Valley National Bancorp (VLY) 2004 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the second-quarter six-month earnings conference call.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session, and instructions will be given at that time. (OPERATOR INSTRUCTIONS).

I would now like to turn the conference over to our host, Mr. Gerald Lipkin and Chairman -- (technical difficulty) -- CEO of Valley National Bank.

Please go ahead.

Good morning and thank you all for tuning in this morning.

Before we begin, I will ask Dianne Grenz to please read our forward-looking statement.

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

Those statements are not historical fact and may include expressions about Valley's confidence in strategies, management's expectations about earnings, the 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 risks may differ materially from those 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 obligation for updating its forward-looking statements.

Thank you, Dianne.

Again, good morning.

Overall, our earnings remain strong on an absolute basis, despite increased pressure on net interest margin.

On a diluted earnings per share basis, we came in at 37 cents, and net income came in at 36 million, 729 for the six-month period.

On a year-to-date basis, we came in at 76 cents, exactly the same as we did last year.

We had net income for the year-to-date of 75,161,000 versus last year's 75,711,000.

Although this year, we have slightly fewer shares outstanding, last year, we had 99,420,000; this year, we have 99,126,000.

We have not done any dramatic share repurchases so far this year; most of the difference occurred in the second half of last year.

The return on average assets came in at 1.45 percent for the quarter and 151 for the year-to-date.

Our return on average equity was 21.56 percent for the quarter and 22.37 percent year-to-date.

Our efficiency ratio was 48.88 percent for the quarter and 47.88 percent year-to-date.

Our net interest margin, on a fully taxable equivalent basis, was 3.9 percent and 3.96 percent on a year-to-date basis.

That's down on a linked-quarter basis from 4.02 percent that we reported back in March.

Keeping in mind that we have always managed the Bank for the long-term, despite the potential for short-term disappointment, the funding strategy we implemented in July of '03, extending maturities of funding sources in anticipation of rising interest rates, impacted net income negatively this year.

Only on June 30, when the Fed began rising short-term interest rates, did this strategy begin to have a positive effect on our earnings.

During the past year, we booked approximately $600 million in long-term borrowings, which today are 81 basis points below rates currently available for that length of maturity of borrowing.

This strategy should help our net interest margin as rates continue to rise. 22 percent of our loans are tied to prime rate with 56 percent of our loans repricing within one year and 69 percent repricing within two years, which also should positively affect earnings as rates rise.

For each 1/4-point rise in prime, net interest margin should increase at least 2.6 basis points net on our prime-based loans.

During the quarter, we continued to increase expenditures by nearly $2 million on marketing and business development efforts in order to generate further loan growth and take advantage of shifting consumer demand and competitor mergers in our marketplace.

Our credit quality remains excellent.

Our non-accrual loans came in on June 30 at 14,594,000.

Other real estate was at 524,000.

Our total nonperforming assets were 15,118,000; that compares to 24,066,000 a year ago and 21,325,000 at the end of last quarter.

Our nonperforming assets to loans and ORRE (ph) came in at 0.23 percent.

That compares to 0.34 percent on a linked-quarter and 0.39 percent at June 30.

Our loans past due 90 days and still accruing came in at $4,952,000.

I point out that on a 30-day delinquency, loans delinquent over 30 days, our residential mortgages were 0.18 percent; our consumer credit loans were 1.07 percent, of which 75 percent of that is at the 30-day level itself; home equity loans, which is almost amazing and almost impossible to believe, but our home equity portfolio of 13,515 loans had a total of 8 loans delinquent, and of those, only two were over 90 days.

So our credit portfolio remains pristine.

Our net charge-offs for the quarter were $1,460,000.

Of course, we provide, as we have in the past, for our provision -- for our actual charge-offs and the provision was $1,416,000.

Our loan growth remained very strong during the quarter, and that's something we were quite excited about.

Our commercial loans came in at $1,205.7 million, an increase on a linked-quarter basis of $25 million.

Our residential mortgages came in at $1,699 million, an $84 million increase.

Our commercial mortgages and our construction loans combined came in at approximately $1.9 billion, an increase of $73 million net.

The home equity portfolio came in at $487 million, an increase of $9 million.

Our automobile portfolio, at 1.058 billion, came in with an increase of $46.4 million.

The pipeline, which is extremely strong in our bank and something that makes me somewhat optimistic as to the future, is well over $.5 billion in pending and approved commercial loans.

Our small-business lending activity is up 180 percent year-over-year, although the actual dollars, because of the size of the loans, is not that dramatic, the effort and the response in our marketplace is extremely gratifying.

I'd point out that the average FICO scores on the loans we have approved are in excess of 739.

Our new business development officer program, which we began in late January, is also showing great results.

We have over $150 million in pending and approved loans from that group, and that is not what was included in the above pipeline.

The line usage in our commercial area is up slightly from last year, and we are pleased with that as well.

On the deposit side, our non-interest bearing deposits grew year-over-year by 8.78 percent and are currently at 1.738 billion.

Our saving deposits at 3.529 billion are up 11.69 percent.

The area that has shown a slight decrease is in our time deposits, which are at 2.106 billion, down 7 percent on a year-to-year basis, but that is attributed somewhat to a rather dramatic decrease in municipal CDs, as the municipalities have drawn down in their usage.

It becomes a little more dramatic because our municipal business has grown dramatically in the past year, so that shifts -- as that date is a little bit more dramatic.

It's also a function of the fact that, as our borrowers have increased their demands for longer-term funding during the past few years of record low interest rates, we began shifting our funding strategy from the traditional deposits -- and CDs is really what we're talking about here -- to longer-term borrowings in an effort to protect our margins as the rates continue to rise.

Our branching activity, new branching activity continues very strong.

We opened up in the first quarter Moonachie.

We are opening up Caldwell, Boundbrook, Edgewater and Jersey City all within the next couple of months.

They will be open this quarter.

We have an office coming up in Chester and another one in Manhattan, one in Rivervale and one in South Orange, which will be opening in the fourth quarter, and we have at least eight additional branches that are expected to open in various stages within the next twelve months.

We have a number of other sites that we are exploring.

So far, the branches that we have opened are producing very gratifying results.

Our 26th and 6th Avenue office in Manhattan, which opened in June of 2003, has approximately 27 million in deposits.

Our Union City office, which opened in October of 2003, has approximately $17 million in deposits, both showing us that our strategy of expanding our branch network makes sense.

We have experienced additional costs, particularly in the last six months, as we have gone to expanded Sunday hours.

We now have approximately 45 of our offices now open on Sundays and we have our customer service center running since late November of last year on a 24-by-7 basis.

While this has been costly, we've seen an enormous activity.

We are seeing approximately 3,000 customers visiting our branches each week, on Sunday.

We have live customer calls into our service center running now at the rate of about 82,500 a month and approximately 800 on a typical Sunday.

So, Sunday hours appear to be something that customer tastes want and something that we are looking to be delivering.

We have seen -- it's interesting.

Since we began opening on Sundays, we've seen a 30 percent decrease in closing of core accounts.

While we don't open very many more on a weekly basis, although it is up slightly than we were in the past, we have seen this dramatic decrease in the number of accounts that are closing, so overall, I have to say that it was the right decision for us to be making.

That ends my portion of the presentation.

We will now open it up for questions.

(OPERATOR INSTRUCTIONS).

Our first question comes from James Ellman from Seacliff Capital.

Yes, good morning.

Thank you for taking my question.

A couple of quick ones -- on that home equity portfolio you mentioned where asset quality is so fantastic, could you give us an idea just from thinking about modeling that out, how much deterioration do you think you'll have in that portfolio as it seasons over time?

One has to imagine that losses won't be 0 percent forever.

We have historically run very, very low delinquencies in the home equity portfolio.

I think it has a lot to do with our underwriting.

We do not underwrite 125 percent loan-to-value; in fact, we don't do 100 percent loan-to-value.

In fact, we really cap it pretty much in the 75 to 80 percent loan-to-value, so we have good equity positions.

We usually run a very high FICO score, well over 700, in the portfolio.

The higher portfolio has a loan-to-value of well under 65 percent, so I think a lot of the performance that you're seeing there comes from our underwriting.

Could we make the portfolio much larger by deteriorating our underwriting criteria?

I believe absolutely we could, but that's not Valley.

All right.

So would you imagine that, as interest rates go up and housing prices appreciation moderates, would you say that we should continue to see really pristine asset quality out of that portfolio?

Yes.

All right.

The second question was just on use of leverage.

It seems that you levered up the balance sheet a little bit this quarter and that added slightly to earnings.

Should we continue to expect to see additional leverage?

Do you have additional leverage that you can put on that you can help increase earnings with?

We're not really looking to leverage up the Bank.

As I mentioned a few minutes ago, a lot of the borrowings that we did were simply because we wanted to put on longer-term funding.

In order to match that funding with certificates of deposit, we would be paying a much higher rate than we're actually paying for the borrowings.

As the Bank reaches a certain size, it just becomes more natural that you are going to be looking to alternate sources to fund.

The last question would just be on the branch expansion program.

If, in fact, we start to see deposit growth slowing across the country or particularly in your market area, at what sort of metrics would you be looking at to slow the branch expansion?

Well, we are not opening up 50 branches a year, so it's not something that would be that dramatic that we were going to opening or closing -- or fewer that we are opening.

I guess we would relook and revisit the concepts if the deposit growth in those offices began to slow or wasn't continuing to grow.

But keep in mind that New Jersey, while it's not only the most densely populated place in the country, is experiencing one of the fastest-growing rates in the country.

The last numbers I saw, we were the fifth fastest-growing population in the United States, so a lot of people are moving into this area and that will accommodate additional office locations.

As most of the locations that we are adding to the franchise, we're just expanding our trade area.

We are not looking to branch out 100 miles from our headquarters, but these branches are on the fringe areas of our existing service areas.

So, what we're doing is we're making our service area maybe 10 or 20 miles wider, if you wanted to draw a concentric circle around, starting in Wayne.

So, while we may revisit it, I don't think you'll see a dramatic increase or decrease taking place, certainly in the next couple of years.

Very good.

Thanks very much.

Brian Harvey from Fox-Pitt, Kelton.

Good morning.

I just had a couple of questions, first on the loan growth side.

Gerry, can you break out what sort of growth you are getting from existing customers versus new customers or maybe just what the benefit you're getting from some of these new hires have been?

The benefits from the new hires are easy to quantify because, as I mentioned, we have a pipeline that since -- aside from the loans they've closed already, we have a pipeline of in excess of $150 million that they had generated.

Now, they will not all turn into closed loans and I don't want to mislead anybody by thinking that we're going to have this sudden rush of new credits coming in, but I do think that a sizable amount of that pipeline will turn into new loans during the remainder of this year.

A commercial loan usually doesn't go from a prospect to a closed loan in two weeks, but a large portion of that will.

The $500 million pipeline that I speak of from our commercial and mortgage, both commercial loans and mortgage loans in New York and New Jersey, a considerable amount of that is from our existing customers, although we are seeing some business coming in from clients of some of the banks that have merged in our area.

We have been advertising rather heavily, getting our face out there as the largest bank in northern New Jersey, home largest bank in northern New Jersey and if you want to deal locally, that's us.

We try to give very friendly service in our offices; we try to be very reliable and have a good relationship with those borrowers here in northern New Jersey that we presently have.

So --.

Thank you.

The second question is just on the diminished margin.

Can you talk about what sort of the breakdown is of the decline this past quarter, what was related to sort of repricing of -- (multiple speakers)?

Gerald Lipkin Yes, I will let Alan Eskow, our CFO --.

Yes.

Hi, Brian.

Brian, really what it was on the loan side, even though -- and I read some of your comments about the investment portfolio.

The investment portfolio experienced some decline really because we had a lot higher paydowns during the quarter than the prior quarter and it caused about $0.5 million of additional amortization.

So, that caused some decline in the margin.

The balance or the majority of the decline really came from the fact that the loans were originating or really still coming on below the averages of what we have, and we're seeing that on a constant basis.

So, I would say probably 10 to 11 basis points of the margin decline really comes from the loan area.

Lastly, the comment that you made at the beginning about a move by the Fed and what that impact would be for margins, I didn't catch that in the initial comments.

I said that, for each 1/4 point rise in the prime, our net interest margin should increase at least 2.6 basis points net on our prime-based loans.

That's assuming strictly a move by the Fed; that does not take into account any other cash flow issues and other things going on, amortization of investments and so forth during the quarter.

Adam Barkstrom from Legg Mason.

Good morning.

All right, so walk me through that margin calculation again.

For each 25 basis points, it's 2.6 basis points of margin improvement just on the prime-based portfolio?

Right.

So that's not to -- you said net.

That's not to the actual margin?

That's going to get -- (multiple speakers) -- I guess watered down by the securities portfolio, etc.

Yes.

Well, it’s net of my costs.

Net against short-term borrowings.

That will move as well.

All right, so if we want to apply that strictly to the margin, what kind of number are we looking at there, or is it just too hard to calculate?

I think it's a little too hard to calculate.

It's 2.5 basis points or approximately on the margin, just for those loans that will move in those short-term borrowings that will move.

So, you've got 1.5 billion or 1.4 billion in loans that move; you've got a couple hundred million in short-term borrowings, so the net of those, on a quarter basis point move, would be about 2.6 basis points.

I got you.

Okay, let's see.

Gerry, you mentioned line usage was up slightly.

Can you give us the actual line usage numbers, second quarter to first quarter?

It's in the low 40 percent range.

You say up slightly, you are talking about it like going from 41 to 42 or are you talking about it like going from like 41 to 45?

Can you give us some sense there?

Somewhere between 3 and 400 hundred basis points it's up.

I think that reflects somewhat the optimism that a lot of our customers see in the market.

Gerard Cassidy from RBC Capital.

Good morning, Gerry.

A couple of my questions were already answered, but I do want to go back just to use your experience to answer this question on the home equity loan portfolios.

I know numerous folks are quite worried about the indebtedness of the consumer.

On prime home equity loans, not subprime, but the type that you make, do you recall back in 1990 in the difficult times -- and I know home equity loans were not as big for the industry or yourselves back then, but I don't recall them being a real problem. (multiple speakers).

Never were.

You can go back from the time we started making them 15 years ago to the present, we've never had a problem with home equity loans.

I mean, we never had a delinquency, a 30-day delinquency of a quarter of 1 percent.

They were all very -- the number has been almost unbelievable, historically, in this bank.

Great.

Then the second question on the new branch openings -- number-wise, how many do you expect to open in the second -- I know you mentioned one or two will open in the fourth quarter.

We have about eight that we're looking to open between now and the end of the year.

One or two could open in January.

Hopefully, they will all open by December, so I will have everybody happily opened up or eight or nine offices so far this year.

I've got at least a dozen additional sites that I've approved, the Board has approved, for us to be moving forward on.

The problem in New Jersey, and to some degree in Manhattan, is in this area it just takes a long time between shaking the hand of a seller and opening the front door to a customer.

It's regulatory problems, state approvals, local and municipal approvals; it's just an unbelievable process.

We've had up to six years, seven years in one case, between the time we agreed to buy the piece of property and the time we opened the door.

Okay.

Do you guys have an estimate or a thought on when -- let's say it's December 31 of the end of this year -- what the added expense will be, approximately, for opening up and staffing these branches on an ongoing basis?

On an ongoing -- because this year, it will have very, very minor impact.

We usually factor, our first year of operation, about 300,000, $400,000 of an impact to open up a new office during the first year.

But that can be mitigated dramatically if it turns out to be a terrific success and we bring in a lot of low cost deposits.

For a non New York City branch again about what did you need in deposits to get to break even?

Again, that's -- it depends a lot on the mix.

If we get very heavy weighting of demand deposits, you need obviously a lot less, but we usually figure somewhere in the $10 million range.

Tony Davis from Ryan Beck.

Good morning, guys.

Just a couple of follow-ups here -- I wonder if you could quantify the revenues, the contribution revenues that you guys are getting from the municipal bond business today and from all sources, (indiscernible) MPs (ph) and just talk about Commerce's decision here to withdraw from the negotiated part of that business and what that could mean for you over time.

Well, we do very little in the way of municipal bond business.

In fact, other than short-term borrowings, you know, bands and pans that we do with municipalities, I would be hard-pressed to try to remember the last time that Valley did a municipal bond deal.

Certainly, I can't think of one we did on a negotiated basis at all, at least in the last year or two.

As far as our municipal activity, it's primarily opening up checking and savings accounts, handling, investing their certificates of deposit.

If they have a need for some short-term funding, we are always available to it but we've had very little of that.

We get involved sometimes in bidding in syndicates for competitive bidding, as I say, but on a negotiated basis, it's nil.

So they are getting out of the non-negotiated business;

I do not that that would have much of an impact on us because we never went really aggressively after that type of business.

Fair enough.

Finally, I just wondered if you could give us a little quarter color on the quarter, Alan, on the margin rather through the quarter.

The 12-basis point compression here you say was primarily loans rolling off.

Any sense for when we get now with the prime rate we've gotten here recently, any sense of when we get back to equilibrium on any of the things you are putting on versus what's running off?

Remember, not everything is prime-based that we put on. (multiple speakers) -- residential mortgages.

In the residential mortgage market right now, on a fixed-rate 30, it is probably about breakeven to where our average portfolio is.

Actually, it's a little bit higher than our average portfolio yield.

But we don't keep a lot of 30-year fixed rate loans, so it doesn't really help a lot.

On a 15-year basis, it's probably in the low 5 percent.

So that's below our average yield on residential.

On auto loans, the same kind of thing.

On new auto loans, they are lower than our average, although the yields are higher.

So overall, we're still putting on a lot of loans that are just slightly below our average, which has that compression.

Obviously, the floating-rate loans are going to help us as we start to get some increases here, but I don't think we're going to see -- you'll see some positives towards that compression; it will start to reverse itself, but it will be slow.

I think we will start to see more of a positive after the next bump by the Fed.

I think that will -- and particularly if it comes at the next meeting.

If the predictions of everybody on the Street hold true, then by year-end, we should be looking at 100 basis points from where they were.

We will be in very good shape.

Thanks, guys.

John Kline from Sandler O'Neill.

A lot of good questions -- I just wanted to maybe touch a little bit on the municipal opportunity, once again following up with Tony.

Do you see any opportunities -- (technical difficulty) -- government, deposit bank side of the business potentially maybe trying to beef that up (indiscernible)?

We have expanded that segment in the Bank dramatically in the last 18 months.

Our municipal core deposits are up $134 million just in the last quarter.

We have seen some very positive results in this area of municipalities that have chosen to bank with Valley.

You know how we operate.

I mean, we don't have a pack at Valley, so it's all on good service.

Everybody's trying to drill down on the margin.

I guess I will give it my shot too, Alan.

It sounds to me as if you've had some success -- (technical difficulty) -- portfolio.

Is that correct? 500 million?

John, I'm sorry, you have got to repeat that.

You didn't come through quite clear.

I apologize.

The premium amortization for the quarter.

Right, has about $.5 million for the quarter, so in excess of where we were in the prior quarter.

So if we see a slowdown in prepayments, which we believe we will start to see, then obviously that will also begin to help us a little bit more on the margin.

We figure that hurt us about 2 to 2.5 basis points.

If everybody is listening, you know, you have to remember that our margin, to a large degree, reflects the quality of our loan portfolio.

We are an A-paper lender.

We lend to what we believe are the strongest borrowers out there on the street.

You are not going to be getting 2 over prime, 3 over prime; you don't even get 1 over prime from most of these borrowers.

These are the best of the best and historically, that's how we've chosen to run Valley National Bank.

It's our emphasis on quality.

We still turn down an awful lot of paper that other banks choose to make.

I think the other thing, going back to your question, John, again on the margin and everybody else's question, you know, Gerry opened up with telling you that we've locked in a lot of long-term funding and we think we've done a very good job at that.

It's something that's going to help us as interest rates continue to rise.

That funding is locked in.

So while today it's probably looking a little bit on the costly side, it's going to help us as we move forward.

Alan, I absolutely did notice that and I also noticed that the cost has come down on a linked-quarter basis pretty dramatically.

Could you give us an idea in terms of what the duration -- (technical difficulty)?

Yes, the duration is probably -- excluding the trust preferred, which is out there, and really we don't use that for funding loans, it's about 3.5 years is the average duration on the long-term borrowings, not on the short-term.

One last question -- I don't know if you folks (indiscernible) but on a monthly basis, where would your margin have ended up at quarter-end?

At the end of the quarter, it was probably -- it was probably a little higher than where we showed up now.

Was that for the -- (Multiple Speakers)?

A couple of basis points higher, John.

A couple of basis points higher.

That was just at quarter-end, not -- (Multiple Speakers)?

That was at quarter end, yes, so depending on what happens as we move through this quarter, it would be a little hard to tell you exactly where we are going to end up as we move through the next month or two.

If prepayments slow down, if, you know, that quarter-point increase in prime loans is going to help us, obviously it's not going to help as much as we like but it will be helping; if we get that adjustment again of another quarter in August, it will help that much more.

Great.

Thank you very much.

Bob Hughes from KBW.

Good morning, guys.

A couple of questions -- just one more follow-up on municipal deposit gathering.

Based on the numbers we were able to dig up, it looked like Commerce had close to a 25 percent share of total municipal deposits in New Jersey in the second half of last year.

I'm not entirely certain that those are all-inclusive, but you know, it sounds like your growth has been pretty good over the last 18 months.

Looking ahead, have you gotten any sense whatsoever that some of these issues surrounding Commerce have had any impact on the way treasurers think?

Do you sense that they may be looking to diversify their relationships a little bit more?

I don't know what's in their head.

You know, I would only be speculating if I came up with something.

All I will say is that we have, in the last couple of months, shown very strong growth.

Our people are finding a good reception when they are calling on the various municipalities.

Okay.

What is that total amount for you guys?

400 million -- (multiple speakers).

Great.

A couple of other questions -- I noticed the growth in auto was particularly strong in the quarter, which seems a little surprising.

I was listening to M&T's conference call earlier in the week, and they made the comment that volume had really dropped off a cliff and the pricing was really coming under pressure as well too.

Number one, do you have any comments on that?

Number two, any comments on consumer volumes in general and where you see those headed?

Okay.

First of all, we have more reps on the road calling on dealers.

We've expanded our dealer network.

We have a -- and I believe I may sound somewhat boastful, I think we give great personal service to the dealerships and they tend to know that if it's A-paper, they can get a real fast answer from us and get it closed real fast, and we get the paper that way.

The pricing is set in the marketplace; it's almost like prime.

The dealers -- the wholesale rate for dealers probably runs for the most part in a very narrow band of 25, 35 basis points for those people who are really in the market.

So where we maybe the low guy today and third place tomorrow, and the week after that we are the low guy, but the difference between the high guy and low guy, you're talking a couple of basis points, so it really doesn't affect the volume that we see.

The other thing is, I think our reputation -- when it comes to indirect automobile paper, we've been in that business now for close to 50 years;

I believe we started in 1956.

We've never -- and I can speak for the last 29 because I've been with the Bank for that period -- we've never been out of the market; we have always been among the most competitive sources in the marketplace during that entire period.

You develop a reputation and a reliability among the dealer network that they favor you.

As much as they may see that they can get extra 3 or 4 basis points someplace else this week, they don't want to disrupt the relationship that they have with us, and it works.

Okay, all right.

Another question -- I apologize if I'm taking up too much time -- but reserve coverage to total loans has come down pretty consistently over the past couple of years.

I know it's very difficult to argue with the strength of your credit quality but you are producing some pretty good growth on the commercial side.

Are we looking at a higher level of provisioning, going forward?

We have, as a matter of policy, for at least the last decade, had a policy that we would add to our reserves the amount of our -- at least the amount of our net charge-offs.

We have a rather elaborate formula, which has been approved by the OCC and by Ernst & Young and KBW before them, that we apply to our -- (multiple speakers) -- sorry about that -- that we've applied this formula for many, many years, that we apply a certain percentage of dollars against loans that are construction loans; we apply a certain amount of performing commercial loans; we apply a certain percentage to all categories of our loans.

If a loan is criticized or classified, obviously we apply a higher dollar percentage against those particular loans.

When you apply that formula, which everybody has always been comfortable with, to our portfolio, we are very well and comfortably reserved.

Other than adding current loan losses, we then face the potential of going against the SEC in their desire that banks not use the loan-loss reserve as a place just simply to park money.

So, I admit that the number is low, relative to a lot of our peers, but I think our performance level historically has been much better than them.

I can't argue with that.

Thanks, guys.

Peyton Green from FTN Midwest.

This is actually David Darce (ph) calling for Peyton.

Can you give us the amount of MSR amortization embedded in your intangibles?

The amount of amortization?

The MSR amortization.

MSR (indiscernible) amortization, it was -- well, the addition was about 740 and about I think 1.4 million in addition --.

1.467 million.

Yes, 1.467 million plus there was another 7, so it's a little over -- it's about 2.2 million for the quarter.

With the Fed's move, are you able to hold your deposit costs down or are they beginning to move back up?

We've certainly moved some rates up, even a little bit before, just from an overall competitive standpoint, but we watch that obviously very closely.

We don't want to get ahead of ourselves and raise them any faster than what we are going to see the income rate.

Since June 30, I do not believe we have increased any of our rates.

In fact, in one categorically, we actually decreased some rates, so I don't believe we've had any increase since the Fed's move, if that is what you are looking for.

Thank you.

A follow-up question or comment from the line of Adam Barkstrom from Legg Mason.

Sorry about that.

I got cut off before.

I don't know what happened.

I just wanted to -- the funding, the 600 million, can you give us a sense of -- you talked about the duration of that about 3.5 years.

Is all of that 3.5 your money or is it sort of spread out -- (multiple speakers)?

No, it's spread out.

We ladder that stuff over a whole bunch of different years.

We looking a various buckets and where we think we're going to need it.

We try and match up a lot against our commercial mortgage portfolio.

We have loans that are -- a lot of five-year loans and they obviously roll, so those that were made 40 years ago have a certain maturity and so forth and we just try and match that up.

One of our concerns was, when rates hit this low level, a lot of our borrowers were reaching out for five years, six-year money, some even longer than that.

We believe firmly that rates are going to go back up and we could get hurt very badly if we didn't protect ourselves against that rise in rates by looking to put out some longer-term funding.

In the short run, we would be making more money. (indiscernible) me I could make a couple of million dollars a year, very easily more if I would stay short-term and not look to protect ourselves, but that's just not how Valley operates.

We are here for the long-term.

I got you.

Just one other thing -- you mentioned that your Sunday hours, 30 percent decrease in core account closings.

How do you track that?

We track them every week, the opened and closed accounts.

I got you, so just, in aggregate, a 30 percent reduction in closed accounts?

That's correct.

We have no questions at this time.

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