Valley National Bancorp (VLY) 2004 Q1 法說會逐字稿

Good morning, ladies and gentlemen, thank you for standing by.

Welcome to the first quarter 2004 earnings conference call.

At is 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.

If you should require assistance during the call, please press star then 0.

As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Chief Executive Officer, Mr. Gerald Lipkin.

Please go ahead.

Thank you, Rachel.

Good morning, everybody.

Before we begin, I would like to ask Diane Grenz (ph) to please read our forward-looking statement.

Today's presentation may contain forward-looking statements regarding the financial conditions, results of operations and business of Valley.

Those statements are not historical facts and may include expressions about Valley's confidence, strategies, management's expectations about earnings, direction of interest rates, effective tax rates, new and existing programs and products, relationships, opportunities, technology, the economy and market conditions.

These forward-looking statements involve certain risks and uncertainties.

Actual results may differ materially from the results the forward-looking statements contemplate.

Written information concerning factors that could cause results to differ materially from the results the forward-looking statements contemplate can be found in Valley's press release for today's conference call.

Valley's form 10-K for the year ending December 31, 2003, as well as in Valley's other recent SEC filings.

Valley assumes no obligations for updating its forward-looking statements.

Thank you, Diane.

And in accordance with GAAP, I just want to point out that the numbers I will discuss have been adjusted for the 5% stock dividend declared on April 7.

Again, good morning, ladies and gentlemen.

Despite an economy that remains soft and a tough interest rate environment for a spread bank like Valley, we continue to post good earnings, increased loans, margins and our asset quality remains strong.

Our diluted earnings per share grew to 39 cents from 38 cents or a 2.63% increase over the prior first quarter.

Our net income grew from -- grew to 38,432,000 from the prior period, 37,982,000 or 1.18%.

Our diluted average shares remain relatively constant at 99,146,000 since there were no shares repurchased in the quarter.

Our return on average assets came in strong at 1.57%.

Our return-on-average equity came in at 30 -- 23.22%.

Our efficiency ratio remained excellent at 46.88% and our net interest margin on a fully-taxable equivalence came in at 4.02% improving from 4% and improving over the third quarter of last year when we hit our low point of 3.76%.

This continued -- the continuing trend is expected to continue further.

Regardless of action by the Federal Reserve.

Valley does remain extremely asset-sensitive and an increase in rates should have a positive effect on our earnings.

I point out that 20% of our loans in our portfolio float with pride and an additional 25% of our loans adjust to market rates within 12 months.

So as can you see, we're extremely asset-sensitive.

Also at valley, we manage both sides of our balance sheet, and since the third quarter of 2003, we have been extending liabilities, which should help contain funding costs as rate rises occur in the future.

Those of you who heard Mr. Greenspan over the last few days, I think that that is something that we can look forward to.

Credit quality at the bank remains excellent.

Our nonaccrual loans contain a dance on the head of a pin.

They are down from 22,338,000 at the end of last year to 20,724,000.

Our other real estate owned dropped from 797,000 at year-end to 601,000 and our total nonperforming assets, therefore, came in at 21,325000, down from 23,135,000.

Our nonperforming assets to loan and REO are an amazingly low 0.34%.

Our loan past due 90 days and still accruing are $3.5 million.

Our delinquencies, total delinquencies at 30 days.

Make sure we compare it to other people reporting at 30 days past due and over.

Came in at 48,415,000 or 0.77% of total loans.

Our charge off provision in the quarter was 1,848,000.

That's versus 3,255,000 in the first quarter of last year and that was reduced because of some concern over some situations that have cleared up during the past year.

Our loan growth continues to remain strong.

Our commercial loans and that's somewhat difficult to compare on a quarter-to-quarter link basis due to the cyclical nature of a large portion of our commercial loans.

Came in at 1,180,000,000, that compares to last year at the same time of 1,140,000,000, or an increase of 39 million, 3.47%.

On a link quarter basis, they were virtually flat.

Our construction loans came in at 266 million up 222 million on a link-quarter basis and up 78 million, almost 79 million or 42.23% from a year ago.

Our residential mortgage portfolio despite a slowdown in the market did show a small increase in the quarter going to 1,615,000,000 up from 1,596,000,000.

Again, as most of you know, we try to keep our loan portfolio balanced and we do not look to grow that much more than the rest of our loan portfolio grows.

Our commercial mortgages grew in the quarter from 1,553,000,000 to 1,607,000,000 or 3 1/2%.

Our home equity loans came in at $477 million versus $476 million and our automobile portfolio remained relatively flat, which would normally upset me very much, but we did have a very difficult first quarter as far as weather is concerned in our general region and that did cause something of a slowdown in sales, but I -- I hasten to point out there is an enormous cash flow payoff in that portfolio and despite those conditions we were able to put on $113 million in new automobile paper, which enabled us to maintain the level of our portfolio.

Our deposits continued to show nice growth.

Our noninterest-bearing deposits closed out the quarter at 1,684,000,000.

Up 10% from a year ago.

Our savings deposits came in at 3,340,000,000, up 9% from a year ago.

And our time deposits, which I point out we really focused in the last six months more on longer-term funding in order to accommodate an increase in interest rates came in at 2,230,000,000, up from 2,150,000,000 or 3.69%.

Our cost of funding -- our cost of deposits, excuse me, our cost of deposits in the bank, are 0.89%.

That is a 4 basis-point improvement during the quarter, and it actually shows an improvement of 24 basis points year-over-year.

I also want to mention that our core municipal deposits have grown over 20% during the past few months to almost $250 million.

This is a market that Valley in the past did not focus on aggressively, but we do have a large team who now focuses aggressively in our market area to bring in municipal deposits, and we're extremely pleased at the progress that they are showing us.

Security gains in the period were consistent with the prior quarter and the prior year at $3,5 million.

Our branching activity during the quarter showed the opening of our Munaki (ph) office, and I'm quite pleased we have at least eight additional branches expected to open this calendar year.

Those are branches, most of them are under construction at the present time.

And we have at least a dozen additional sites that are in various stages of development and are expected to open up during 2005.

Our products are -- our Kids First product continues to grow.

Our new student rewards checking also shows nice progress.

During the past quarter.

And I'm most pleased about our new business development program.

We have added nine new business development officers who are looking for larger credits and our small business initiative, which takes place primarily in the branches, has been averaging over 200 applications a month.

That's a 300% increase over 2003 and that doesn't happen by accident.

That's caused by a very aggressive marketing and calling effort, as well as some of the merger activity that has been taking place in our area.

I remind everyone that our board did declare a 5% stock dividend with a record date of may 3, payable on May 17, and that at the same time, they maintain the cash dividend at 90 cents a share which, brings our quarterly dividend -- which maintains the quarterly dividend, 0.225 cents.

That reflects, in essence, a 5% increase in cash payoff.

With that, I will open it up for any questions.

Rachel.

Thank you.

Ladies and gentlemen, if you wish to ask a question, please press star then 1 on your touch-tone phone.

You will hear a tone indicating you have been placed in queue.

You may remove yourself from queue at any time by pressing the pound key.

Once again, if you have a question, please press star 1 at this time.

And our first question comes from the line of James Elmond (ph) of Seacliff Capital (ph).

Please go ahead.

Hi there.

Good morning.

Good morning.

Could you just comment on competitive environment in your market area.

Obviously commerce has been opening branches, Wachovia's been opening branches, it seems like almost every quarter, Manhattan is going to be a bank branch before long and then of course we have got Jimmy Diamond taking over their retail network at Chase.

Can you just comment on how the competitive environment is changing and how you're going to be dealing with it.

Thank you.

Thank you.

Well, first of all, I don't think it's really changing.

We have competed in our marketplace with the large money center banks throughout my entire career in banking, so the fact that some of the money center banks are opening additional offices in areas that we have offices or within our trade area, I am really not that concerned.

We offer one advantage over all of the institutions that you mentioned and that is that we are still a local bank.

We give very close personal service on a very one-on-one basis dealing with the CEO, myself on down.

It is not uncommon for commercial accounts to call me or for one of our calling officers, as I mentioned, we have this business development staff.

When they have a good lead, I'm out there with them.

The client appreciates the fact that we're in their back yard.

Most of these accounts that are being sought by the larger out-of-area banks are the -- have developed over the years a very close one-on-one relationship.

So I really think that we will continue to do very well in our -- as we compete against them.

We have begun changing our methodology of marketing we now are getting -- we have been and we will continue in the future to use different media forms.

We did not, up until a couple of years, until a year and a half ago, we really didn't use any television.

Today, we're using extensive TV.

We did virtually no radio advertising.

Today we do a lot of radio advertising.

The other media forums, you know, newspapers, et cetera, we have stepped up our exposure, but the bottom line, in order to get to our client base and the core of our commercial client base, because this is a commercial bank is to do a one-on-one approach.

We have also met the competition.

We are opening our offices on Sundays.

We have our customer service, which is locally staffed with local accents.

Run 24 hours a day, seven days a week.

So, I think we're pretty well-positioned to compete with anybody who comes into this area.

Great.

One quick follow-up.

If you could just comment on your return on equity.

Sure.

It's well over 20% right now and has been for a while.

Uh-huh.

Just considering the market environment with asset quality likely to not be quite as pristine going forward, and with interest rates going up, going forward, realizing that you are asset-sensitive, how long do you think you can maintain your return equity well above 20%?

Well, that's a good question.

But, if you get our annual report and you look at going back 20 years, if you get an annual report that is 10 years old, you can go back 30 years rather easily, you will find that we have probably been north of 20%, almost as many years as we've been below 20% and the years that we've been below 20%, most of them have been in the 18, 19% range.

So, I think it's pretty much been a hallmark of the bank.

We do look at our expenses very closely.

We -- we do believe we can maintain perhaps not at the level where we're at right now because you can't get any better than we are right now.

Our asset quality, but historically, this bank has gone through virtually every recession since the mid-1970s, that's when I joined the bank, so I can speak from personal experience to the fact.

Without showing great deterioration in asset quality.

We focus very closely on asset quality.

It would be easy for us to grow our assets a lot more than we have shown them growing, if we would denigrate our quality of our assets.

As one of my officers, and I repeated this, I apologize for those of you who heard it before said, we have to fish in a bigger pond but we don't fish deeper.

Very good.

Thank you for the time.

Okay.

The next question is from the line of Adam Barkstrom with Legg Mason.

Please go ahead.

Hey, guys.

Good morning.

Good morning, Al.

Good morning.

I just want to get a few details on a couple of line-items.

Sure.

The security portfolio, I was looking at the average balance versus the end of the period.

And if I'm making a right assumption that a lot of the, you purchased a significant block toward the end of the quarter.

Could you give us some color on that.

Yeah, well, we have been active, in general, Adam in buying securities.

It's Alan .

Oh, Alan Eskow.

And so, yeah, we did buy some securities probably during the entire, you know, month of March.

We bought some securities, but we buy all the time.

We're always in the market and some of those had to get recorded, you know, as we closed out the quarter.

Got you.

What do you think about margins from here.

You had a little bit of a positive creep the first quarter.

You anticipate that continuing or are we kind of flat here?

Yes.

No, I think -- with no action by the Fed, I think they will creep upward.

With action by the Fed, I believe they would move rather -- a lot faster in a positive way.

Let's say for the sake of argument, we had 25 basis points in the third quarter and another 25 in the fourth quarter.

What would that do by the end of the fourth quarter, just roughly.

Yeah, it could be another three, five basis points, assuming Fed takes no action.

It's very difficult to move that margin in today's interest rate environment, you know.

There's a lot of competition for quality loans, so we can't really raise the rate on what we're charging on the loans as far as what we pay for deposits, they're pretty much as low as they can go.

We've utilized some external funding sources, borrowing sources, Wall Street, et cetera, to try to lock in some longer-term rates because we do feel that rates are going to move up.

But in locking up the longer-term rates, we can't really drop the funding costs.

Adam, I think we indicated that, you know, if interest rates are to go up 100 basis points, you know, just a shock basis, we would probably make another $8 million or so, and that's without any action by management at all.

That's pretty much just sitting still and allowing things to occur.

Got you.

Okay.

Let's see.

The -- looking at some of the fee income line, service charges that was a fairly large drop off.

Is that just a seasonal affect or is there something going on there?

It's a combination of factors, some of it is seasonal, some of it is remaining competitive.

We've gone with a free checking account as most of the industry has gone.

That does generate fees, but at a lower level than others.

There were some modification on reimbursement on debit card fees that caused something of a decrease.

But I think we try to position ourselves pretty well going forward.

Got you.

And then on the mortgage banking line, I guess, I'm just wondering if you're seeing -- what we're kind of seeing consistently across the industry it is a pick up in originations and first quarter which should actually close in second quarter and can you see a lift in that number for second quarter.

Yeah.

We would expect to see a lift in second quarter based upon the volume increases that took place in late February, early March, mid March, you know.

There is a lag in closing those so that we will see an uptick there.

Got you.

Last question, you mentioned 12 to 15 branches within the next 18 months.

Uh-huh.

Can you give us color on the process involved with that, where you are, for instance, with some of those branches.

How do you come up with the 12 to 15.

Okay, we have under construction or the -- the steam shovels being taken out to dig the basement offices and Caldwell, Edgewater, Bound Brook, Jersey city, Chester, Cranford.

We have one in Manhattan.

I have got another one in Rivervale that, we're in front of the planning board right now which, looks favorable going forward and we have got another, at least dozen sites, maybe more, that we are into the planning board.

We have contracts with the purchaser, with the seller, already signed.

A lot of the contracts are contingent upon our getting planning board approval.

Unfortunately, New Jersey is a very difficult state to enter, de novo.

Good for us, bad for us, you know.

It makes it difficult for some of our competitors to come here and open up a lot of offices.

Prime locations in New Jersey aren't vacant lots and we have a policy of purchasing the property so that we can lock in our course, long-term.

This is a policy that we have been following for the last several years and it just takes forever.

It's not uncommon to take three, four years.

Our Union City office took five years from the day we shook hands with the seller until we actually opened up the branch.

Five years and that is in a business zone.

Got you.

Got you.

One last follow-up, if I could.

The first caller mentioned, , the fact that kind of one of the trends du jour now is branching and everybody's opening branches, et cetera, et cetera.

On top of that, and I think you guys have started to do this for a while, too, but the Sunday hours.

Yup.

I'm curious from your perspective what, convinces you that, you know, having the branches open on Sunday is actually a viable strategy?

We are -- we actually went into it rather slowly.

We opened up about 20% of our branches on Sunday initially.

And I was quite taken back by the volume of clients that come into the bank on Sunday.

We're now seeing on a typical Sunday in excess of 2,000 people coming into our bank on Sunday.

So I guess it's a product that is wanted in the street.

I'm not sure we have to open every single one of our branches.

I know some banks only open up their drive-ins on Sunday.

They don't really open up the lobby.

We have chosen to open up the full bank on Sunday.

So when we're open, we're fully open and we have underway right now plans to open a second 20 group of an additional 20 branches, which would bring us to about 43 branches that will be open on Sunday.

I think that it's a trend that is going to take place.

I don't believe it's something you have to have every branch in the town open.

You just have to be convenient to your client base that you're open on Sunday.

But I think it's something that's here to stay.

What surprised me even more is our customer service.

The volume of calls we get by being open 24 hours a day.

I mean I can't believe how many people call the bank at 2:00 in the morning on Saturday night, Sunday morning, you know.

It's just amazing.

But that's what our clients want and we're here to service them, so we're going to be open.

Got you.

Okay.

Thank you.

The next question comes from the line of Tony Davis with Ryan Beck & Co..

Please go ahead.

Good morning, gentlemen.

Good morning, Tony.

Just a few things here.

Alan, I wanted to get the MES premium amortization this quarter, what it was in December? how much you have left to chew through?

You probably get down to about the nub of that, aren't you?

It was under a million four.

Great.

It's been trending down.

We probably reached the high point in the third quarter last year when we had almost 4 million.

Right.

And so that number continues to trend down.

We probably have another 14 million in premiums to amortize, but I think, you know, we look at it as though we kind of ladder our portfolio.

We're always in the market buying and selling.

We don't pay high premiums for anything, so we're not overly concerned about that.

Okay.

Gary the--

I think that, you know, you always have something that you use the term "chew through."

We have to pay a premium to get it, so there's always going to be something of a premium on our books.

Right.

Relative to the size of the portfolio, very,very small.

Right.

And we -- and a large portion of it comes as a result of a large portfolio that we purchased last year at lower rates.

Lower interest rates.

Well, what you need is just some relief on the recognition part of that, then.

That's what we're all looking forward to.

Yes.

That's right.

I noticed that you, in the seeing eye part of the portfolio, things have been sort of flat here the last couple of quarters.

I just wondered what your pipeline looked like right now, what the tenor of your discussions with your business borrower is today and if there has been any improvement in line draws thus far this year.

We have seen a slight uptick in line draws.

But, actually our growth in that area has been pretty good, you know on a year-over-year.

Yeah, year-over-year.

We do have, actually, it's stronger than it would look.

I mean I mentioned that earlier.

If you compare our December 31, number to our number at March 31, that's when we have the largest portion of the paydowns occur.

Right.

Remember, we have a big portfolio in New York City that is to -- a lot of that is done to merchants in Manhattan that jewelry trade, that are very cyclical.

They borrow heavily in the summer in the third quarter.

The fourth quarter they pretty much start to level off and then in the first quarter of the year, the end of the fourth quarter, they start to pay down.

Uh-huh.

I mean, if they don't pay down we have got a problem.

If they do pay down, we have a different problem, obviously, because our loans look like they're paying off.

But it's been historical with them.

We tracked that when we bought the bank and we noted that it was a very historical event with them.

Right.

Well, just in the tone of the discussions you are having with folks, what do -- do you sense any pick up in their need for credit and what is a reasonable rate of growth that we should expect in loans over the course of the year, you think.

Oh, .

That's a tough one.

You know, we're looking to put on as many good A credits as we can find.

If it was strictly a number, and I said to Bob Meyer, I want you to unleash your people.

You just build my loan portfolio up by 50% of the next year and I don't care about credit quality, you'd see a huge jump in our credit line, in our loan growth.

But, we have not changed our credit culture in this bank, despite the fact that we're significantly larger.

As you saw in the press release we just crossed the $10 billion mark.

I joined the bank in 1975 where there was $240 million.

From that point to this point, I don't believe we have changed our credit culture.

We do turn down a lot of credits in this bank, so it's not necessarily the growth that matters.

It's the quality that matters here.

Finally, Jerry, have you now hired the full complement of the loan-calling people you were looking to add or is there still more room to grow there?

I think there's more room to grow.

Okay.

Well, thank you much.

Thank you.

The next question comes from the line of John Kline with Sandler O'Neill.

Please go ahead.

Morning, guys.

Morning, John.

Quick question for you.

The compensation line both in benefits and in actual salaries look to be up this quarter.

Is it a fair assessment to say that that as well as the occupancy line could be running a bit ahead of revenues here as you hire new people and you're in the midst of opening these new branches.

There really, really wasn't very much in the way of an increase in salary so much on an -- even on a link quarter.

The difference, you can't measure by fourth quarter because we do accruals throughout the year for bonuses and things of that nature.

That all gets adjusted in the fourth quarter.

So it's very difficult.

You really have to look year-over-year.

Sure.

And I think our salaries expense remains relatively controlled.

Obviously we have added a considerable expense in putting on the business development group.

And we have added some people in the branches and also, we have added some other businesses and we have taken on their staff and it's not a true comparison.

Sure.

Is it simply a fact that maybe you've over accrued throughout the year.

Well not really.

I money it's --

Not at all.

I think Jerry started to hit on it, you know, between Sunday hours and BDOs there that this is ultimately a new business. people.

The other businesses other than the direct banking have all added and those things have added some dollars, but I think we have also looked to control our costs internally.

You know, very much on how we go forward.

On the expense side, I can say that at least on a, you know, on a year-over-year basis, you know, we saved some money because we did a change in our benefit plan, so we saved some money there.

We also changed our 401K contribution last year, so some of those have helped us out during the course of the year.

Okay.

And then just in terms of your Sunday hours, just -- I wanted to try too get a sense for what type of deposit flows you're seeing coming in or, you know, new business, new account openings.

I know you're seeing some foot traffic.

Is it more of a convenience factor?

I think so.

Or is it --

I think what we were finding is that the foot traffic, if you don't look only on a Sunday, but you look on a seven-day basis, it really doesn't change very much.

Okay.

What we did notice, though, which was quite interesting, we actually saw a drop off in the volume of accounts that closed each month as opposed to the number of accounts we open each month.

Huh.

So, I guess we may have been losing some accounts.

We still have a positive spread even in the past, but we may have been losing some of the accounts that we lost because we were not convenient to them.

We just weren't open on Sunday.

In how many locations, was it 20?

We have right now, I believe, we have 22, 23 that are open at this point.

But, we have another 20 that will be opening up in the next month or so.

Okay and just with respect to the interest rate risk question, was it 100 basis point shock upward?

Did that contribute 8 million, Alan?

Yes.

Okay.

Great.

Thanks.

We have a question from the line of Gerard Cassidy with RBC Capital Markets.

Please go ahead.

Good morning, Jerry, morning, Alan.

Morning, Gerard.

Question for you.

Getting back to your branch expansion that you were undertaking for the next 18 months what does it cost to build out branches in your New Jersey market versus also the cost, I assume, Manhattan must be more expensive than New Jersey.

Correct.

It's gotten much more expensive in New Jersey than it had been.

It probably cost us somewhere in the neighborhood of about $2 million, between purchasing, that's assuming we buy the property.

Purchasing the land, building the building.

And -- and New York --

New York City significantly more.

In New York City, we actually purchased, too, most of the offices that we look to acquire in New York City, we purchased.

But, they're supposed to be at least twice.

About 4 -- is it closer to $4 million for a branch in New York City?

To buy.

Not to rent.

To rent is different.

Yup.

Rent has a different TNL impact than buying.

Sure.

Sure.

In your experience, Jerry, obviously you have been there a number of years as you have shared with us today.

Retail banking and expansion as others have mentioned on the call has been a real hot area throughout the country.

In particular the metropolitan New York area.

Have you ever seen this in all the years you have been in Valley, you know, where there have been periods of hot, you know, where expansion was real critical, whether it was in the early '80s or early '90s or any time period in the past?

Well, yeah.

We both -- we have seen other banks in the past that have come and gone.

There's always the hot bank on the street, you know, and I was starting to think about some of the banks that we competed with over the last 29 years that I have been with Valley, you know, and I remember it -- I am sure you remember when we had the hungry banker.

Yup.

He's not around anymore.

Then we had Mr. Kosic who had his picture taken with his hand around the state, he's not there anymore.

We really competed very heavily with First Union and Fidelity Union when they were independent banks and they're not there anymore, and there was, of course, Summit, who I felt ran a wonderful bank.

They were a real competitor of ours, and UJB.

They're not around anymore.

I feel like we're the last man standing, you know, but we've seen this in the past and we -- we continued to put out good results when they had their big marketing campaigns when they attempted to attack our client base, you know, but I think that there's no substitute for one-on-one personal service right from the CEO on down.

I don't know if you ever knew my predecessor, Sam Riskin, but up until 1989, when he was at the helm of the bank, he was in the face of all our customers, and I guess that's my responsibility ever since then has been that, and I don't intend to change it and I'm available to them.

You know, they get in their car and they can be in my office or I can get in my car and I can be in their office, in, you know, in a half hour.

Banks from out of the area, they can't say that their CEO will be in the customers' office, you know, an hour after the customer calls him up and wants to talk to him.

Sure.

What should we look for as investors, when we look around the country, and again, seeing all the De Novo branching that we have been witnessing the last two, three years.

What -- what's the biggest risk to a De Novo branch strategy?

What should we be keeping an eye on?

Expenses.

Bottom line.

You know, we -- we are very careful about opening up branches because the number one thing we keep in mind is that our shareholders put us here to give them a good return, year in, year out.

We not only pay a dividend every year, we increase our dividend historically every year, you know.

You go back 30 -- I think it's 35 out of the last 36 years we have increased our cash dividend to them.

I think a lot of our shareholders rely very heavily on them.

I just got a letter yesterday.

I showed it to some of my staff from a shareholder who support me a thank you-note for sending his seven kids through college.

Well, Jerry Lipkin, didn't do it, I mean our whole team did that.

But, I get letters from people all the time telling me they wouldn't be able to enjoy their retirement if it wasn't for the fact they own Valley stock.

We have an obligation to take care of our shareholder base.

As you know, we have in the high 80 percentile retail ownership in our bank and that really, we have to keep our eye on who owns our company.

Sure.

And one final question on the branches.

What do you guys, plan for in terms of getting your branches to break even.

How many months or -- how long does it take?

You know, I wish I could say I crossed the line in a year.

Probably takes us 18 months.

You know, we've had some that turned profitable in, you know in seven, eight months realistically, but that's very unusual.

We have had some that have taken us, you know, 2 1/2 years until they can turn the corner.

But pretty much, I would say, it's somewhere in that 12 to 18 month period is when they turn profitable.

Great.

Just one final question, maybe, Alan, this might be directed to you.

Can you share with us your thinking on the securities portfolio.

I noticed in the March quarter that they held, the maturity is now up to about 1.3 billion versus a year ago, it was 600 million.

What your guys' thinking is in growing that side of the portfolio.

Well, I don't think we're necessarily going to grow the health of the maturity much more.

I think it will be available for sale.

That was the year, remember, we made a move at the end of last year to move some securities into the health-and-maturity category.

I don't see that we're necessarily going to do that again.

Thank you.

Okay.

Thank you.

We have a question from the line of Brian Harvey with Fox-Pitt, Kelton.

Please go ahead.

Good morning.

Actually this is Darren Whitt.

How are you, Darren.

Good.

You mentioned the actions you've taken to extend your borrowing terms on your debt.

Uh-huh.

Is there going to be any additional impact on the spread income and the margin going forward?

Well, that will have a positive impact if the Fed raises rates.

If they do nothing, it will probably remain at the level they're at, because, you know, we're pretty much locked in there, the spreads we have now.

Okay, so there's --

It would be negative if the Fed dropped rates.

If prime rate went down, it would be negative.

But, I don't believe that to be the case.

I guess I'm just trying to find out is what we saw in the first quarter, is that the run rate going forward in terms of the benefits you're going to see.

Yeah, that's probably what you're going to see going forward for the rest of '04.

One more question on the securities portfolio.

Looks like you have been adding about 100 to 150 million a quarter for the last few quarters, how much more do you see this going up and do you have any kind of target level where you expect that to stay.

Well, if we can get good quality A-paper loans, you won't see any increase you might actually see a decrease in that investment portfolio, but in the absence of being able to generate additional good quality loans to put our deposits and put funding into, we're looking to add to the investment portfolio.

It's merely a function of our ability to generate additional credits.

All right.

Thank you very much.

Our next question comes from the line of David Bishop with Legg Mason.

Please go ahead.

Hi.

Good morning, gentlemen.

Good morning, Dave.

I have a couple of follow ups from Adam's questions.

I jumped on a little bit late.

Jerry, I think you were talking about some of the replacement characteristics for the loan portfolio in terms of the variable rate nature.

Can you readdress that real quickly.

Sure.

Sure.

We have about 20% of our loans that float with prime.

We have another 25% or so that it will adjust to the market within 12 months, you know, it could be a 20-year commercial mortgage but it was written with a five-year interest reset.

It could be in the fourth year of that five-year reset so that within 12 months, that loan will reprice.

We monitor that very closely from an alcove position and pretty much I did not take into effect, into account loans that simply pay off either.

So over half of our loan portfolio, the funds in our loan portfolio would be repricing on an annual basis.

Got you.

And in terms of the securities sold this quarter, given rise to the gain, what type of volume was sold?

Consistent with the past, it was about a little over $3.5 million.

How much.

Gain the gain was 3.5.

$75 million.

Yeah.

Great.

And then last question in terms of operating expenses, Fall drop off in the amortization of tangible assets.

Did you have some CDIs expire there?

Are you talking about intangible or are you talking about the mortgage services?

Amortization intangibles.

It's all in that one area.

Basically you sort in the amortization of the mortgage servicing portfolio.

Last year, certainly last year even, I think, the fourth quarter, but last year particularly, we had a lot of additional amortization or impairment, if you will there.

And this quarter that number was substantially down as, you know, the market did -- did not reduce its rate in the area that much in that first quarter.

Great.

Thank you.

Okay.

Thank you.

A question from the line of Peyton Green. .

Please go ahead.

Hi, good morning.

Morning, Peyton.

Just a couple follow up questions.

The nature of the gains was all fixed income or were there any common-stock sales?

All fixed income.

Okay.

Great.

Jerry, when you think about the branch expansion, is it an issue where you feel like more of your branches are at capacity versus times in the past and that's kind of the reason for the acceleration, the footprint or is it just demographic trends or can you characterize.

It's a combination.

It's a combination of trying to fill in the footprint in communities that we would like to be servicing.

New Jersey, as you know, is such a unique marketplace.

It is so densely populated that, you know, can you have a branch in one town and you're not really servicing very much from the next adjacent town.

It's also -- we are trying to expand our footprint slightly.

We're not running crazy, but we are moving into some of the counties where we did not have a market presence that are contiguous to our existing counties.

Okay.

Great.

Then the year-over-year change in insurance commissions, was that -- is that related to contingent commissions that didn't get booked in the first quarter or is there something else going on?

The title business.

That's all title.

All title.

Okay.

All right.

And then I guess back to you, Jerry, on deposit dissenter mediation, I mean, as we go forward over the next couple of years, what do you think -- or how do you think this plays out in -- I guess my angle on the question is is when you look at your transaction deposit growth over the last couple of years, I mean how much of it is volume of accounts versus balances and accounts?

It's balances and accounts that are going up.

Okay.

Okay.

Okay.

Good enough.

Thank you.

Thank you.

There are no further questions in queue at this time.

Please continue.

Okay, I want to thank -- I want to thank everybody for tuning in today.

It's been pleasant.

Go easy.

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