Valley National Bancorp (VLY) 2004 Q3 法說會逐字稿

Ladies and gentlemen thank you for standing by, welcome to the Third Quarter Earnings Conference Call.

At this time all participants are in listen only mode.

Later we will conduct a question and answer session.

Instruction will be given at that time.

If you should require assistance during the call please press the star followed by the zero.

As a reminder this conference is being recorded today October 14, 2004.

I would now like to turn the conference over to our host, your Chairman, President and CEO, Mr. Gerald Lipkin.

Please go ahead sir.

Thank you and good morning to every body.

Before I get started though I'm going to ask Diane (ph) Grinn (ph) to please read our forward-looking statement.

Morning, today's presentation include forward-looking statement regarding the financial condition, result of operation and business (indiscernible).

This presentation may include expressions of our Valley confidence and strategy managing expectations and earnings, the direction of interest rates expected tax rates, new and existing programs, all (indiscernible) opportunities, technology the economy and market conditions.

These forward-looking statements involve certain risks and uncertainty.

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

Written information concerning factors that could cause results to differ materially than the forward looking statement contemplate can be found invalid (indiscernible) for today's conference call and for the 10-K for the end year ending December 31, 2003 as well as (indiscernible) SEC plans.

Valley excludes no obligation for updating its forward-looking statements.

Thank you Diane.

Well we very pleased that as we stated in the past the increase short term, the increases in short term interest rates allowed Valley to post very good earnings.

Our diluted earnings per share up to the quarter came in at 40 cents so that compares to 37cents in the last quarter.

Our net income was $39,386,000 as compared to $36,729,000 in the last quarter and it brings our year to date earnings to $114,547,000.

Our return on average assets during the quarter came in at 1.51% projects again an improvement over the 1.45% in the prior quarter and brings us to 1.51% to the year to date.

Our return on average equity was 23.65% and that compares very favorably to the 21.56% in the prior quarter and it brings our year to date to 22.8%.

The efficiency ratio again came in at 48% and for the year to date we are at roughly 48% as well.

Our net interest margin on a fully taxable equivalent came in at 3.94% and that compares to the 3.90% in the prior quarter which is very favorable to the 3.76% we showed last year for the quarter.

But again I remind everyone that last year we did have a pre-payment penalty on some federal home loans borrowings that we refinanced of approximately $3.5million.

The credit quality within the bank remains excellent our non-accrual loans are at roughly $17.9 m our total non-performing assets are at $18.4million.

Our non-performing assets to loans and OREO came in at 0.27% our loans past due 90days is still accruing are at $3.754m.

Our delinquencies and that's the total 30day past due and over, 30days, were at $37.826m and as a percentage of total loans it's 0.55%.

Our charge of provision for the quarter came in at $1.475m and that was still an excess of $512,000 over our net charge offs for the quarter.

We are very pleased at the loan growths that we experienced during the quarter.

Our commercial loans closed the quarter at $1.317b and that compares to last year a year ago, $1.185m.

On a link quarter basis we were up $111m we are 9.23% on a year over year basis we're up $131m or 11.06%.

Our construction loans which of course is a much smaller portfolio came in at $282m and that compares to $206m on the same period last year on a link quarter basis we're up 11.14% and year to year we're up 36.61%.

The residential mortgage portfolio which we sold much fewer loans because of the production being much lower still showed nice growth coming in at $1,774,827,000 that compares to $1.699b a quarter ago and $1.584b a year ago, reflecting an increase the quarter of 4.46% and a year over year of 12.04%.

Our commercial mortgage area came in at $1,741,674,000 an increase of 2.92% over the prior quarter and 11.15% over last year our home equity loans like wise showed nice growth.

We came in $510m an increase of 4.89% over the quarter 7.75% year over year.

Our automobile portfolio continues to show nice growth.

We came in at $1,098,375 and that's up 3.9% on a link quarter basis and 9.1% on a year over year basis.

Totalt, all of our loans came in at $6,826,625,000b compared to $6,507,684,000b last quarter.

Year over year, last year this time there were $6,155,233,000b so that's an increase of the quarter alone of 4.85% and a year over year of 10.86%.

I want to point out that 4.85% for the quarter is really not an anomaly equals the (PH) third of the year second quarter also shows 4% loan growth and I will add that our pipeline continues to remain strong.

I will point out that our line usage during the quarter went up by 5% but that's really not unique due to the nature of our New York City loan borrowing activity.

We have checked that out and year over year we are really experiencing about a .5% increase in our line usage.

On the deposit side our 95th bearing deposits came in at $1.722b a 6% on a year over year increase basis.

Our savings accounts were $3.487m, and that reflects a 10% year over year increase.

Our time deposits were off slightly they went down from $2.366b a year ago to $2,191b at the present time.

So that was some what a tactic that the bank planned upon.

We allowed some of our CD's which makes up that category to run down and we replaced them with borrowings from other sources.

We did that A. because the borrowings were cheaper, then we were able to get CD's at a similar maturity and much more importantly we were better able to match the materials of our loans portfolio by doing that.

We overall are however are prime, I point out that our quest to fund on a link quarter basis went up from 0.89% to 0.96% so that's at a time when the prime rate went up by 75 basis points and our cost of funds went up by 0.7% so it's actually working out very favorably as planned.

During this year so far we have opened up five branches and we have at least two others that we expect open during the 4th quarter.

So far this year we have opened up new offices in Munachi (ph), Callwell (ph), Downberg (ph), Edgewater Jersey City and we have South Orange and Chester which are slated for the 4th quarter.

I point out that we have also nine other offices that are in the pipeline in various stages of getting ready to open we are very pleased at the result of our new branch openings so far.

During the past year we opened up nine branches in the past 24 months and those branches alone have generated approximately a quarter of a billion dollars in new deposits.

Except for the branches that we have opened this quarter all of them are profitable and I point that when we say they are profitable we also expense all of the opening expenses including marketing immediately.

I point out that the quarter was assisted very much by the 75 basis points increase in short term rates although the second and third increase will have a much greater benefit in the 4th quarter because of when they took place during the quarter.

Our home equity loan portfolio for example is priced pretty much on a prime, a half basis but we have a floor of 3.75% when the first increase took place it raised prime from 4 to 4.25 % when this had no benefit on our home equity portfolio because it just came up to the floor but in the 2nd and 3rd increase which took place which took place, they raised prime to 4.5% that will have an effect on this portfolio as I pointed out.

Nevertheless, our net interest margin did grow by four basis points during the quarter.

While our course of funds as I pointed out grew by less than one basis point.

Our asset sensitive balance sheet has paid off.

Our prime based loans during the quarter grew from $1.429b to $1.666m this will have a benefit obviously as we move forward and as rates continue to increase.

This increase in prime based loans also will further increase our asset sensitivity.

Right now we have an 8% gap position which should help us very much so as rates continue to rise.

This form of loan growth has taken place in a matter of growing the bank but not killing our future.

We experienced very heavy loan growth in the second half of the quarter as well, which should have a positive effect on earnings in the fourth quarter.

Our fee income as noted by everybody is down, but I point out that last year we sold $416m dollars worth of loans in the first nine months, most of those were residential mortgages.

This year we sold only $45m resulting in a reduction in the gain on loan sales of $10m dollars.

Likewise, our title fee income was down by $3m dollars so far this year.

Again, that's due as we assess it to a drop in refinancing.

Our security gains so far this year are down $7m dollars year over year.

Still I point out that we made the same bottom line despite the drop of $20m dollars in fee income.

Part of that is attributable to as I pointed out before the rise in interests rates and part of that is a result of very tight expense controls.

Valley has always been noted for tight expense controls and I think our staff has really pulled together to have this happen again this year.

Our salaries are up only slightly to 9 months, despite the fact that we run our customer service 24 by 7.

We run our Sunday branches, we run, we've opened up the Novo branches.

We've added business development staff and increased substantially our government services staff.

Just those items alone have added approximately 2 million dollars in expense to the bank, but overall our salaries remain relatively flat.

How do we accomplish it?

Well we've made much greater use of part-time employees.

We have shifted some of our staff from those areas that experience the slow down to other areas that are experiencing some work growth and we improved some of our productivity.

Some of it which is using making greater use of automation.

During the quarter we did show a slight drop in our tax rates of approximately one cent per share.

That was due to an adjustment in tax accruals that were made in conjunction with our actual filing.

Forty seven of the branches as I pointed out before are now open on Sunday and we're reaching in excess of 3700 customers per Sunday and that number seems to be increasing on a steady basis.

So the decision to open Sunday is obviously something that our customer base very much wants.

Our (inaudible) municipal deposits have also shown nice growth excluding $350m dollars in CD's held by those institutions or those municipalities, we are up $121m dollars in the quarter to 435 million dollars in municipal relationships.

That is spread over approximately 125 relationships in a right place to say that we've added just during this quarter alone, 11 relationships and we're working on at least that many more as we move forward.

So, I thank the people in that area for doing a good job in helping us build that and taking advantage situations in our market place.

That concludes my portion of the presentation and if anybody would have any questions, we're here to answer them.

Ladies and gentlemen if you wish to ask a question please press the star followed by the one on your touch tone phone.

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

If you press star one prior to this announcement we ask that you do so again at this time.

You may remove yourself from the queue at anytime by pressing the star two.

You are using (inaudible) equipment, please pick up the handset before pressing the numbers.

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

One moment please for the first question.

The first question comes from the line of Brian Harvey with Fox Pitt Accounting (ph), please go ahead sir.

Thank you good Morning.

Good Morning, (inaudible)

Just had some questions on the margin and maybe the impact that the (inaudible) move going forward from here.

Jerry you mentioned the second and third (inaudible) move were going to help you out a little bit more than the first.

Can you sort of quantify maybe for us how that is going to impact the margin or maybe how we should think about it going forward in terms of (inaudible) loans or deposits.

I pointed out that we have a $1.66b dollars in prime based loans.

You can do the math as to approximately what that effect would be and how it would affect the margin.

And basically Brian for every hundred basis point move we figure it will move us about four basis points.

Okay, In terms of deposits by the business, are you seeing any pressure on pricing and movement between categories between savings into more time deposits?

We're just beginning to see a little of that.

It's a little early in the interest rate cycle.

The deposits in our bank, generally tend to lag the loans, so while prime rate is moving up we have not been under that much pressure to raise deposit rates certainly not as much as the prime has moved.

Okay

Although I'm kind of sure we can't keep the prime were to move another 100, 200, basis points we would certainly see our deposit rates moving up substantially.

And just lastly, just on the fees that you mentioned before about some of the pressures that you had this year.

Is there any opportunities or any new initiatives that you have or are looking at to sort of add to your product list.

Well I think that our residential mortgage folks who generate most of the product that we sell are a great group of people.

I think they have done an admirable job when you look at what happened to rates and the fact that most of the people, anybody who is going to refinance pretty much has refinanced at this point and I think they have done an excellent job in generating the volume that they have.

We're getting great support out of our branches.

We have trained all of our branches to generate residential mortgage product.

There is at least one if not several people in each of our branches who can sit down with a mortgage applicant and discuss the product very intelligently.

So, - -I think that going forward, we are going to continue to generate mortgage product - - residential mortgage product.

We have a balanced loan portfolio.

I have repeatedly stated relative to trying to keep the residential mortgages at approximately a quarter of our loans.

But we have been able to, as we've proven in the past, generate a large volume and sell them.

So, our people are out there looking to generate more residential mortgages way beyond our appetite for our own portfolio and we'll look to sell them.

So, hopefully, we'll make sure we will - - we'll sell more than 45 million in the first 90days and that line will go up.

Okay.

Thank you.

You're welcome.

Thank you.

Our next question comes from the line of Tony Davis with Ryan Beck & Company.

Please go ahead sir.

Okay.

Morning gentlemen.

Morning Tony.

Good volume here.

Jerry, I wonder if you could - - I'm wondering about the market share dangers.

You have a $316m increase in loans.

Can you give us some color on what proportion of that is - - came from existing customers and what percent of it was new - - new business?

It's a mixed bag.

It's very hard.

We don't maintain statistics quite of that nature.

Although I will say that our business development officers have built a very substantial pipeline for us.

We are closing a number of loans that they have generated.

So, that's obviously new business to Valley National Bank.

Our consumer loans are up substantially - - and that's virtually all the businesses, by 62% I'm told on my year-to-date production. - -The business that we're seeing, some of it is coming from consolidation within the marketplace.

Yeah.

We are the local northern New Jersey community bank and that has helped us.

We have a great group of lenders here at Valley National Bank who have worked very hard to build their team portfolios over the last year or two.

I know our commercial mortgage area are very well known within our customer base and we get a lot of referrals from our existing customer base and their friends.

Right.

That's where I was going with that Jerry.

Just a sense of relative to expectations, the market share you're picking up following the Bank of America, Fleet deal and Trust Company of New Jersey.

There's been a lot of dislocation in the market.

There's been some.

It's very difficult, you know, I - - you're talking about other very good banks.

I think that it's just you know - - we have an advantage of being local in the marketplace and that's really what propels our growth.

Alright.

Alan, you mentioned in the release that - - it looks like the securities portfolio is down about $150m from June - - something like that?

That's correct.

Do you have any thoughts there about - - well first of all - - plus the duration today and where do you see the securities portfolio going for the next few quarters?

Well, the duration is about 4.1 years.

Okay.

It actually comes down from where we were last quarter, 4.3.

In terms of where we are going with it, as you know, long-term rates have come down.

We make more money by making loans.

At a time when rates were a little higher a couple of quarters ago we put some money into investments and loans and of course, we're not growing as quickly.

But our strategy would be that if loans are available to make we're going to make them and we will likely use some of that cash flow to make the loans out of the investment portfolio.

If on the other hand yields move up and we see an opportunity to make money by increasing that portfolio, we'll do that as well.

We're not looking at leveraging up the bank though, by just increasing loan of the investment portfolio in line with the loan portfolio.

We're looking at our bottom line and how we can sustain that bottom line.

Just - - one more and it's - - just the numbers themselves.

I think, as I remember the draw rates in CNI were like 45%.

Did you mean to say that you're up around 50% now?

No, no.

We're up about 5% on our line usage and that's what we've now total - - 5% not 500 basis points.

Okay, okay.

Got you, got you, got you.

Alright.

Well, thank you much.

Okay, you're welcome.

Thank you.

Our next question comes from the line of John Kline with Sandler O'Neill Asset Management.

Please go ahead.

Hey guys.

Morning John.

- - and it's just Sandler O'Neill.

Yes, we know that.

Couple questions for you. - -And with the other non-interest income, you write - - I mean Jerry, the preponderance of the decline were a couple items - - the few items that you mentioned that - - you know, trust is down as well as deposit.

And I was just curious on the deposit side.

You know, you seem to be growing them at least - - you know, the transaction accounts.

As - - it's not a huge number, but just wondering what's driving that?

I think it's - - well, it's really two places.

As far as the deposits are concerned our people are out there in the market place and a lot of that comes with loan growth.

You know, the commercial loans bring commercial deposits, commercial deposits have to be transactional.

So, that helps us in that regard.

As far as the trust department, it's interesting and I - - and I really should point out, you know, we a couple of years ago acquired a couple - - well small, but we acquired several - - a couple asset managers.

The asset managers really have been the area where we put the deposits that we would have put into our trust department.

You know the funds that our trust department would have managed, a lot of that has gone into the asset managers because I think they're better equipped to do it for our customers.

So, the trust fees have gone down.

Alright [Inaudible] okay.

Well the number is small but you know, that's one of the reasons that takes place.

Now, is the asset management fees coming in through other, then?

John it's really in the same line you know, but there's been a change in some of the brokerage fees and other types of fees that we got in the past that were not necessarily seen such as in Glen Rauche (ph) end, but we're not seeing the same kind of fee generation that we've seen a year or so ago when rates were higher and it was easier to generate those kinds of fees.

Okay.

And Glen Rauche - - that's the municipal.

Yes.

Right then.

Other question, I - -you know, I had read an article and I spoke to Alan about this a little while ago.

With respect to jewelers in - - and I know with merchants that you do a fair amount of business with some jewelers in New York as well as the textile industry, but - - kind of a negative article talking about the internet really starting to encroach on some of these jewelers' businesses - retail, wholesalers in New York.

Are you seeing any of that with you know - - the health of some of your borrowers or -- you know, are they differentiating themselves somewhat?

We haven't really seen anything taking place.

One of the things that we really have to keep in mind when we look - - when you think of jewelry dealers, you don't necessarily think of the type of people who we finance.

Now, we finance obviously some of the retailers, but we also finance individuals who cut the diamonds.

We finance people who prepare large volumes, that sell diamond earrings to some of the large chains.

These are companies that sell in tens-of-thousands of pairs of earrings a year to some of these chains.

It's not the 'mom and pop' retail jewelry store that most of us associate with in the local community that we live in.

That's not the volume that - - where they get the bulk of their volume.

Okay.

I mean, it's a little bit different so maybe that's one of the reasons we don't experience some of what you're seeing

Okay great, and just with respect to the tax rate, you had some accruals this quarter, Alan where do you see that kind of settling in ..

You know probably I said I think in there about 34% in could dip slightly below that but 34 is probably a fairly good number.

Sorry if I missed that, thanks.

That's okay.

Our next question is going come from the line of Bob Hue with Keith, Brea and Woods, please go ahead.

Hi, good morning.

Gerry, just have a quick question.

On deposit growth, we look at the growth quarter to quarter in government deposits, it certainly makes commercial deposit growth look a little bit weaker, you guys have been extremely successful I guess with your new business initiatives on the lending side, do you have any specific initiatives to generate deposits at this point?

We have some programs in the branches and again as I point out though, we're asset risk we don't just look at bringing a lot of deposits and figure Okay we're going to put them into 30 year mortgage securities so that we can look good.

I think in the long run that's only going to hurt you by leveraging up the bank that way.

So we've always put our first deficits on loan.

Now that we're starting to see a continuation of the sustained loan growth we'll obviously be looking more towards generating efficient deposits and we have been working with our branches in that regard.

Sure, and I understand loan deposits are still only 92% or so?

In a follow up with respect to the success your government services group is seeing can you perhaps give some color on what you're seeing in the market place if anything that may have changed as a result of the Philadelphia corruption probe or are you seeing any competitors really price very aggressively in that space?

I won't discuss any other bank's situation.

I don't think that's appropriate.

I think that our own situation though has been one that we have built a reputation of giving great service of not only by the group that handles these funds but the branches in which they are hosted.

Our branch managers have been going through our customers service training on a continuing basis for the last couple of years and I think we have reached the point now where the customers are very comfortable and very satisfied dealing with our people and our staff and you know it's a business that we never really went after before, now we built the staff and we're going after that business and we built the products that the municipalities are looking for and we're getting our fair share.

Okay, and with respect to pricing?

It's competitive.

Everything is competitive.

Alright guys, thanks.

Your next question comes from the line of Adam Archnoff with Valley National Bank.

Please go ahead.

Adam you joined us?

I'm here.

You guys want to offer me a job?

You don't pay enough Gerry.

Okay let's get on point here.

Multiple speakers

One of the things I wanted to ask you about (inaudible) but let's see the reserve level, saw that leap a little and now we're kind of below your former regulator and one percent used to be the magic mark.

We kind of dip below one percent could we just hear your take on that?

Especially given the fact that you have had, you know, great loan growth.

Okay there is two approaches, one is that we assign various levels of reserve against the various categories of loans in the bank.

We hold a reserve for example against our residential mortgages, a rather substantial reserve against the residential mortgages.

We have not had any aggregates to the best of my recollection $250,000 in residential mortgage losses in the 29 years I've been with the bank on Valley originated residential mortgages loans.

And here we're sitting on a portfolio that virtually all today Valley originated residential mortgage loans, so our reserve when you've used the allocation that's into the category of loans, the historical performance of their loans is more than adequate.

We as a result of the fact that they have been more than adequate have for many years, it's probably about a ten year period now been taking actual loan losses each year against our loan portfolio.

I read in the paper this week that another financial institution down south got racked rather badly because they were both leveling or considered to be leveling their income by their charges to their loan loss reserve.

We charge actual loan losses, we have a slight excess in this quarter.

We had somewhat of an excess in year to date but it is relatively slight the excesses I pointed out in my presentation.

So the fact that it's going down, you have to remember historically we've had such low delinquencies and such low charge is what's relative to the portfolio that we've had no need to add more money and I'd probably have a harder time trying to justify adding money to the loan portfolio than anything.

That's where we stand and I don't know what else to say.

Alan you talked about the securities portfolio.

You anticipate that continuing to go down from here or kind of staying at this level?

You know I really depend a lot on interest rates and demand for loans.

If demand for loans stays where it is, likely it will trend down a little bit.

Well I mean it sounds like Gerry is telling us that demand is good ...

Multiple speakers

So you'll see probably the investments will trend down a little bit.

I think we're taking your question as, like a twelve month period (indiscernible) for three month periods.

Exactly.

You know the Alan that's still short sighted.

Give us a sense of the loan portfolio, what we've been hearing out there in the industry is that price competition have been fierce.

Are you seeing anything in your markets?

You must be given the (indiscernible)

Yes (indiscernible).

However you know this is the (indiscernible) when we are acreage(ph).

We deal with acreage(ph) so you're dealing with people who borrow at a very competitive interest rate.

We have always been in that, this is nothing new to us.

I think it's more of a shock when some banks come into our marketplace who haven't been in our marketplace, who don't deal in the New York Metropolitan marketplace and they see what goes on here.

You know if you come from another part of the country where the competition isn't so fierce then you can charge your prime plus1 and prime plus 2 as a sound credit.

It doesn't happen here, but we built the institution on those rates and we've been able to be very successful that way.

So we're always competitive.

How about the other expense line?

You talk about the personnel expense but the other expense..

They were generally some operating, normally operating type expenses which during the quarter they were less than they were in the prior quarter. there's nothing unusual in there Adam.

Gerald Lipkin We do look at that and you know us we look at everything, we watch it pretty closely.

Yes we watch how much we pay our local landscaper, we pay our maintenance bills and everything else.

We look at our electric bill here like its something that has to be watched and it shows.

And there's also some volume related issues in there, you know as volumes trend down in some areas some of your expenses become less in those areas.

Alright last question.

In the press release you talked about new branches.

You said you have done five to four this year, (inaudible) two for the rest of or two for the fourth quarter and you are planning on nine next year but you talked about your internal breakeven levels.

Give us a sense of what that is?

Probably run somewhere in the $8 to 12 million range for a branch.

You have to you know it varies -- it depends upon what we pay in the way of acquisition cost and how large the branch in so far as staffing is concerned.

It varies a little bit on the deposit mix that comes in.

I mean if I have all demand deposits coming in we need a lot less in deposits that if I'm taking in money market accounts or some other higher rate form of deposit.

But pretty much we feel that that 8 to $12m range is the break even.

And as I pointed out except for the ones we've opened this quarter they are all in excess of that.

Adam Archnoff Great thanks guys.

Thanks Adam.

Our next question comes from the line of Peyton Green with FTN Midwest Research.

Please of ahead sir.

Good morning.

Good morning.

Just to clarify what was the benefit from the swap that you all put on some where between --.

The benefit ran about a half a penny per share during the quarter.

We actually didn't put it on until July 28 as I remember.

We had some declines in interest rates so that affected it negatively.

And it probably and will be about the same we estimate for the fourth quarter.

Okay, is that --.

It will be on for the entire fourth quarter.

So is that 2 or 3 basis point to the margin?

It's about 3.

Okay is it - just to think about the floating rate portfolio that you mentioned is that included in the 1.66 or is the 1.66 net on the swap?

No, no that's it.

No it's - remember that's a notional (ph) amount.

Okay - I mean you intent to - you have - I mean you intend to leave the swap on right?

Yes, absolutely.

From in the 1.66 of prime base lines ones really feels like 1.36?

Yes - No you're right, it does.

Okay good enough.

But there is also -- the swap doesn't run for - it's only a 2 year swap.

Okay great, it's good to know.

Also in terms of the marginal non-interest expanse per branch I mean is there any thing different about the 9 or 10 that you hope o open over the next 12 to 15 months or are they fairly typical?

They are fairly typical.

Okay and how many - what's your goal for 05?

I'd like to open probably 10 offices in '05, but based upon what we see in the bureaucratic mix, in the zoning and what's required to get the permit, how long construction takes it's very difficult to get more than that.

We are trying to build the pipelines so that you know we can open up 10 branches or so in 2006, 2007.

But you know we have several people who are working very diligently on it.

But it just takes a long time.

Sure and then over the next couple of years Gerry as you think about kind of the balance sheet and leverage that you have there, I mean what would be a goal or reasonable loan to deposit ratio that you all would run with above the current levels or low guarding assets mix given the strategic decision to remove --.

It would probably be that the kind of levels -- I don't think that we see any major change there.

Okay the same on the loan guarding assets mix?

Yes.

Great good enough thank you.

Okay.

Thank you.

Thank you very much our final question comes from the line of James Elman (ph) with Seacliff (ph) Capital.

Please go ahead.

Morning guys.

Morning.

Just to maybe follow up on some of these (indiscernible) quality questions for a moment.

How many home equity loans do you have now and how many do you have delinquent?

Approximately 13,700 home equity loans, we have I believe 9 that are delinquent.

You heard me right.

Right I think it was 10,000 last quarter with 4 delinquent?

Yes.

So 100% increase in delinquencies but still obviously the extremely exceedingly low number.

Right.

Could you just give us an idea -

One of the things we do we're very, very careful in who we put into the home equity program, how we use it.

We don't use 125% financing, we don't do 100% loan to value financing we generally keep it pretty much 75 to 80%.

We strive to keep it under the 75, if you look at the over all portfolio it's obviously way less than that and they cycle very high - 735.

Alright though thinking forward several quarters or a couple of years what sort of seasoning do you expect in this portfolio?

I don't see much change, I can't recall ever having 60, 50 delinquent home equity loans in the worst of times.

The portfolio has always performed exceedingly well.

We have not changed our underwriting criteria as long as I've been with the bank.

We've always watched it very closely.

I mean just think about so many banks are having reserve releases and or seeing extremely low levels of charge offs this quarter and last quarter.

Are we in an era where banks are just going to have lower levels of charge offs?

Is there some thing different?

I can't speak for any other bank I only know about us and how we handle the portfolio and what we do.

One of my responsibilities is to make sure that we don't change our lending culture in the bank.

And the staff that works with me on that are all of the same mind set.

It's not like I'm dictating something that's contrary to the way every body else believes.

This has always been a bank that prides it self on high quality credit.

That doesn't mean that the economy can't do some thing that's going to cause some thing adverse to affect our credit.

But we certainly strive to maintain the quality controls that we have and the level of quality in our portfolio.

Alright final question will just on your branch expansion plans.

What would make you slow down those branch expansion plans in terms of potentially slowing deposit growth rates in your market or slowing loan rates in your market?

Over the next 12, 18, 24 months I don't know of any thing that would - the market place in New Jersey is just outstanding.

You know you look at our demographics not only are the - we are the highest median income in the United States, alright.

We were the most densely populated place in the United States, we're the most densely populated place on earth.

And we also have the 5th fastest growing population in the United States.

So we're looking to expand into those communities where we don't have offices so that we can be convenient for those individuals.

And we're looking to build our market share.

Very good thank you.

You're welcome.

There are no further questions at this time, please continue.

I want to thank every body for coming and listening and hopefully we'll be able to record as well at the end of the year.

Good-bye.

Ladies and gentlemen this conference will be available for replay after 12:45 eastern today through mid night October 18, 2004.

You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701 and entering the access code 749-166.

International participants please dial 320-365-3844 those numbers again are 1-800-475-6701 and 320-365-3844 access code 749-166.

That concludes our conference for today.

Thank you for your participation and for using AT&T's executives teleconference.

You may now disconnect.