Brookline Bancorp Inc (BRKL) 2004 Q4 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Bancorp Rhode Island, Inc. fourth quarter earnings conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS). As a reminder, this conference call is being recorded.

It is now my pleasure to introduce your host, Ms. Merrill Sherman, President and Chief Executive Officer of Bancorp Rhode Island, Inc. Thank you ma’am, you may now begin.

Thank you. Good morning, I am Merrill Sherman, President and CEO of Bancorp Rhode Island, Inc., and I would like to welcome you to our fourth quarter analyst conference call. With me is the Bancorp CFO, Al Rietheimer. Al will take you through our fourth quarter results, as well as our year-end financial results. I will then come back and discuss those results, we’ll make some comments about our plans and our prospects for 2005 as well. Then both Al and I will be available to answer any questions you may have.

During this conference call, we may make forward-looking statements within the meaning of the Securities and Exchange Act of 1934. These statements are based on our present beliefs and are necessarily based on certain assumptions, which are subject to risks and uncertainties. Actual results may differ materially from those discussed here. More information on these risk factors can be found in the Company’s filings with the Securities and Exchange Commission.

With that, I’ll turn it over to Al.

Good morning, and thank you Merrill. Earnings for the fourth quarter were $2.3 million or $0.54 per share and represented record quarterly earnings for the Company. They also represented a 14 percent increase over the fourth quarter of 2003, and a 4.5 percent increase over the third quarter of 2004. On an earnings per share basis, EPS for the fourth quarter were up $0.06 or 12.5 percent from $0.48 for the fourth quarter of 2003 to $0.54 for the fourth quarter of 2004. On a linked quarter basis from the third to the fourth quarter of 2004, they were up $0.02 or 3.8 percent.

Looking at our full-year earnings, the 12 months that income number was $8.6 million on an EPS basis that was $2.04 per share. That’s compared to $7.2 million and $1.77 for the 2003 period. This represented a 19.4 percent increase in net income, and a 15.3 percent increase in EPS.

Our fourth quarter of 2004 numbers did contain some noise relating to the Company’s sale of the South Broadway facilities, some restructuring of its CMO portfolio, and costs related to its stocks 404 effort. These items in general netted against one another did not materially affect the Company’s bottom line.

But before I talk further about our earnings, let me talk a little about our balance sheet. Total assets increased $28.1 million or 2.3 percent during the fourth quarter, and $145 million, or a little over 13 percent for the full year. That growth continues in the commercial and consumer loans portfolios, which for the fourth quarter commercial loans were up $10.8 million or 2.7 percent, and consumer loans were up $7.0 million or 4.4 percent. Commercial loans grew at an annual growth rate of 21 percent for the full year, and consumer loans grew at an annual growth rate of almost 45 percent for the full year. Our consumer loan growth continues to be centered in both home-equity lines and loans.

While the commercial and consumer loans growth remained healthy, total deposits experienced some softness, as they decreased $5.4 million or .6 percent during the fourth quarter, but remained up over $69 million or 8.6 percent for the full year.

During the fourth quarter, the bank experienced a shift towards Certificates of Deposit, which increased almost $30 million or 13.6 percent, while checking and savings deposits decreased $35.1 million or 5.3 percent.

Talking briefly about credit quality, our loan growth continued to be achieved while total nonperforming assets remained low. Nonperforming loans ended the year at $733,000 or only 6 basis points of total assets. Both of these numbers were down from the end of 2003. Net charge-offs for the full year were only $72,000, and in fact during the fourth quarter, the Company experienced net recoveries of $33,000.

The allowance for loan and lease losses ended the year at $11.9 million and represented 1.34 percent of total loans, and over 1,600 percent of nonperforming loans. Our net interest margin increased 2 basis points during the fourth quarter from the third quarter of 2004, and was 3.44 percent for the full year. The margin benefited from increases in the prime rate, along with the maturity of $20 million of higher-rate FHLB advances. When comparing to the last year, the fourth quarter’s net interest margin was 14 basis points greater than the fourth quarter of ’03, and for the full year the margin was 16 basis points greater than the margin for ’03.

While the Company strives to minimize its interest rate risk exposure, it believes that the flattening yield curve forecasted for the coming year will cause increased pressure on its margins, similar to what we believe many other financial institutions expect to experience.

Non-interest income was $2.3 million for the quarter, similar to the number reported for the fourth quarter of 2003, and for the full year was $8.6 million versus $8.8 million for the full year of last year. The fourth quarter of ’04 contained a $535,000 gain from the sale of our South Broadway facilities, which we have leased back to continue the operation of our branch at that location. This gain the Company used to offset a loss of $260,000 from the restructuring of its CMO portfolio, selling a CMO that has the greatest extension risk, and also the Company incurred $300,000 of professional fees in conjunction with its stocks 404 efforts during the quarter.

Comparing the 2 full years, the 2003 period benefited from a larger amount of gains, pre-payment penalties, and commissions from mortgage originations for sale. They totaled $1.7 million for the 2003 period compared to $863,000 for the 2004 period. Excluding these items, core non-interest income actually increased a little over $600,000 or 8.5 percent from 2003 to 2004, and this increase was centered in the following; service charges on deposit accounts increased almost $600,000 or 15 percent resulting primarily from enhancements to how the bank assesses NSF fees. Non-deposit investment products generated an additional $98,000 or 11 percent more than what they generated in the 2003 period.

Shifting to non-interest expenses, total non-interest expenses increased $1.4 million from the fourth quarter of ’03 to the fourth quarter of ’04, and for the full-year periods were $4.1 million higher than the full year of 2003. The net increases were centered in a couple of areas. Salary and benefits increased $730,000 quarter-to-quarter and $2.6 million for the full-year periods as additional staff was added during the past year to support the continued growth of the Company. Additionally the 2004 period included bonus accruals of approximately $1.2 million, which were not evident in the 2003 period. It did not take place in the 2003 period.

Professional services, as I mentioned before also increased. They were up almost $400,000 in the fourth quarter alone, and $591,000 for the full-year period as the bank increased its management training efforts, accrued for the partial outsourcing of its internal audit function, and incurred $200,000 of professional fees to their auditors in connection with their stocks 404 effort.

This concludes my prepared comments, and at this point I’d like to turn the presentation back to Merrill.

Thank you Al. Just to kind of recap a little bit about the quarter and then talk about our year, and then finally take a look ahead -- talk about our past year and then look ahead to 2005, with comment more about the current year.

Quarterly results on personal loans hit, topped out over $400 million, so that was kind of a nice benchmark for us. It was $11 million over the previous quarter. Consumer loans, a good quality portfolio, up $7 million over the previous quarter as well. As Al indicated, while the margin was up slightly this quarter, we do believe that that margin is coming under pressure with the flattening of the yield curve. And finally, we were slightly down in deposits from June of this year, and I’ll talk a little bit about some of the balance softness with you.

If you look at the entire year, and we have indicated that we’re pretty pleased these results. We had double-digit net income, 19 percent increase over last year. Very strong results in the commercial and consumer loan portfolio growth at 21 percent and 45 percent respectively. Our commercial pipeline remains healthy, and our credit quality is good. The non-performers are phenomenal . I would note that these are -- it doesn’t get much better than it is right now. We always caution that there can be months on the horizon. We’ve got any number of customers who have experienced some difficulties, but we generally work our way through these issues with them. I think it’s very helpful when you know your customer, and you’ve got a lot of family businesses that have been around for 40 years. They’ll be around for the next 40 year as well. So we’ve got a strong portfolio, and we do everything we can to keep it that way.

Back to margin pressure, what Al has indicated is the flattening of the yield curve will increase the pressure. I don’t think we’re in a materially different position from anyone else in the industry, but we have tried to incorporate that when we plan our budget.

Talk a bit about the deposit balances for the last 6 months, on the face of things they look a bit soft. Certainly we’ve seen an increase in consumer preference for CDs now. People are taking money out of some of the higher-yield savings products that we’ve had and shifted them over to CDs. We are very pleased with our current ability to generate CDs. We’re getting a good response at the pricing we’re comfortable with. Having said that, I would also comment we took a look at, June was just really strong. In the first 6 months of the year, it was really strong, and we turn around and some of that is if you get under the numbers a bit, our sense is that first we had a number of title companies in order to do mortgage closings. Their balances are materially lower than they were before.

Some of the, we get bigger, we get larger swings in the accounts so we’ve got a number of accounts that are [indiscernible] which are also lawyer-related accounts. They’re more like receivership balances and the like, and so if you factor those in, that really accounts for the DDA decline. We’ve got a really good sense that we’re not losing customers. We did have one larger customer -- a real great growth story -- just a deposit customer who in the last 5 years has grown amazingly. The company was acquired last year by a company based in the South, and the deposits during the last 6 months went to Wachovia. That’s over $10 million in deposits. So if you peel those pieces away, we’re actually experiencing some growth. But you can’t see it in those numbers, so we’d prefer to be out here with a story that the net balances are increasing. And I think that we’ve got some plans in place that I’ll talk about to kick off the next year.

If I go back to the year overview, some non-numeric topics, 2003 really saw a lot of structural hardware and software changes. This year, we have really expanded the management group and put a team in place to grow this bank appropriately and solidly over the next couple of years. So we are very pleased with the creation of the Chief Operating Officer position, the new EVP for Finance, as well as additional help on Human Resources and the marketing side. And I think that’s going to serve us very well going forward.

What we are also experiencing is very good results generally in response to recruiting for positions. When Don McQueen was made COO, Steve Gibbons moved up to Chief Lending Officer, we were able to attract an absolutely crackerjack bright young guy out of one of the major institutions to head the Commercial Real Estate Group. We named a new head for our Business Lending Group internally. He’s been able to fill his chair with a really good recruit as well. So I think our reputation is helping us that way. So I’m very pleased with the recruiting responses beginning this year.

Back again looking at this year, the North Kingstown branch has done tremendously well, and I think that bodes well and factors into our future plans, as well as we had run an ad campaign this year on business banking, and really focused on the small business approach. Wonderful feel to it, got a lot of great publicity, and I think it’s going to launch us very well into the programs that we have in place for 2005.

As I look ahead a bit, I’m very excited about our position this year. First on the income side, we are going to try to achieve about 10 percent net income growth, and that is going to be a stretch for us. It’s not only increasing margin pressure but historically, the message seems the same a lot in these calls, which is we try to balance the growth of the franchise and the growth of the earnings. And the franchise growth is still the story with this institution. We are going to be opening 2 new branches in 2005. One is in Lincoln adjacent to our Ops Center. That should be opened this spring. That’s a nice market for us. It’s got some good locations to it.

And additionally, we’ll be opening a branch in East Greenwich. The East Greenwich plant probably wasn’t on the target for the next one, but we consider ourselves pretty opportunistic, and an unbelievably great site became available. We were approached and we just said, “Yes, that’s the place we want to be”. So that branch will open summer to fall, something like that. And so that will give us another touch point.

And as we’ve disclosed previously, including North Kingstown branch over a 3 to 5-year period, we plan on opening 6 new branches, and I’ll talk about that strategy in a moment. But Kingstown is going well, Lincoln, East Greenwich, we have a site identified and tied up in Pawtucket, Rhode Island, which is the only major population center that we are not in at this point, and it’s a pretty densely populated, older city but we’re doing some business there and we look to increase it. And then move on and add some more sites with the passage of time.

One of the primary reasons to get that footprint expanded, not to mention deepened, is that we’ve got a real focus on business penetration. And I think that the commercial portfolio growth is a really good indicator of the reception and market positioning for this institution.

I had an opportunity -- and I knew we’d be doing this conference call -- but I’m going to tell you if you would like to really just see it for yourself, and we did some focus groups about a week or 2 ago, and they were divided into 2 segments. They’re all small-business people, these are all $250,000 lending relationships or less, and there are just thousands of these people in the State of Rhode Island. And one group was a group of Banquet [ph] Island customers, and then the other group was all non-Banquet [ph] Island customers. And I was generally gratified to see that our customers were real pleased, a very happy responsive group -- not to say that we were perfect -- but really nice things being said, love the service and the like.

When the other group was asked, and these customers were all, with one exception it was a credit union customer, of the 9-ish people that were in the other group, 8 of them were with the major regional institutions who we know have around 80 or 85 percent market share in the greater Providence area. When the facilitator asked about how they felt about their bank, it was not a pretty scene. I mean, you saw angry, hostile, unhappy people. And again I say, this is not consumers, this was not a consumer focus group on how you feel about your consumer checking account or your mortgage. These were small-business people. And the whole notion of relationship banking and service, because these people have -- I think why they’re so unhappy I suspect they have a lot more contact with their banks than the consumers do, because businesses are in there more often with deposits, more often with special needs. And they are not getting a service level that makes their already frazzled lives easier.

So inertia remains the greatest force in banking. It’s difficult to get these people to switch. You’ve got to execute on your plans because they’re so busy running their business and worrying about the competition, and dealing with various issues that small-business people do. But at the end of the day, there is really a good-sized marketplace out there. And so we’re planning to penetrate more deeply with [indiscernible] expanding our footprint, because I think the more visible we are, and the more touch points we have in a very tangible way, that will help us.

I think you will see some, we’re also always looking to branch out on our lines of business, to improve on interest income, and finally make some comments for you on our efficiency ratio, which is over 70 percent, and our ROE, which is, it’s a little bit better this year than it was last year, but it’s certainly not a high-performing number.

We have put in place the kind of infrastructures and personnel we need to drive and support the growth we’re talking about. We see the market opportunities here. Historically we’ve been able to execute on it, and our plan is to execute on business penetration as well as [indiscernible] on the retail side, so it would be exceptions of cost of incurring new branches and really the expense growth is not that high. In other words, if you look at the fourth quarter fully loaded, probably looking at maybe 6 percent expense growth rate, and that even incorporates technology improvements in it, it really is a question -- the first couple of years we were young, and we think we have a lot of growing to do. And the first couple of years, we kind of grew into the footprint, and average branch size was $35 million. Now it’s up in the $60 to $65 million range.

But what we’re looking to do is to grow into a larger footprint. We are fairly controlled oriented and don’t want to get ahead of ourselves. So we want to make sure we have the people and the management and the systems in place to control the quality. So we think we have a really unique growth opportunity, and we fully intend to take advantage of it. And I couldn’t be more pleased about the position we occupy today and what our long-term prospects are.

So with that, that will conclude my comments, and I will turn it over to Donna [ph] so that she can open it up for questions.

Ladies and gentlemen, at this time we will begin conducting a question-and-answer session. (OPERATOR INSTRUCTIONS). Damon Delamonte [ph], KBW.

Good morning, I have just a couple of questions for you. First regarding commercial loan growth, how would you categorize that growth? Would you say that’s an increase in utilization from existing relationships, or is it more of a function of developing new relationships and adding new customers to the bank?

We don’t have a breakdown for you, but I can tell you that we have a significant number of new customers and we are new-business focused, locally new-business focused.

Okay, and to touch real quick on your efficiency ratio, do you guys have a target as to where you want to be and a timeframe in which to achieve that?

The answer is no. There are 2 things that drive that. The first is that the math is inexorable. If we had a 3.8 percent margin, which we don’t and we’re not telling you that we’re going to have. But if you go back 3 or 4 years, we were in the 3.8, 4 percent range. We’ve changed the mix and in a different rate environment, I don’t think that’s an outrageous number. That would generate position income. That could put us at a 15 percent return on equity, and push the efficiency rate down in the 50, 51 percent range. So I’m not so sure it’s because we have too many people or we’re not efficient. That’s the first part.

The second part is we always look at our expenses, and we will continue to do so over the next year to see if we can use our technology smarter, and we grow. We’ve got to watch and not just keep doing the same things that we’ve always done, but look for a better way to do it. That’s part two.

But then part 3 to come back really directly on it, to me we have an opportunity out there. We’d have a better efficiency ratio if we didn’t open 2 new branches next year. Those are both operating losses for the next year to 2 years, and our focus is not on the efficiency ratio. As long as we think we’re running lean and smart, and we will continue to focus on franchise growth, net income growth, over time -- we have said and our current thinking is that if we got up around the 20 branch point, 21, 22, let’s call it 20 branch point, we will have penetrated and have touch points in enough places in this state, and probably with the exception of [indiscernible] Island, that we will be petty much a statewide franchise at that point.

At that point, I think it’s not unreasonable for us to then turn and say, “Okay, how do we, let’s make sure that we’re putting up the kind of numbers on the ROE and the efficiency ratio that say this is a high-performing institution.” And I think we’re still very young in our life, we’re 9 years old, so that we’ve got not only more growing to do, but I think that we will definitely be focused, over time on improving those numbers. But for the next year or so, our low efficiency ratio is not something that you’re going to see from Bancorp Rhode Island.

Okay, thank you very much.

Bill McCrystal, McConnell, Budd & Romano, Inc.

Good morning Al, Merrill. A couple of questions in no particular order, but is it fair to assume on your comments on the CD and the shifting that the increase in the CD portfolio in the fourth quarter is customer-preference driven, that you’re not out there really going into the wholesale market purchasing CDs?

That’s absolutely correct Bill. It is local, primarily consumer-driven preference for CD product.

But we are advertising a CD, and we’re very happy to take money in, so we’ve done our -- this is the first time, generally we are targeting checking a saving. And we will have tremendous emphasis in the business checking and savings in the [indiscernible] of our own customer base on the consumer side. But I think that you’re seeing it not only here but nationally, where the rates have gone up sufficiently for people to be willing to tie their money up. We’ve got 18-month product out there now and people are taking it.

Right, when you do a program on a CD, do you tend to get more of the shifting that you’re seeing, or is it a combination of existing customers moving money to a higher yield, or do you get a fair share of new money in also?

We get a fair share of new money. I don’t have a breakdown for you on that. I wasn’t anticipating this question, sorry. But I can also tell you that our savings balances are relatively flat. Where we see the balances on the consumer side, any kind of transaction account going down is we had a higher-yield asset manager account, and that tends to be the money that is if we’re losing a balance tends to be there going into a CD or an annuity product.

Okay, all right, then Al I’m trying to reconcile the stocks expense. At one point you said there was $300 million in the sort of your one time --

No, $300,000. We’re bad but not that bad.

And there was 200 before, the question I guess is what is the one-time and how much ongoing expense will there be so I can get a sense?

Let me sort of answer the first half of your question first. During the fourth quarter, we incurred roughly $200,000 to KPMG, our external auditors in relationship to stocks efforts. We also spent about $100,000 to augment our internal audit function because we had our people primarily doing stock work, and therefore needed to have some internal audit work performed. So the 2 together is the $300,000 number that I mentioned.

The ongoing cost, honestly KPMG has not given us an estimate yet for the coming year. As I said, the total cost for 2004 from our external auditors was $200,000. We would anticipate that being less, but I really couldn’t say how much at this point in time. We performed most of the internal work with our own staff. We had a couple of openings during the year, but we did augment externally with about $100,000 worth of internal audit assistance. I would also see that number going down on an ongoing basis, but it’s dependent upon how quickly we can fill the open slots in our internal audit department.

Okay, and then I’m going to assume with the costs being spent that you believe you will be in compliance with all of the Sarbanes-Oxley.

We’re comfortable with everything that we’ve done to date.

Okay. Then just to clarify, Merrill you talked about the longer-term branching goals. Does that include the 2 new branches that you’ve announced for ’05?

Yes, that’s within that fixed number, as is North Kingstown, yes.

Oh, North Kingstown is in that number too.

Correct.

All right, and then I guess on the investment side, anything on the corporate portfolio? Has there been activity in that, are you still buying?

We have not been buying. It’s been relatively stable. Most of the activity that has transpired is our investment portfolio has been mortgage-related, CMO-related.

Okay, and then I just, it hasn’t been mentioned in a while but can you update us on CampusMate, what’s going on? It’s not been publicized all that much and I’m just trying to get an understanding.

We’ve got very little going on there. We probably bit off of it more than we could chew on CampusMate. It would require far more investment for us to exploit it fully. So we are in a bit of a hold pattern. We have terminated our relationship with URI and we’ll see whether we go back in there. We’re active at 2 campuses with certain features of it that work well. And at the third campus it has not proved to be as profitable as we would like it to be. So we’re kind of examining what we would do with this very small part of our business at this point. And using some of the technology applications, they are online banking functions, and we are just kind of seeing what we will do with it.

That’s fair enough, okay, thanks very much.

Ryan Kelley, FBR.

Good morning, just a couple of clarifying points. Most of my questions were already asked, but Merrill I think that you were looking for 10 percent net income growth in ’05?

Yes, that’s aspirational on our part, and I said “about”.

I understand, and also just on the new branches, are these going to be more along the lines of the North Kingstown branch, the Excel branches?

No, in fact the Lincoln branch is more along an express model. It’s a little bit smaller from what I remember. And the East Greenwich branch is already an existing branch site and was used by Attleboro-Pawtucket I think a long time ago. It’s been a medical office building. It’s just a great location, and that branch probably will be more of a conventional-looking branch. I mean, it’s an existing footprint but we’ll just, well Bancorp Rhode Island-ize it as best we can. But neither of them are planned to be open 7 days a week or have the kinds of bells and whistles that the Excel branch has.

Are there more areas of potential growth that you would use the Excel branch? You seem to have had some pretty good success with it in North Kingstown.

Yes, without revealing our super-secret plan, there are certain locations -- one of the other things we’re looking at is we’ve got a location or 2 that’s pretty tired. It’s in a part of a city that used to be, 50 or 70 years ago was much better, or even 40 or 30 years ago. And today it’s not where you’d want to be. So a community like East Providence for example I think could some day get something resembling an Excel branch, and whether we would do it, one of our more used and active branches is South Broadway. That’s where we did the sale/lease-back, where we kept the ground floor and expansion rights there should we want it. But we had someone using the office space upstairs so let someone else use it. The real estate market was strong, and they lease back to our advantage.

So I guess there are some communities where we would do the Excel branch, but those locations have not been announced yet.

Okay, one just small thing. Tax rate going forward, is 34 percent a good rate for ’05?

It’s representative. We were at 33.3 for this year. I would say 34 is fair.

Okay, and then just one clarification on the pressure to the net interest margin. Any time you reconcile, in my own head according to the most recent 10-Q, you were still slightly asset-sensitive and is it really just a flattening of the yield curve that makes you project margin going down slightly?

Yes.

Definitely is flattening, right.

Okay.

Linda Simmons was in my office yesterday. I think the difference between the 2-year and 10-year notes were something like 90 basis points. That’s kind of a tough environment to take extension with.

That’s true, great. That’s all of my questions. Thanks very much.

(OPERATOR INSTRUCTIONS). David Durst [ph], FTN Midwest.

Good morning, can you give us the value amount of the CMO that you structured, and would that have the impact on your yield of earning assets?

The amount of the CMO was approximately $6 million that we sold. Six million dollars isn’t really going to have a material impact on yields.

Right, and what are the characteristics of the residential loans that you’ve purchased?

For this past year, we have been primarily purchasing ARM products, 5/1 hybrids from time to time, earlier than 6 or 8 months ago we had purchased some fixed-rate product. But the bulk of recent purchases have been ARM.

Thank you.

David Menkoff [ph], Maxim Group.

Good morning Merrill and Al. Congratulations on another good quarter.

Thank you.

Thank you.

It’s a pleasure to see. Your loan portfolio has been growing quite nicely of late, yet the loan-loss provision is just about half a year ago from ’03. You did say that the charge-offs have been minimal. But I’m just wondering whether the flattening of the yield curve going forward might not relate to some more charge-offs, in which case the loan-loss provision should be a little higher. I guess what I’m saying is are you adjusting an overvalue loan-loss provision from the past? What is the loan-loss policy? Are you trying to get to a certain percentage of loans? What are you doing there with that?

We do not think we were overvalued in the loan-loss reserve. And Dave, the answer is we evaluate it quarter-to-quarter. I mean, we evaluate it monthly frankly, but when we said -- the long and short of it is that we think we’re appropriately reserved, and I don’t know Al -- do you want to?

David unfortunately you sort of have to as a financial institution walk a little bit of a tightrope between wanting to have a very strong allowance for loan losses. So from the SEC perspective, making sure that it is based upon the characteristics of your portfolio. So that’s what Merrill was saying, we are constantly reevaluating it. And with the experience that we’ve had recently, particularly net charge-offs of only $72,000 we felt that we were providing the most appropriate.

Well, your experience has been wonderful, but do you look at the loan loss provision as a retroactive number or a number going forward? We’ve come off [indiscernible], and this is good --

I don’t disagree with you. What we try to do is segment our portfolio so that within each category of loans, there is a waiting system, there is a reserve percentage assigned to each one of them, largely based -- I shouldn’t say based on historic experience because if we were basing on historic experience alone of this institution --

You’d have no provision.

Thank you. So we take a look at industry standards, compare ourselves to peers and the like, so it’s a judgment call. So at this point, what I am very comfortable saying is that we have a very good handle on our portfolio to the extent that if there are bumps and issues in a portfolio, we get to them early and I think we deal with them appropriately.

The other thing I will say is that we are largely a collateral-based lender. Now, the number 1 and 2 people in this institution, myself and our Chief Operating Officer, Don McQueen were the turnaround people, or the attempted turnaround people in institution in the late 80s and early 90s. And so we’re very cognizant that when you get to the foreclosure auction and you get to liquidation, maybe the values aren’t there.

But we are generally conservative on who we let into the bank, I think that’s the first line of defense is to have borrowers that you know who are good managers and who can recycle. And then the second is we do our best to on the whole we’re collateralized there are no unsecured loans in the portfolio but we’re basically a collateral-based lender. And the third part is we monitor carefully. So at the end of the day, we think we’re appropriately reserved. You’ll see us adjust it from time to time going forward. I don’t think any of us think we’re Pollyanna, and all of us know that the real estate market and some of the pricing has been pretty strong as of late.

Okay, I guess it just caught my eye because I saw the loan portfolio growing and normally you would think the provision would grow as well. But I guess you’re factoring in the history.

Well, you see the coverage ratio is more or less the same. There has been a shift to more commercial assets, but again you make the judgments within a portfolio, and we think we’re appropriately reserved.

You’re doing a good job. I’m going to stick with a winner, so I accept it.

Well, thank you for that. I’m knocking on wood as you speak.

Have a nice day.

Thank you.

Ladies and gentlemen at this time I would like to turn the floor back over to management for any addition or closing comments.

I don’t have any closing comments except thank you for joining us. Have a happy and a healthy New Year, and we look forward to talking with you at the end of next quarter.

Take care.

Thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines at this time, and have a wonderful day.