Valley National Bancorp (VLY) 2016 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the First Quarter Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Senior Vice President of Public Relations, Mr. Marc Piro. Please go ahead.

Good morning. Welcome to Valley's First Quarter 2016 Earnings Conference Call. If you have not read the first quarter 2016 earnings release that we issued earlier this morning, you may access it from our website at valleynationalbank.com. Comments made during this call may contain forward-looking statements relating to Valley National Bancorp and the banking industry. Valley encourages participants to refer to our SEC filings, including those found on Forms 8-K, 10-Q and 10-K for a complete discussion of forward-looking statements.

Now I would like to turn the call over to Valley's Chairman, President and CEO, Gerald Lipkin.

Thank you, Marc. Good morning and welcome to our first quarter 2016 earnings conference call. This morning we are pleased to review Valley's first quarter operating results and provide an update on the bank's previously announced strategic initiatives. First, I'd like to focus on our Florida expansion.

In the fourth quarter, we significantly increased Valley's presence with the consummation of the CNL merger. Valley's Florida footprint now equals approximately 15% of our entire franchise. With CNL, Valley acquired a talented group of business bankers with a tremendous pedigree. Coupled with Valley's established Florida staff, operations are now poised to produce a significant contribution to Valley's earnings and market share.

As originally anticipated, in the first quarter, we were able to convert CNL's data systems on to Valley's computer platform and most back office operations are now administered in New Jersey. In large part, as a result of the duplicative expenses prior to conversion, CNL negatively impacted Valley's first quarter operating earnings by approximately $0.01 per diluted share.

With the integration substantially concluded, many of the cost saves identified during our due diligence process will begin to be recognized through the income statement in the second quarter. In addition to the expected expense reductions attributable to CNL are the many organizational-wide cutbacks in operating expenses identified through Valley strategic planning process.

At the end of the first quarter, Valley employed 2,897 full-time equivalent employees, a decline of 32 from the prior quarter, with an additional reduction of 35 more persons forecasted for this quarter. Staff efficiency is not new at Valley. In fact, workforce levels at Valley are lower today then after we entered the Long Island market in 2012 with our State Bank acquisition when Valley was approximately $16 billion in total assets. While we are pleased with the direction of operating expenses, as noted, we expect further improvement and remain vigilant in identifying additional areas to reduce expense.

During 2015, we announced the consolidation of 28 branch locations of which to-date 14 have been consummated. We anticipate the remaining locations to close in May and June, further reducing headcount and expense. The optimization of our branch network is a perpetual endeavor as the banking environment continues to evolve. As we work to right-size the branch network and provide electronic delivery channels, we anticipate additional branch modifications and closings to materialize. Reducing operating expenses is an integral component of enhancing Valley's earnings profile.

As we previously commented, in late October 2015, Valley repaid a large portion of its high cost borrowings and immediately replaced those borrowings with new short-term funds from alternative sources. In late December, the original source of those borrowings offered Valley a significant incentive if [we withdraw] a similar amount of funds for one year. The incentive was recognized in the fourth quarter of 2015, and actually enabled Valley to prepay additional borrowings in December without incurring a net increase in expense.

As a result of the additional borrowings, Valley's liquidity positions spiked during the first quarter, impacting both net interest income and the margin. A large portion of the original October replacement funding has now matured and we have been able to re-normalize our liquidity position. Alan will provide additional color on this issue in his prepared remarks.

Loan activity for Valley in the first quarter is historically light as many of the bank's traditional C&I borrowers reduced line usage, following a year-end buildup. Further, Valley's Northeast consumer automobile and residential mortgage customer base are seasonally less active in the first quarter. Despite the historical challenge in expanding loan volume in the first quarter of 2016, loans expanded approximately 2.3% annualized driven by strong activity in Valley's Florida emerging marketplace.

Total organic loan originations in the first quarter exceeded $640 million, nearly 10% greater than the same period one year ago. Valley's Florida division accounted for over $160 million of the new volume with net outstanding increasing at a double-digit pace and currently the committed pipeline in the Florida market is up approximately 50% from the prior quarter. The majority of Florida's originations reflect traditional commercial purpose loans, similar to the Valley's Northeast profile and underwritten to Valley's customary credit standards.

Business activity in Valley's core New Jersey and New York markets continues to improve at a tepid pace, although we have reason to be optimistic about levels of lending in the Northeast for the balance of the year. I make that statement based on the fact that our approved committed pipeline in the Northeast had grown to over $500 million by quarter-end, nearly double the historical levels for this time of year.

Consumer lending, including residential mortgage, for the quarter was a mixed bag of activity. Residential mortgage application volumes spiked nearly 100% from the applications received in the fourth quarter. However, as is customary with residential lending, there is typically a six week to eight week lag from application to closing. Therefore, we expect increased closing activity in the second quarter.

As discussed in prior periods, Valley intends to sell a major portion of its residential originations in part to manage the bank's future interest rate exposure. During the first quarter, approximately $54 million of fixed rate residential loans were sold, generating a gain on sale income of $1.7 million, an increase of approximately $500,000 from the fourth quarter. Should residential mortgage application activity continue at the pace realized in the first quarter, we expect a future increase in income from the gain on sale of loans as the year progresses.

Contrary to the increased volume recognized in residential mortgage lending, Valley's indirect automobile lending business line experienced a significant decline in origination activity and ultimately loans outstanding. The portfolio contracted over $50 million on a linked quarter basis, approximately 16% annualized. First quarter originations declined to approximately $70 million from $134 million in the fourth quarter. The decline is largely attributable to revised indirect dealer loan level pricing guidelines recommended by the CFPB and adopted by Valley.

Credit quality as of March 31 remain pristine, with total non-accrual loans as a percentage of total loans equaling 0.39% for the second consecutive quarter. Net charge-offs for the quarter were a negligible $1.5 million or 0.04% on an annual basis as a percentage of total average loans. Valley's underwriting philosophy has remained consistent irrespective of the economic conditions and asset class.

Requiring borrowers to maintain significant equity in each loan facility is prudent despite the aggressive advance rates prevalent in the marketplace. For example, as of March 31, Valley's New York taxi cab medallion portfolio equals approximately $140 million in outstandings. The average loan to value of the portfolio, assuming a current market valuation of $750,000 per medallion, is 55% of that value. Further, of the approximate 350 medallions the bank has as collateral, only one has a loan value in excess of $600,000.

I mentioned the credit characteristics of the medallion portfolio simply as an example of the credit scrutiny applied to all lending portfolios at the Bank. As I have repeatedly said, banking isn't so much the return on the principles, but rather the return of the principle.

Before I turn the podium over to Alan, I would like to reiterate that Valley remains on course to meet its performance goals for the year. While we would like to see all of our anticipated expense savings and revenue enhancements scheduled for this year take place on January 1, many of them take months to implement. That said, our expense savings are materializing as we projected. Also, our revenue stream is expected to meet our strategic targets despite the protracted low interest rate environment in which we have been operating for the past several years.

Alan Eskow will now provide some more insight into the financial results.

Thank you, Jerry. For the quarter, Valley generated net income available to common shareholders of $34.4 million. The quarter's financial results reflected a full period of CNL, which closed on December 1. As Gerry indicated earlier, Valley completed the consolidation of many back office operations in late February.

As a result, the quarter's total non-interest expense of $118.2 million included numerous integration and duplicative staffing and other operating expenses. As of April 1, the majority of these expenses which we estimate to be approximately $2 million have been eliminated and we expect the second quarter to reflect a more normalized core operating expense figure.

In addition, during the quarter, Valley recognized $7.3 million of expense attributable to amortization of tax credits. The expense which is recognized above the line in calculating pre-tax net income directly impacts the bank's effective tax rate, which for the quarter was 28.5%. While for the quarter, the amortization of tax credits declined significantly from the fourth quarter, the actual expense of $7.3 million was approximately $2.3 million greater than our previous guidance. In future periods, we currently expect the amortization to remain in line with the first quarter of 2016.

During the quarter, we closed one branch and anticipate consolidating the remaining 14 previously announced closures by the end of June 2016. Due in part to the timing of these closures, we expect non-interest expense to contract from the first quarter actual of $118 million both in the second and third quarters, ultimately realizing an annual rate consistent with the $455 million guidance provided last quarter.

The net interest margin for the quarter contracted 22 basis points from the fourth quarter as the expected decline in cost of funds from 0.83% to 0.78% was more than offset by the decline in the average rate of total interest earning assets. The linked quarter decline is attributable to numerous moving parts, some of which we identified last quarter as infrequent in nature and others that were the result of events during the first quarter.

The linked quarter decline in interest income attributable to contractions and swap fee income and recovery interest income on PCI loans equaling approximately 12 basis points on the margin were a couple of the items previously identified as adverse to the margin when comparing linked quarters.

In addition, two specific items not previously discussed also negatively impacted the margin by approximately 12 basis points in the first quarter as compared to the fourth quarter of 2015. Valley's balance sheet includes approximately $2.1 billion of loans classified as purchased credit-impaired. Those largely acquired through whole-bank acquisitions. As a result of the accounting methodology for these loans, Valley recognizes accretion income on a pooled asset basis, which represents both the contractual interest earned and any fair value adjustment recorded at the acquisition date.

For purchase credit impaired loans, Valley periodically reforecast the remaining estimated cash flows based mainly on actual repayment experience within each pool of loans. During the first quarter, we reforecasted the cash flows on a portfolio of loans acquired with our State Bank acquisition in 2012.

Based on the reforecast, the estimated life of the portfolio extended significantly from the prior reforecast. On the surface, this is a positive event. However, the accounting methodology actually negatively impacts near-term accretion as the acquisition fair value mark is now spread over a longer duration, positively impacting future periods. For the quarter, the reforecast at this portfolio negatively impacted expected interest income by approximately $3 million or 6 basis points on the margin. We expect the reduction in interest income to be static, and so the next reforecast, which is typically a 12 month cycle.

Further impacting the interest income and margin for the quarter was the excess liquidity held largely attributable to pre-funding certain debt maturities, coupled with the impact of the declining consumer lending origination volume. The impact of the additional liquidity adversely impacted the margin by 6 basis points on the margin. In part, based on the current loan pipeline and anticipated closings, we believe the excess liquidity realized in the first quarter will not continue in the second quarter and both net interest income and the margins will expand accordingly.

Further, the second quarter net interest margin will be positively impacted by $182 million of long-term debt which matured in early March and late April. Although the linked quarter net interest margin declined greater than originally expected, thus falling short of the guidance provided during last quarter's call, the after-tax net income for the bank is in line with management's expectations and we are still on track to achieve our 2016 annual budget.

Non-interest expense will continue to decline as cost saves are realized through both CNL and Valley's organic branch consolidation efforts. The seasonality which impacted Valley's first quarter loan growth is not anticipated to influence future periods and based on the current loan pipeline, we anticipate annual loan growth consistent with prior guidance averaging 6% to 8%.

This concludes my prepared remarks and we will now open the conference call for questions.

(Operator Instructions) Collyn Gilbert.

Alan, just to hop back to your comment there on the loans and the expectation that the loan growth should be rebuild and you're keeping that 6% to 8% growth rate for 2016, so that obviously means a pretty meaningful I guess acceleration of loan growth in the latter part of this year. Can you just kind of walk through where you expect that to come and what gives you the confidence in that line?

I think Jerry mentioned in his comments that we have a $500 million pipeline in the Northeast loan, besides the expansion of the pipeline we've seen in Florida. The pipelining in the Northeast is approved loans and we expect those loans to be closing shortly. So, as those loans continue to close in the second quarter, a lot of them, that will help build us back to the percentage increase that we expected. So I think a lot of it you'll see in the C&I and CRE portfolios.

We're also seeing very strong growth in Florida. Remember, the two franchises that we purchased based on just their capital base and their size, didn't go after loans as large as we're comfortable making, and that gives them the ability to build their pipelines at a much more rapid rate than they were able to do in the past, and we're actually seeing that take place.

I pointed out in my remarks, the lenders in Florida come in a large measure from much larger financial institutions in their career. So they are very comfortable in handling larger credits. It's not something that's new to them. It just gives them a lot more flexibility since the merger. So we're real excited about what we're seeing take place there.

Okay, that's helpful. And do you have a sort of blended origination yield that you're seeing on the new C&I and CRE stuff that's coming on relative to what's rolling off?

I'd probably say we're somewhere in the [350 to 375] range.

Okay, that's helpful. And then, just while we're talking about loans, the construction growth that you saw this quarter, can you just talk a little bit about that and if you think that's sustainable, do you see that ramping up, such as to how that's fitting in with your overall appetite for growth?

Our main emphasis is not on construction, it's more on commercial real estate, it's more on C&I. While we're open obviously to construction lending and we're happy to do it, at this point in the economic cycle, it raises some concerns. So we're actually focusing more on established projects.

Okay. And I apologize, Jerry, if you guys covered this on your opening comments, I came on a little bit late. But just around the indirect auto, and I know on the press release you'd indicated that you're kind of reevaluating the situation there. Would you guys consider at all that, let's say, the new pricing structure is set, and there's not a lot of variability to that going forward, would you ever consider selling that portfolio?

We consider everything obviously. We never say that we wouldn't consider something. Right now, we're looking at -- and it's very early in the timeframe to make a definitive judgment as to what we should do with our automobile program. So, right now, everything is open obviously.

Brian Horey.

I wondered if you could give us an update on the metrics of your taxi medallions portfolio, credit metrics?

I did say we have $140 million in New York medallions. We have a very small limited number, a few million dollars outside of New York but most of it is in the New York marketplace. If we use -- as I said in my remarks, if we use $750,000 as their value, we're still only at a 55% loan to value. We have one loan which I mentioned which was over $600,000 of single medallion and to be more exact, it was $612,000. So, we were pretty close to being on target when I said $600,000.

We are there in the entire New York portfolio. I believe they are all still current. They're all performing. So we're -- we were always a very conservative lender. We never gave the value to the medallions that they were actually selling at. We had a house limit I believe is around $850,000 when we did it and then we didn't lend $850,000, we only lead generally 75% or two-thirds or 50%, depending on other factors.

We have personal guarantees on a large portion of the portfolio. Depending on the other assets the borrower had, we determine the overall amount that we could lend. We are relatively comfortable with the portfolio at this point of time.

Okay. And then you had a little bit of a bump in the early stage delinquencies for C&I. Is there any particular portfolio that's driving that?

Nothing in particular.

Frank Schiraldi.

Just a couple of question on, first, on the 6% to 8% annualized loan growth, is that -- you foresee that -- is that basically just organic growth or would we include multi-family participations in 1Q and anything you do through the year? Would you need some of that to get there or is that organic?

No, I think we're still looking at it as organic. If we decide as we did in the first quarter to add something, we add it, but I think our goal was to have an organic growth of 6% to 8%.

I want to add a little bit about some of those purchased multi-family loans. As that portfolio has performed in an absolutely pristine manner, so if we have excess funds, I would certainly rather put into that, than I would rather buy a bond that's going to pay us a significantly lower return. So we look at it -- I look at it personally somewhat as a replacement to investment.

Yes, and I think we've told that to you guys before that we really allow the investment portfolio to lay flat, even decline and alternative to that was to look at shorter duration multi-family loans that were seasoned that we were comfortable with, that gave us a higher return.

Sure. And then, I guess, I would assume that, that would still include sort of double-digit growth in Florida. I'm just wondering if there is any areas down in that franchise that are getting, where the expansion is getting a little long in the tooth, where the -- you're starting to pull back a bit in Florida?

I think really, just hospitality in general, and the Miami-Dade market, maybe more specifically, and we've seen some pretty pricy levels in resi and the Miami Beach market. Otherwise, I think, I don't see the type of warning signs that we saw in 2006 and 2007.

Okay, great. Thanks. And then just finally on the margin, last quarter, Alan, you talked about where we might expect a full year NIM, you gave a range I think of 3.18% to 3.25% and I totally understand that the reforecast wasn't of the PCI pool, wasn't in that range. So just wondering now, with that included and given that you talked about a range back in Q1, would you be willing to talk about maybe where you think NIM value might roll out for full-year NIM.

Yes, I think, right now, based on the way we're seeing things, we'll probably come in at the lower range of that number. We're not going to come in at the higher range at this point. We just didn't expect the reforecast. So we're going to be at the lower range to slightly below that. We do believe that it will do better as the year moves on.

I think this first quarter really had so many moving things to it, that it was difficult to forecast what we would see by the end of the quarter. But I think what we're now looking at relative to the rest of the year, we do see it going back up again from where we're at. We don't expect to be at this level.

Okay. And [it's coupled] with the volatility from -- obviously from the purchase accounting, but I don't think in the past you've given a total fair value mark, the fair value mark that's in the quarterly margin as a general basis point number. Do you have a -- if not an exact number, an approximation of what is in the 1Q NIM?

It's really a small number, Frank, and I don't really have that specific number in front of us. Remember that, that fair value mark comes across a whole bunch of different portfolios and is some addition to their normal interest, contractual interest that we expect to have. So, really, we're looking at mostly contractual and sometimes, as what happened this quarter, a reforecast spreads the fair value mark out over more years than we had originally projected.

Right. I guess, that's the question. 6 basis points seems like a decent sized number. So what was the size of that pool and how long -- how many years did it extend?

Remember, it's only one pool, first of all. We've got three banks and another piece that are all PCI loans. This is only one pool pretty specifically within one bank's acquisition. So while that decline -- it declined a couple of years. That's really what we're talking about here. So, where we expected it to pay down over a fairly short period of time based on the loans that were in that pool, what ended up happening is the good news is the loans are of better quality than we originally underwrote them out and risk-rated them at.

So now what's happening is, they are not paying down as quickly and therefore while we are being -- as I said I think in the remarks, we're being negatively impacted this year. I have no way of knowing, for example, how the next time we reforecast what that's going to look like. That could turnaround all over again. So it's really a lot of the moving target and that's why when we say there's a lot of moving parts, there are a lot of moving parts.

I guess I'm just trying to figure out -- if it's maybe moved from one to three years then, so it's spread over three years now, something along those lines and how big would that pool be? Would it be -- you've got $2 billion in PCI overall. Could this particular pool be a quarter of that or are we talking of smaller numbers, bigger numbers or --

Let Ira respond. He's got his hands on this thing from the moment. He's trying to tell me and I'm going to let him respond.

Frank, the State Bank pool is sitting around $400 million in total balances right now. So I think that's sort of what we're looking at, and that's overall [expended]. I think one of the things that Alan tried to allude to in some of his comments was the fact that we might had an initial adjustment in this period, but there is a positive to this as the loans are going to now be extended further out and we will get that higher yield for a longer period of time.

Now the volatility that we had this specific period was attributable to an adjustment within that reforecast. So [we're now] expecting $3 million, as Alan mentioned, to be the adjustment on every single quarter as we move forward. And I think you're trying to, I guess, rightly so, get to what that potential volatility is in other pools and so forth, and this is sort of a unique pool that really doesn't, I guess, reflect a lot of with the other pools look like. That's helpful?

Okay, that's helpful. Thank you.

Matthew Breese.

I just wanted to walk through some of the dynamics of the margin. This quarter and relative to your guidance for 3.18% or slightly below that for the full year, I get to redeployment of liquidity, that should impact NIM positively by, it sounds like 6 basis points, and some of the maturing debt, that should impact NIM by another 5 or 6 basis points. Should we expect another increase on top of that from a relative normalization of swap income or can you help me better understand the positive impacts that get you back up to the 3.18% range?

You just added up I think -- what were your two numbers again? You gave me six and how much -- what was the other number you gave me?

5 or 6 from the debt maturity.

That's 11 basis points or 12 basis points right there. So, 12 basis points and we showed you what, [3.08%]. So that gets you close to 3.20%, just right there. But that being said, the original normalization of things like swap income, pre-payment income, et cetera, all of those things are based upon -- all of them are based upon the borrower and what the borrower decides to do.

We may be telling them about swaps that they can do to lock in rates et cetera, et cetera. We'll get fees from that, but that being said, I can't tell you how many loans and how many people borrowers are going to do that. So we're really sitting out there without knowing. So there's nothing like normalization to that. We did have I think $1.7 million of swap income this quarter. So we had a fairly good amount. It just wasn't as big as we had in the prior quarter.

And the other thing is, as we have maturing debt that's going to continue to happen throughout the year, we did have, I think as we stated, which we're not getting any real benefit off this quarter, we had about $182 million of debt that matured between March and April, that's going to bring us a couple of hundred basis points of savings on a cost basis and then when we get to July, we're going to have another $75 million that's maturing at 5%, so that's going to come in and save us as well some money as we move forward. So, there is a lot of pieces to this going forward, but I think all of this, based upon the way we're looking at it, loans coming on, coming out of maybe the liquidity issue, is all going to [renew to] our benefit in the margin.

And then hopping to expenses, it sounds like there a lot going on between the first and the second quarters, you have a number of branches closing plus the system conversion. So, what do you expect to be the drop-off between the first quarter expense run rate and second quarter? Is it going to be as substantial as it needs to be to get you to that $455 million run rate for the year?

I think, first of all, we told you that it's going to take -- I told you this on the last call. It's going to take till the fourth quarter before you see this really normalize. I think I said in my comments now that it will start to normalize in the second quarter. So we're going to see about $2 million come off in the second quarter, but then you're going to see another drop off.

Remember the branch is closing in the second quarter, and there are 14 of them. They are not closing [for almost] the end of the quarter. You're not going to see any savings at all on lease expense, on people or anything else until sometime into the third quarter. So, getting to $455 million, we believe will take another quarter or so before on an annualized run rate basis you will see that $455 million going forward.

And then pulling on the indirect auto string just a little more, is the pace of decline we saw this quarter, should we expect that for the remainder of the year until a more formal plan is identified?

Very difficult to project. The acceptance of the dealer network to the flat interest rate scenario that is being employed is difficult to judge. It depends how many other lenders get onto the bandwagon, so to speak. Valley has always been a very conservative lender.

When we are told by a regulator or somebody like the CFPB that they are going to be looking at disparate income lending and they're going to be holding the banks responsible, but here's the way that they think that it should be done so that you don't find yourself getting up fined for having misbehaved. We got on the bandwagon and that's how we're doing it.

It's very difficult to project what the long-term effect of that's going to be though at this point. It's only been in effect for the last 70 days or so, 80 days.

[John Shibles].

Just a quick question. Of the 20 branches that are closing, in the 10 cases, it's mixed leased and owned. How many of those branches that you're closing, do you actually own?

Yes, we haven't really disclosed that. I can tell you that in the first group, there were a number of them that were owned. The first 14 that we closed, there were probably five that were owned. The number of them are under contract, I think one may be has closed already. We have a couple that are still up for sale. So we really haven't disclosed any more detail than that at this point.

And then in the beginning of [the K], it talks about the bank subsidiary being a REIT. So, is the REIT on the real estate or is the bank on the real estate?

Yes, we have REITs that were formed lots of years ago, and yes, some of the properties may well be within the REIT, but I don't know how many. The REIT is 100% owned by the bank. This is not an external REIT, number one. And it will not really affect any gain, loss or whatever we may have on the disposition of a piece of property.

Okay. And then, what is the target tax rate for 2016?

Somewhere between 20% -- I think we say 27% and 29% or 28% and 30%, I don't remember. It's right in that range. We're right there now at 28.5%.

Okay. And then, I plan on attending tomorrow, but last year, during the annual meeting, Jerry mentioned growing tangible book. We've not seen much in growth and then towards the end of the annual report, it talks about performance awards in 2016 through 2018 having some tighter tangible book. Does that mean the bank is shifting focus and will now start focusing on growing tangible book?

The tangible book is affected a lot by the acquisitions that we do. So, if you were to look at a history of the tangible book, and I have in front of me from a year-ago, we did begin to go up, we went up from March to June from $5.40 to $5.43 then to $5.48, and then we made the acquisition, and as we've announced, it was dilution to tangible book as a result of the CNL acquisition. So that put that back down to $5.36 and then, this quarter, went back up to $5.40 again.

So we do expect that, in addition, we heard our tangible book as a result of the borrowings. We prepaid, as you know, $51 million or we took a penalty of $51 million that had a negative impact on tangible book and it's probably about a two year payback in that.

So we've been giving the awards that have been granted over the last few years have been based partially on tangible book growth, and we do expect that to continue to grow, but that being said, and the board takes into consideration that when things are done for the purpose of growing the institution and making it more profitable that they need to look at that as well when they evaluate the tangible book value numbers.

I guess, in other way, I'm going to try asking you in a different way, when I compare you to your peers, other people have grown tangible book at a faster rate, so looking out over the next three years to four years, will there be more of a conscious effort to grow tangible book?

Yes.

Absolutely.

We will definitely look to grow it. By the way, part of the issue relative to tangible book in the way we look at it is, remember, we are paying about 4% dividend with some banks are paying 2%, some are paying nothing.

I brought this up last year at the Annual Meeting. Is there any discussion of maybe cutting the dividend, doing a stock buyback?

I don't think that'll be too popular with most of our shareholders.

(Operator Instructions) Collyn Gilbert.

Just a quick couple of follow-ups. And I know, again, the uncertainty on indirect is hard, but just curious, in the 6% to 8% loan growth that you're thinking for the year, what are your assumptions on indirect growth?

We're looking at contraction.

Okay. And then Alan, and I will go through all this based on your comments, but just trying to sort of summarize, given the movement on the borrowing, the debt that matured this quarter and everything, are you anticipating then that interest expense should be relatively flat on a linked quarter basis?

Probably go down. Probably go down somewhat. Remember, we didn't see any benefit this quarter to really the borrowings that are now coming off. [Probably a little] because it was only a couple of weeks.

Okay. Right. And $182 million that matured, you did not replace that. Is that correct? Or you refinanced that into --

We had the fund. We really had the funding for that already.

But I just mean in terms of -- that's right, I'll follow up with Ira offline. I know there is a lot of moving part.

Okay, and then just one final question. Just can you update us on where you guys stand in terms of interest rate risk positioning and you've had some movement on the balance sheet, how that's shaking out in terms of assets versus liability sensitivity?

Yes, we're still somewhat asset sensitive. We obviously -- I think a lot of things we keep telling everybody is we've done things like even some swaps and some adjustable rates that we acquired et cetera. All of that is to try and make sure that we're not sitting here flat without taking into account that interest rates someday are going to rise, and I use the term someday.

And at this time, there are no further questions.

Thank you for joining us on our first quarter conference call. Have a good day.

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