs have been created and how much of an impact has it had.
Some of the stuff is very difficult to identify and now there are research reports out there that indicate how much job growth there is off of a particular event. It’s really difficult to get your arms around it.
So we kind of look at it anecdotally and directionally and I think you are in the market, you drive around and you see what’s going on, you talk to people, you will find that there is a lot of activity.
Matthew Breese - Sterne Agee
And then any update on Basel III?
Vincent Calabrese
We went through an exercise last month, our board and – I guess I should start with this, you guys know it. They are for Basels, we submitted a comment letter and I am sure every other bank is planning to submit a comment letter.
But we went through and calculated the degree that tier 1 common ratio, where it is today, where will it be kind of end of next year and then 2019, and we don’t have to really take any question on capital. We are above all the buffers and everything until you get all the way through the very last of the phase end of 2019.
So when we look at that, there is a comfortable cushion there and given that we are part of the group that had 10 years to phase out the trust preferred, that also gives us more time to have that capital. And over that 10 year period, we will replace that but kind of from a straight looking at Basel III the way it’s treated today, we are fine with where it is, don’t have any immediate needs for the next three to five years because of that.
Matthew Breese - Sterne Agee
And then remind us your ability to pay the TRUPS,, when do they mature or pay off?
Vincent Calabrese
They go out for still another 20-20 years, i think lot for a long time.
Operator
And it appears we have no other questioners at this time. I would like to turn the conference back over to our presenters for any additional or closing remarks.
Vincent Calabrese
Well, I would like to thank everybody for calling in. I appreciate the time you have invested with us and hope you have a great day.
Thank you.
Operator
And that does conclude today’s conference. Again thank you for your participation today.