Valley National Bancorp
Q1 2012 Earnings Call Transcript

Published: 26 Apr 2012

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Valley National Bancorp First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) I would now like to hand the conference over Ms. Dianne Grenz. Please go ahead, madam.

[Dianne Grenz:]

Good morning. Welcome to Valley’s first quarter 2012 earnings conference call. If you have not read the earnings release we issued earlier this morning, you may access it along with the financial tables and schedules for the first quarter from our website at valleynationalbank.com. Comments made during this call may contain forward-looking statements relating to the Valley National Bancorp and the banking industry. Valley encourages participants to refer to our SEC filings including those found on Form 8-K, 10-K and 10-Q for a complete discussion of forward-looking statements. And now, I’d like to turn the call over to Valley’s Chairman, President and CEO, Gerald Lipkin.

[Gerald Lipkin:]

Thank you, Dianne. Good morning and welcome to our first quarter earnings conference call. Valley reported first quarter net income of $34.5 million compared to $24.8 million in the prior linked-quarter. We are pleased with the financial results for the period although net income was negatively impacted by both non-cash trading losses and non-recurring State Bank merger charges. Alan will provide a little more color on each of those shortly. During the first quarter, we closed our State Bank acquisition and officially expanded the franchise into the Long Island market. We now operate 44 full service branches in the Boroughs and Long Island. Valley’s total deposits in this market now exceeds $2.8 billion and over one-third of the Valley’s entire C&I portfolio in summer sales in New York. Long Island’s demographics are similar to our Northern New Jersey market, and will provide an excellent opportunity for our customer-focused sale rep to cultivate both new and current customers. Similar to our previous (inaudible) into the New York market with our Merchants Bank acquisition in 2001, State Bank offered very little consumer-based products. This will be an area of focus for Valley in the future. We have begun to aggressively market Valley’s residential mortgage refinance program throughout the former State Bank branch network and anticipate introducing an enhanced low fixed-cost residential mortgage refinance program for your customers in the coming months. Currently, Valley’s New York residential mortgage refinance program reflects a flat fee of $1,999, which includes all Bank’s fees and titled insurance. Even at this price, we have begun to reduce initial consumer success on Long Island, as residential mortgage applications from that market exceeded 200 units in the first quarter. We anticipate a much expanded market penetration when we introduce Valley’s new lower-priced, enhanced product. From a commercial lending perspective, early indications reinforce our belief that there will be significant opportunity to expand upon many of the former State Bank existing customer relationships. The Valley’s larger lending limit, coupled with an increased commercial product offering, will provide the catalyst for Valley to develop a larger market share on Long Island. Valley does not intend to whole its geographic expansion now that’s the State Bank transaction is complete. We believe we can enhance the shareholder value and improve earnings per share by continuing our eastward migration through New York City and onto Long Island. Preliminarily we have made arrangements to open by a de novo branch expansion, two offices in this market later this year. We are preparing plans to strategically open a minimum of five offices annually thereafter. We may elect to expand via acquisition or de novo, nevertheless moving the franchisee eastward will be our strategic trust in the coming years. During the second quarter, we will be opening an executive office in Manhattan to spearhead this geographic expansion. Both our senior staff and I will be spending time each week at this location in order to make ourselves readily available to these growing segments of our customer base. The Northern New Jersey, New York City and Long Island marketplace provides from our view the greatest demographic opportunities in the country as one of the longest standing middle market commercial lenders in the region, we have a history and stability to develop profitable relationships and promote the Valley brand while increasing both the earnings power and franchisee value of the organization. The following comments surrounding loan growth and activity for the quarter do not include the impact of the $37 million short-term loan to State Bank Corp that was made in December of 2011, that loan was used to repay their TARP funds and was eliminated at closing on January 1. Total loan growth during the quarter adjustment for the acquisition of stake was extremely promising as non-covered loans grew nearly 15% annualized. Growth for the period was achieved two-fold as Valley originated nearly $1 billion of loans internally and acquired during the last week of March an additional $112 million portfolio of mostly commercial real estate loans within our geographic marketplace. We anticipate the purchase loans will be immediately accretive to our bottom line based on the underlying economics of each loan. In addition we will pursue additional relationships from the 185 commercial borrowers purchased. We conducted full credit due diligence on each and every loan prior to the purchase. Since we were quite selected in the loans we acquired, we will believe the transaction will add to our bottom line immediately. New commercial lending originations for the quarter equaled approximately $350 million, relatively in line with the originations in the same period one year ago and an increase of nearly 20% from the prior quarter. Exclusive of the loans acquired in the – both the State Bank transition and the purchase commercial real estate portfolio in March, total C&I grew 4.5% annualized during the quarter, equal to the 4.5% internal growth in commercial real estate. Construction loans on an annual basis declined approximately 25% during the quarter as a due large projects converted to permanent financing and sales from certain projects have begun to accelerate. In addition, linked-quarter annualized commercial real estate lending including construction expanded 1.44%. We are hearing positive signs of economic improvement from a few developers as sales have begun to improve or buy it from very low levels. We are beginning to witness increased construction lending requests and anticipate the linked-quarter contraction in outstanding to stabilize and potentially grow for the remainder of 2012. Adjusted for the elimination of $37 million loan for State Bancorp in the fourth quarter, the C&I portfolio expanded approximately $20 million from the prior quarter. Commercial line usage spiked from an approximately – on usage, excuse me, spiked approximately 38.5% in the fourth quarter to over 48% in the current period. However the majority of the increase is attributable to the State Bank acquisition and higher line utilization rates among their customer base. Exclusive of the lines acquired in the State Bank transaction, legacy Valley line usage increased approximately $20 million in outstanding from the prior period. Much of Valley C&I growth has come from taking business away from some of our competitors as customer sentiment has not fully shifted in the positive direction. Corporate earnings for the majority of our commercial customer base is improving from the record loss reported since the financial crisis took hold in 2008. That being said, both current period revenues and net income is still significantly less than the amount realized pre-2008. The competition for high quality, low loan to value commercial projects remains intense in our marketplace. Due to the low level of market interest rates, the origination rates from many of these projects are our rates considerably lower than similar originations in prior period. We continuously monitor the duration in the pricing characteristics of the entire loan portfolio and attempt to adjust our funding compensation accordingly in an effort to maximize profits while mitigating excessive interest rate risk in the future. One bright spot for Valley continues to be the overwhelming customer response we are receiving to our fixed cost residential mortgage refinancing program which we offered for a one fee – one-time low fee of $499 in both the New Jersey and Pennsylvania marketplace. During the quarter, we processed nearly 4,000 applications in line with the volume generated in the prior quarter. However, the loan closings for the quarter totaled $520 million compared to $380 million in the fourth quarter. Loan activity continues to de-risk the loans originated by Valley’s traditional branch network as well as the loan production office we opened in Pennsylvania, which by itself originated over $30 million in applications during the first quarter. Approximately 75% of the new residential originations are sourced on non-Valley residential loan customers. As an ancillary benefit to the revenue directly recognized with the residential refinance program, we are able to actively cross-sell other Valley products and improve the overall profitability of the customer relationship. As I stated at the outfit of my remarks, we are pleased with our operating earnings for the first quarter. We believe there is significant opportunity to enhance the reported results throughout the remainder of 2012 as we begin to recognize all the benefits associated with the State Bank transaction. During the quarter, we completed the full systems integration of State Bank’s back office department and now operate the combined institution on a single platform. The total systems conversion was completed in less than 45 days from the date we closed on the transaction, a testament to the experienced and outstanding capabilities of our staff. We will begin to recognize the full benefit of our projected core sales in the second quarter. We have also begun to expand the product offering which we believe will enhance the profitability of the current and future customer relationships. Alan Eskow will now provide some more insight into the financial results.

[Alan Eskow:]

Thank you, Jerry. As indicated in the press release, my comments this morning reflect the 5% stock dividend declared on April 18, 2012 to be issued May 25 of 2012, as a result all share data has been adjusted. For the first quarter, Valley reported net income available to common shareholders of $34.5 million or $0.18 per share. Net income was negatively impacted by approximately $1 million or less than $0.01 per share due to the non-cash mark to market losses on Valley’s owned trust preferred securities targeted fair value. In addition the financial results for the quarter were influenced due to the integration in merger expenses associated with the State Bank Corp acquisition. Direct nonrecurring merger expenses associated with State added approximately $1 million to Valley’s first quarter noninterest expense. Additionally, first quarter noninterest expense included a significant amount of expenses that Valley anticipates eliminating through future cost saving measures. With the transferred value of all the former State Bank Back Office Operations in February, Valley expects many of the projected cost saves to materialize in the second quarter. The majority of cost saves will be recognized through employee salary attrition and the elimination of data processing expenses of which Valley projects will total approximately $1 million less in the second quarter than the expense recognized in the first quarter. For the full year of 2012, Valley anticipates realizing approximately 23% cost saves on the former State Bank’s noninterest expense base, increasing to approximately 27% in the annual periods thereafter. For the quarter, Valley’s fully taxable equivalent net interest margin declined 4 basis points to 3.7% from the prior quarter. The contraction in the margin is due to several factors

[Operator:]

Thank you. (Operator Instructions). The first question comes from Steven Alexopoulos of JPMorgan. Please go ahead, sir.

[Steven Alexopoulos:]

Hi, good morning everyone.

[Alan Eskow:]

Good morning.

[Gerald Lipkin:]

Good morning.

[Steven Alexopoulos:]

Maybe I’ll start following up on Alan’s comment that the expenses would come down around $1 million in 2Q. If we look at this quarter and take out the merger costs, we’re running on $93.5 million. Once the costs has fully in the numbers should that run rate be somewhere around $91 million, is that what you’re thinking?

[Alan Eskow:]

That seems to be right.

[Steven Alexopoulos:]

Okay. And now would that be by the fourth quarter or is that really we think about that in – maybe the early part of 2013?

[Alan Eskow:]

Second quarter, that should be about the second quarter.

[Steven Alexopoulos:]

You think it will be by second quarter. Okay. And what were the cost saves – I might have missed it, in this quarter?

[Alan Eskow:]

Well, the total was 23% – at 23% annualized at this point.

[Steven Alexopoulos:]

I got it. Okay, I got it, I missed that. And Alan, on the margin given all the moving pieces you have highlighted, how do we think about a base margin here heading into the second quarter?

[Alan Eskow:]

We had to start with where we are. I think I try to keep telling everybody that there is a lot of moving parts, loan yields are down, investment yields are down, we keep working hard on the cost of funds to bring those down. I think in addition we’ve seen a lot of – seen some growth in non-interest bearing deposits, which has really helped us. So, the best I can tell you, Steve, is that we’re working in order to keep that margin as high as we can.

[Steven Alexopoulos:]

Great. But then we work from the 370 or part of this quarter or are we starting second quarter at a different point just given there is a lot of moving pieces this quarter?

[Gerald Lipkin:]

No, I think you got to started 370.

[Steven Alexopoulos:]

Okay. Got you. And finally, Gerry I think I asked you every quarter for seeing any sign of refi wave of slowing, I’m going to ask you again.

[Gerald Lipkin:]

Slightly in New Jersey, but I think New York and Long Island is going to more than pick that up, so I don’t think that over the next quarter or two we’re going to see much change unless interest rates make a move.

[Steven Alexopoulos:]

Okay.

[Gerald Lipkin:]

Having more and more people are waking up to the fact that if they haven’t already done so, they really will.

[Steven Alexopoulos:]

All right. Okay. Thanks for all the color. I appreciate it.

[Gerald Lipkin:]

All right.

[Operator:]

Thank you the next question comes from Craig Siegenthaler from Credit Suisse. Please go ahead, sir.

[Craig Siegenthaler:]

Thank you. Good morning, everyone.

[Gerald Lipkin:]

Good morning, Craig.

[Alan Eskow:]

Good morning, Craig.

[Craig Siegenthaler:]

First question just kind of on your aggregate loan pipeline. If I look at it – if you guys look at first quarter versus fourth quarter, if you can provide any commentary there? And also, as you are looking at kind of early trends in the second quarter in April, what type of kind of lending activity are you seeing broadly in the second quarter versus the first quarter?

[Gerald Lipkin:]

I think it’s just generally getting out on the street picking up business from our competitors that I said. I don’t think there has been a major shift on the part of our borrowers then suddenly wakening up and deciding they want to borrow money. I think it’s more of that we’re taking market share away from others. We try to give very close the best attention to our borrowers, high-level attention to our larger borrowers. And as a result, a lot of them have been referring friends to us and we’re picking up additional borrowers. So I’m encouraged by what I saw in the first quarter coming out of State Bank. Hopefully that trend that we’re seeing will continue into the second quarter and throughout the rest of the year, very positive.

[Craig Siegenthaler:]

And then the positive kind of point you’re seeing out of State Bank, how much is it coming from products that State Bank wasn’t allowed to offer 12 months ago – either the notional size is too larger or they weren’t large enough in the consumer area?

[Gerald Lipkin:]

Nothing yet.

[Alan Eskow:]

Nothing particularly large, a little bit on the (inaudible) We had a couple of borrowers who would come to us because State Bank couldn’t accommodate what their needs were in the past. But for the most part it’s just more of the same, the same borrowers coming into us, not because they could not come to State, but I think the confidence that they’re dealing with a larger bank is a more comfort to do more of their borrowing from us.

[Craig Siegenthaler:]

And then just one final question. Your rates are really low which makes a lot of areas of potential securities purchases, pretty unattractive. And then commercial demand arguably isn’t necessary strong right now in most areas. But then you had a lot of refi. So how does resi mortgage continue play a role in terms of your loan portfolio?

[Gerald Lipkin:]

It’s been a big helpful for us. Because if you look at what a mortgage-backed security would produce in the way of yield, it probably talking in the high 2s, and we could hold a resi mortgage at least a 100 basis points and maybe more higher than that, it’s an attraction to us to let the mortgage-backed security portion of our portfolio go down and allow the residential mortgage portfolio to go up. Quite frankly, from an asset quality standpoint, we never had serious problems with the residential mortgage portfolio. Our delinquencies today are a fraction, a small fraction of the national average as far as delinquencies are concerned. So we’re comfortable in our underwriting standards in holding in portfolio a larger portion of the resi originations. That being said, if you look back historically at what our combined resi portfolio and mortgage back portfolio were, if you look back 10-15 years ago to where they are today, we have not – we are not exceeding the point of where they were at the high point in fact we’re down from what the combined figure was 200%.

[Craig Siegenthaler:]

Got it. All right great. Gerry, thanks for taking my question.

[Gerald Lipkin:]

Sure.

[Operator:]

Thanks very much. The next question comes from Kenneth (inaudible) from Morgan Stanley. Please go ahead, sir.

[Kenneth:]

Hi, thanks. Just a little more on the resi side, can you just remind us the duration of the new mortgages you are putting on and I thought I heard something about moving more into a fixed rate products going forward, (inaudible). Do you see that (inaudible)

[Gerald Lipkin:]

The duration – it’s kind of hard to project because you don’t really know. It depends how long interest rate stay low – we are figuring that the duration will probably be in the 4 to 5 year range –

[Kenneth:]

But are these – I’m sorry, are these like?

[Gerald Lipkin:]

But they could be 10 years. But people don’t stay in the house for 30 years, so while it’s a 30-year product, it’s a rear mortgage that’s faced on the books to 30 years historically.

[Kenneth:]

Okay. I think that 30 year was what I was getting at, probably in this book there, but okay.

[Gerald Lipkin:]

Yeah, it’s rear that a mortgage stays that long I mean historically it was six to seven years I think it was. And I don’t know going forward – someone have to achieve mortgage loan, their spouses have a hard time convincing than they order re and buy a new home when they have a low interest rates and now rates are up, so that they should sell. That being said people do move, unfortunately they die, they move, they change their jobs, so mortgages don’t stands of the 30 years.

[Kenneth:]

Understood, okay. And then on just a little bit of a Long Island, are your plans are kind of expand into Long Island. Is that something you guys can do, they feel comfortable we can do on our organic basis, are you looking more for smaller roll ups to there to accelerate your expansion?

[Gerald Lipkin:]

We look with equal figure to both, okay, if there is an opportunity they acquire a franchisee on Long Island that we feel will fit into our growth strategy, we’d be happy to do the acquisition there. In the absence of that, they don’t know.

[Kenneth:]

Understood okay. All right, perfect. Thank you.

[Gerald Lipkin:]

All right.

[Operator:]

Thank you the question comes from (Inaudible). Please go ahead.

[Unidentified Analyst:]

Good morning.

[Gerald Lipkin:]

Good morning.

[Alan Eskow:]

Good morning.

[Unidentified Analyst:]

Alan, maybe just sharpening the discussion a little bit around expenses, maybe would you mind giving us some color around impact of seasonal items and non-interest expenses quarter, it looks like common benefits was a little higher than we were looking for, and maybe quantify if you can the impact of seasonality and occupancy expense?

[Alan Eskow:]

Yeah, in occupancy just I start down for a moment, obviously that’s down just based on the fact that we included in there things like snow plough removal and we had a almost non-existent during this quarter so as compared to last quarter. So if you are looking from quarter to – year-over-year you would see that that would be down probably significantly. That’s a seasonal item that I would say that the rest of the quarters other than the occupancy being up for new rent that for new branches that we’ve taken over from State and so forth and the maintenance on those things are going to go higher than where we were in quarters 2, 3 and 4 last year. In terms of salaries and benefits, our own salaries we figured roughly about 2.2% over the prior year and then there was about a $3 million increase because of the State Bank and on just salaries alone in addition because of the way payroll taxes were up because of that. So all of those kind of go hand-in-hand. Additionally, pension expense is going up for everybody that runs a pension plan as compared to last year. So there is a lot of benefit expenses at the moment that are higher, some of those will go back down as we consolidate in the State Bank people and in areas less people are here versus what we see in the first quarter. So it’s obviously running higher in this first quarter than we will see in future quarters.

[Unidentified Analyst:]

On the FDS, no removal expense in there? How much is that?

[Gerald Lipkin:]

Yeah, on the top of my head, I don’t know what it is. Yeah, it could be about a $1.5 million.

[Unidentified Analyst:]

Okay, great. And then in terms of the securities portfolio, the securities book, how would you characterize the health of the trust preferred portfolio at this point or maybe more specifically your level of concern around having to take potentially additional OTTI charges later this year.

[Gerald Lipkin:]

I think we’re pretty comfortable with what we have at the moment. For the most part, most our trust preferred securities are from the biggest name banks around the country. Some of them were roll-offs from other banks they acquired, so we’re pretty comfortable with those. I can’t obviously project what’s going to happen as the year moves up, but I think we’re pretty comfortable with what we’re holding. I mean there is always the possibility as in small OTTI and maybe some PMBSs or whatever as we go through the year, but I don’t expect anything major at this point.

[Unidentified Analyst:]

Okay. Great. Thanks guys.

[Operator:]

Thank you. The next question comes from the Dan Werner from Morningstar Equity Research. Please go ahead.

[Dan Werner:]

Good morning.

[Alan Eskow:]

Good morning.

[Gerald Lipkin:]

Good morning.

[Dan Werner:]

I wanted to ask about the loan acquisition for $112 million. You said it’s from $185 borrowers, were those all originated by another local bank?

[Gerald Lipkin:]

Yes.

[Dan Werner:]

Okay. Do you anticipate any additional purchases from this source going forward or is just kind of a one-off?

[Gerald Lipkin:]

It is a one-off.

[Dan Werner:]

Okay. And then looking at the average balance sheet in terms of the long-term borrowings and the footnote says that the trusts are included. If you took out those trusts, about what would the – would it move the needle much on the average rate, as far as the average cost of borrowings?

[Alan Eskow:]

It would bring it down somewhat sure, there is no doubt about it. I mean there is almost $200 million in there of higher than the average balance year of 4.3% on long-term borrowings. So they are probably closer to 7%.

[Dan Werner:]

Okay. And then you talked about the refinancing that you’ve done over the last two quarters, any opportunities to do anymore of that going forward?

[Alan Eskow:]

No, we continually look at it. As of right now, we don’t have anything specific in mind, but we will obviously as this low rate environment continues, we will continue to look at that.

[Dan Werner:]

Okay. And then lastly, you talked about the multi-family growth in the quarter in the commercial real estate. Can you kind of give me a sense of how much growth you saw from fourth quarter to first quarter and how large book of business that is?

[Alan Eskow:]

First of all, those mostly are underlying co-op loans

[Dan Werner:]

Yeah.

[Alan Eskow:]

With a very, very low – traditionally they can be 10% loans to value.

[Gerald Lipkin:]

7%.

[Alan Eskow:]

7% on average is the loan to value – and those brings couple of hundred million.

[Gerald Lipkin:]

250.

[Alan Eskow:]

250 million.

[Dan Werner:]

Okay.

[Alan Eskow:]

Understand (inaudible) it’s a misconception that we’re heavily into apartment lending and that has not been the case.

[Dan Werner:]

Okay.

[Alan Eskow:]

So I tried to clarify that.

[Dan Werner:]

All right. Thank you.

[Operator:]

Thank you. The next question comes from Collyn Gilbert from Stifel Nicolaus. Please go ahead.

[Travis Lan:]

Thanks. This is actually Travis Lan filling in for Collyn. Good morning, gentlemen.

[Gerald Lipkin:]

Hi, good morning.

[Alan Eskow:]

Good morning.

[Travis Lan:]

I believe the initial expected merger charges with State were about $21 million and it looks like you recognized $3.5 million, so are there any merger charges left to be taken? And if so, kind of what’s the timeline?

[Alan Eskow:]

Yeah, a lot of those actual charges came through on State’s books before we closed.

[Travis Lan:]

Okay. So you would...

[Alan Eskow:]

That’s why you didn’t see anything major. There may be small amounts coming through, but at this point most of its been recognized either on our books last year or their books last year.

[Travis Lan:]

Got you. Thanks. And then exclusively acquired loans, or I guess, can you quantify the commercial pipeline right now and then kind of what’s the slip between legacy Valley and State? So in other words, kind of what’s the contribution on the commercial side you are seeing from State with kind of one quarter and above?

[Alan Eskow:]

We’re beginning to see some very nice activity from State. On a weekly basis we are looking at new products of a reasonable size. There is a fairly decent pipeline in the C&I portfolio in New Jersey and the commercial mortgage pipeline continues to be very active.

[Travis Lan:]

And then last one I may have missed it, but do you have an expected timeline to get the low cost refinance program up and running in Long Island?

[Alan Eskow:]

We expect to do it by the end of this quarter.

[Travis Lan:]

Got you, all right. Thank you very much.

[Operator:]

Thank you the next question comes from Nancy Bush from NAB Research. Please go ahead.

[Nancy Bush:]

Good morning, guys.

[Alan Eskow:]

Good morning, Nancy.

[Nancy Bush:]

I have a big picture question for you and I’m sure it’s a big picture that you would live everyday but in looking at your progression of earnings over the past several quarters and excluding fourth quarter where you had some special items, you kind of been plus or minus $0.20 for a while now. And I guess given that we’ve got this interest rate environment that looks like it’s going to hang around for this a way longer, I mean, are there enough levers to pull there, to kind of get you out of this earnings better?

[Gerald Lipkin:]

Well, I think a couple of other things we did, this quarter for example the loan purchase which didn’t really impact us in this quarter, well, in the next quarter. I think a lot of the savings on State Bank’s are going to start the materialize which will help us going forward. One never knows so when you are operating in this prolonged interest rate situation on what that impact is going to be. That’s one reason, we don’t project, we don’t start in some income. We will – it’s our job to work as far as we can to get as much income as we can.

[Alan Eskow:]

I think, Nancy, the only of the thing I could say is that the obvious to me is to grow the balance sheet. And I think that’s what our key drivers that to be, we’ve got to get more loans into door and I think coming up with something like state and this other acquisition. We did all of those things brining more loans in the doors as long as our legacy customers that we have that we hear before there was acquisitions. So as long as we can continue to drive those things, we will continue to see earnings come in, at least it is good, if not better than they are.

[Gerald Lipkin:]

Lot of (inaudible) regulators, not only us but I think all banks are impacted by that. In the last dozen years or so, I think we have identified somewhere in the $40 million to $50 million range the expenses that have grown as a result of the regulators FDIC insurance, everything else things that we didn’t pay for them. They keep adding it on to us. That impacts our earnings growth unfortunately.

[Nancy Bush:]

Just one follow-up, if we do get a – should we get a change at the top in November in Washington, do you think that really would make any difference, Gerry, to the regulatory outlook or is so much stuff baked in right now that there really wouldn’t be that much change?

[Gerald Lipkin:]

I wish I knew the answer to that. I would hope that if there were a change that the incoming administration would look more favorably on banks as a whole and stop blaming the entire industry for the misdeeds of the few. Remember, it wasn’t the industry that all did subprime lending. It was a handful of institutions and many of them weren’t even banks, they were mortgage companies. But yet we have legislation that came out of Washington that was quite (inaudible) linked to all banks. We need somebody who is going to stand up and say wait a minute, it isn’t the industry that did this, it was a handful of companies that did this and stop punishing the industry because all that does is come back and punish the consumer. The industry is trying to make up for things like the Durbin amendment. Where the consumer got free checking in the past, it’s going to be a rare think to get free checking because that’s the only place the industry can go into make pull those revenue, unintended consequences?

[Nancy Bush:]

All right. Thank you.

[Operator:]

(Operator Instructions). Our next question is from (inaudible). Please go ahead.

[Unidentified Analyst:]

Good morning, gentlemen. How are you?

[Alan Eskow:]

Good morning.

[Unidentified Analyst:]

A quick question for Alan. Alan, you made a filling about two to three weeks ago. Most of that potential issuance, is that going to be through acquisition, is that going to be for repaying of your existing preferred, could you shed some light on that?

[Alan Eskow:]

I don’t think we have any specific plans, it’s just the shelf that we have filed for when and if decide to need it.

[Unidentified Analyst:]

Okay. All right. Thank you.

[Alan Eskow:]

You are welcome.

[Operator:]

Thank you very much. We have no further questions at this time. So I hand it out to management.

[Dianne Grenz:]

Thank you for joining us on conference call and have a nice day.

[Operator:]

Thank you very much. Ladies and gentlemen, this conference will be available for replay after 12