AMCORE Financial, Inc. F3Q08 (Qtr End 10/16/08) Earnings Call Transcript

AMCORE Financial, Inc. (AMFI)

Q3 2008 Earnings Call

October 16, 2008 12:00 pm ET

Executives

William McManaman - CEO

Judith Sutfin - CFO

Donald Wilson – COO

Analysts

Christopher McGratty – Keefe Bruyette & Woods

Stephen Geyen – Stifel Nicolaus

Brian Martin – Howe Barnes

Bill Chen – Barrington Partners

Brian Hagler – Kennedy Capital

Presentation

Operator

Good afternoon ladies and gentlemen and welcome to the AMCORE Financial third quarter earnings results conference call. (Operator Instructions) This conference call is also being webcast and can be accessed at www.amcore.com, and will be archived for an additional four weeks.

Statements made in the course of this conference call stating the company's or management's intentions, hopes, beliefs, expectations or predictions of the future are considered forward-looking statements. It is important to note that the company's actual results could differ materially from those projected in such forward-looking statements.

Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time-to-time in the company's SEC filings and within the press release itself.

Conducting the call today will be Mr. William McManaman, Chief Executive Officer, Mr. Donald Wilson, Chief Operating Officer, and Ms. Judith Sutfin, Chief Financial Officer.

I will now turn the call over to Mr. McManaman.

William McManaman

Good afternoon. We appreciate the time you have taken to listen to this conference call and welcome questions from our analysts at the end of Donald’s comments.

We assume that you have seen a copy of the press release we issued earlier this morning and if not you can find a copy on our website at www.amcore.com. As you know recent events have brought many unprecedented pressures on the financial services industry into the spotlight and generated considerable economic uncertainty.

Confidence in financial service businesses has been visibly shaken. The credit crisis has persisted nationally now for more then 13 months and the problems have proven to be deep and widespread.

World leaders, US government officials, and industry regulators have recently come together to discuss the issues and alternatives and some promising steps have recently been taken to help resolve these problems.

Although we are confident in the resiliency of the economy and the eventual recovery of the market we clearly do not have insight into the timeline for that turnaround. So the question is what is AMCORE doing to position the bank for the future, to withstand further market volatility and to compete and eventually grow in this environment.

First let me reiterate that many of the factors affecting other major financial institutions in the news recently such as the subprime mortgage market, and the accumulation of risky securities are not the source of AMCORE’s challenges. Yet we certainly have not been immune to pressures facing the industry and we have experienced our fair share of difficulties over the last year primarily related to our concentrations in commercial real estate loans to builders and developers.

We will cover that topic in more detail later in the call. Overall we are very disappointed with the results for the quarter but the facts are we remain well capitalized with nearly $450 million in capital. We have been closely monitoring the changes in the marketplace and we are confident that the recent measures we have taken with strengthen our credit disciplines and our efficiencies.

Judith and Donald will detail the various actions we have taken during the quarter in a few moments but first let me talk about our strategy for the rest of the year and looking forward.

We have a focused strategic plan in place to help us navigate through today’s economic headwinds and position AMCORE for future success. First we are reaffirming the bank’s roots with a one bank focus for serving our customers across all our lines of business.

The key strength for AMCORE is our ability as a community oriented bank to truly partner with clients and provide them with a full range of targeted financial products designed to help them achieve their unique financial goals and strategies.

We believe the key is to focus on growing our existing businesses by leveraging the combined expertise of our organization and our people to build deeper, more comprehensive customer relationships. We believe that by taking these relationships to the next level we can create more mutually beneficial profitable customer relationships while also enhancing AMCORE shareholder value.

Secondly our well deserved reputation for client and community service has always been an important driver of our business and a strong competitive advantage. As a result our core customer base is solid and serves us well going forward as we strive to build consistency across our footprint.

We believe that further increasing awareness of these competitive strengths in the marketplace will help us to expand our market share in both our core markets and our metro markets. Part of our strategy is also tailored more specifically to recent changes in the economy.

Prudent management of capital has become increasingly important today as capital continues to be a measure of a bank’s stability. Even with the provision for loan losses recorded in 2008 AMCORE remains well capitalized today at 10.7%. Given the current environment we continue to closely manage our existing capital and take actions as necessary to assure AMCORE’s stability moving forward.

We have been diligent in recognizing and addressing our credit issues. We improved and strengthened our commercial credit process which helps us manage our risks in these difficult times. We will continue to enhance our process to actively manage our loan portfolio and will make necessary adjustments to respond to changing market conditions.

We also will continue to manage our expenses and review the performance of all of our markets as part of our efforts to align our operations with our expectations. We have been successfully reducing our operating expenses and have made significant progress both last quarter and the past year.

Before I turn the call over to Judith, I would like to reiterate that the strategy we have in place leverages AMCORE’s compelling strengths, core values and one hundred year tradition of excellence.

I believe that by focusing on what we do best we will be serving our customers well and by extension we will be enhancing shareholder value.

Now I would like to turn the call over to Judith for a discussion of our financials.

Judy Sutfin

Thank you William, indeed there are many challenges facing our economy today which in turn have affected our industry and borrowers. As you just heard our challenges are commercially driven specific to real estate development loans with builders and developers.

In just a few moments Donald will cover our third party review which validates the work we have done to improve our credit risk management systems, controls and procedures.

Some of the actions we took this quarter were necessary as we continue to add stability to our balance sheet. Each day the difficulties in the banking industry have become more widespread and we have taken and will continue to take appropriate action to provide AMCORE the stability and safety necessary to navigate through the economic downturn.

Our third quarter loss per share was $0.79, this compares to a loss of $0.89 reported in the previous quarter and earnings of $0.08 in the same quarter a year ago. The loss for the quarter was primarily driven by a $48 million provision for estimated loan losses related to the decline in credit quality.

We will discuss the credit conditions in a couple of minutes, but let me start by looking at the major components of the income statement. First let’s look at the margin or net interest income, margin income decreased from the previous quarter by $3.7 million and was down $8.1 million from the year ago quarter.

There are four primary causes of this reduction, first during the quarter we reversed approximately $1 million of interest income which corresponds to an increase in non-accrual loans of approximately $19 million quarter over quarter. Second the cost of funding the increased pool of non-accrual loans placed a drag of approximately $1.5 million on the margin for the quarter.

This represents and increase of approximately $350,000 quarter over quarter. Third, the affect the market environment has had on LIBOR rates has contributed to the pressure on our funding costs. Fourth, we have shrunk our credit portfolio by 5% year-over-year by actively managing our exposures.

The margin statistic for the quarter was 2.76%, down 31 basis points from the previous quarter and down 59 basis points from the year ago quarter. Most of the decline from a year ago was due to the effects of the increase in non-accrual loans which were 22 basis points, 18 basis points were due to unfavorable funding mix shifts and the remainder was due to the prime LIBOR divergence and the cost of maintaining liquidity in the current environment.

Now let’s turn our attention to credit conditions, non-performing loans rose $19.6 million from the previous quarter which is about a third of the increase of the previous quarter and also significantly lower then any quarter over quarter increase this past year.

This is the result of actions taken to sell non-performing and under performing loans and to charge-off uncollectable balances. We charged off a net $26.8 million during the quarter which was $23.4 million more then the previous quarter’s level and $22.3 million more then was charged off in the year ago quarter.

These charged off loans are primarily commercial loans to developers of residential real estate properties. We continue to monitor our weakest loans which remain in two portfolios. The first construction and land development loans and the second vacant land loans.

Construction and land development loans represent about $544 million or 18% of total commercial loans outstanding and 14% of total loans. Of these loans approximately 14% or $77 million are currently on non-accrual status.

Vacant land loans represent about $139 million or 5% of total commercial loans outstanding and 4% of total loans. Of these loans approximately 15% or $20 million are currently on non-accrual status.

Together these two portfolios represent 48% of our non-accrual commercial loans and 64% of our specific allocations made in the determination of our loan loss allowance levels. This is illustrated in charts in the Investor Relations section of our website under Presentations.

Our increased provision brings our ending reserve to 3.54% of total loans compared to 3.44% in the previous quarter and 1.31% in the year ago period. This level of reserves recognizes both the continued deterioration in non-performing and under performing loans during the quarter and the concentration concerns in the construction, land development and vacant land loans.

The foreclosed property balances were $10.6 million, an increase of $1.5 million from the previous quarter. This represents the amount we expect to realize upon sale of the properties. On the positive side of all of this is the fact that delinquencies which include loans more then 30 days past due are down 13% or $12.3 million quarter over quarter.

This is the second quarterly decline. To the extent that delinquencies can be viewed as a pipeline into non-performing loans a second quarterly decline is positive.

The next category to discuss is non interest income. This quarter’s non interest income increased 44% compared to third quarter 2007 and increased 4% compared to second quarter 2008 and 90% of the increase over the year ago period was due to a $5.6 million investment securities impairment charge in 2007.

The remainder of the increase year-over-year and quarter over quarter is due to increases in deposit service fees which are partially offset by decreases in investment management fees which have be effected by reduced valuations in the equity markets.

Moving on to our non interest or operating expenses, overall in the third quarter we decreased expenses by approximately $700,000 compared to the year ago quarter and by almost $10 million compared to the previous quarter. There were a couple of one-time charges in the previous quarter that added to expenses including the removal of all goodwill from the balance sheet which resulted in a non-cash goodwill impairment charge of $6.1 million, and $1.5 million in charges related to property consolidations which helped to better utilize capacity and increase efficiencies.

From a year ago perspective our FDIC premiums have increased $850,000 and even with these increased costs we are still showing progress and reducing expenses. We also continue to focus on increasing efficiencies which is reflected in a 4% decrease in compensation expense year-over-year and a 3% decrease sequentially.

From a balance sheet perspective average loans were down $89.8 million from the previous quarter and down $187.8 million from the same quarter a year ago. In this challenging economic environment loan balances have largely decreased across the board, however they have decreased more significantly in the commercial real estate portfolio as we work toward achieving a more diversified mix of business.

Average bank issued deposits fell $232 million during the quarter. While we have had some attrition in our deposit base, this was primarily due to two large institutional transactions. First one large collateralized municipal deposit repriced and went elsewhere freeing up that collateral for other use. Second we had held a large escrow deposit for a short period of time in the second quarter which was paid out affecting our average balances.

The average balance of the investment portfolio increased approximately $11.5 million during the quarter but decreased by $15 million on a period end basis. We do not expect the size of the portfolio to materially change in the current market environment although it may fluctuate a bit quarter to quarter primarily due to timing of settlements.

Additionally we do not believe we have a material risk of incurring any impairment charge on any investments that we currently hold in our portfolio given that 86% of that portfolio is agency guaranteed or rated AAA.

This too is in presentations in the Investor Relations section of our website.

The increasing risks in the economy and financial markets make the retention of capital a key consideration that we take very seriously. In the third quarter we moved $16 million of assets at the parent company into the bank in order to further strengthen the resources of the bank thereby ending the quarter with a total capital ratio of 10.5% at the bank compared to 10.3% the previous quarter.

All of our current capital ratios remain above the well capitalized level.

Now I’d like to turn it over to Donald.

Donald Wilson

Thank you Judith and good afternoon. Today I would like to talk about several operation strategies and also give you an update on some of the ongoing projects that I talked about on our last call.

First the independent third party review of our commercial credit portfolio was completed during the quarter. We are pleased with the results and believe it reaffirms the work that we are doing to improve our credit process.

As you remember we retained a large public accounting firm to assist us in developing a sampling methodology and framework for the review and then we engaged in Midwestern based [inaudible] consulting firm staffed with former banking regulators to complete that review.

Essentially the report indicates that we have successfully implemented our enhanced loan grading system, that we have an effective risk grading process in place. Furthermore our risk identification and credit administration practices demonstrate overall compliance with regulatory requirements.

So we are please with the feedback and believe that we have an up to date and realistic view of our portfolio. In addition we continue to add staff and resources to the special assets or workout unit to assure that we are relentlessly pursuing successful resolution to our non-performing credits.

This process does take time but we expect to see an increasing migration of credits to the point of resolution over the course of the next couple of quarters. Third in support of our customer centric focus we are also instilling a culture of disciplined execution throughout the company.

As one example, we recently reevaluated our service level agreement process which sets clear standards for delivering exceptional client service and further defines expectations for each group within the company, from our backroom processes to our frontline staff.

In doing so we will ensure that we remain at our already high levels of client satisfaction. Fourth, we’ve also continued to review opportunities for additional efficiencies. WE expect to close next week on a sale of one of our administration buildings that was identified as one of our four under utilized facilities that could be consolidated with other nearby locations in previous quarter.

We are also looking to consolidate several other locations over the coming months including an office building, a small older branch in our historical markets and a least suburban location which serves mostly as offices for our commercial lenders.

These consolidations are expected to save us approximately $1 million per year on a run rate basis and you may recall we announced the beginning of that on the previous quarterly call.

Fifth, as we reconfigure our lending staff and sales process to emphasize relationships with small to mid size commercial and industrial companies, total loan balances will likely shrink as the commercial real estate portfolio runs down. We continue to serve our relationship clients, while minimizing single service transactions and look to have a better mix of loan balances over the coming quarters.

Sixth, there is no doubt that these are challenging economic times and we are managing the balance sheet to assure a secure capital position and deep liquidity reserves which are always key responsibilities of any banking organization.

We are being asked about how the economic stabilization act will affect AMCORE, and whether or not there are any opportunities for us. Overall we believe the plan is critical to restoring market confidence and allowing credit to freely flow back into the economy.

AMCORE is actively reviewing information on the various programs being developed by the US Treasury Department and Federal Reserve and other government agencies. While details remain sketchy at the moment, we will evaluate any program that has the potential to create value for our customers and for our business.

Clearly the various enhancements the FDIC insurance limits are positive steps in this environment. Further while most US banks and financial institutions are strongly capitalized and essentially healthy they recognize that the infusion of capital will allow them to increase their lending and operational flexibility which benefits businesses, consumers and the economy.

At this stage we are still evaluating the process, pricing and procedural aspects with the plans being discussed before taking any action. We will provide updates as appropriate once we have completed our due diligence on those programs.

In closing while management is positioning AMCORE to weather today’s economic storms, we are also moving our company forward so we can emerge as a stronger company tomorrow.

We are now ready for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Christopher McGratty – Keefe Bruyette & Woods

Christopher McGratty – Keefe Bruyette & Woods

With respect to the charge-offs it seems like you accelerated the loss for this quarter with the loan sales, what were charge-offs excluding the sale?

Judy Sutfin

That was the charge-off excluding the sale.

Christopher McGratty – Keefe Bruyette & Woods

So with the acceleration of the $80 million I guess if that transaction had not occurred what were charge-offs?

Donald Wilson

They’d be the same again. The loan sale was a primarily what we call under performing, they weren’t even non performing assets, about $13 million of the $80 million was non performing at the time. So those we recognized in terms of where we stand relative to the overall reserves. The charge-offs were indifferent to the loan sale.

Judith Sutfin

And just to remind you the loan sale was at the approximate carrying value of the loan net of reserves.

Christopher McGratty – Keefe Bruyette & Woods

On the non performing loans the growth wasn’t as bad as it was in the last couple of quarters, can you comment about in and out flows throughout the quarter and then secondarily whether additional loan sales are possible?

Donald Wilson

As we tried to indicate at the end there’s a lot of things that are changing here, all these different programs coming all, all the different movements happening in terms of private party players as well we are evaluating all those things. We’re open to anything that we think makes sense. So are we open to it? Yes, are we announcing that we’re doing something at the moment, the answer to that is no.

Christopher McGratty – Keefe Bruyette & Woods

It seems like one of the portfolios that you’ve aggressively been discussing is the land portfolio and the quarter on quarter trends were pretty flat in terms of non performers, how does this compare to a couple of quarters back and what’s your outlook for growth in non performers and delinquencies?

Donald Wilson

We’ve taken a position here that we tried to provide very little predictions in this type of environment. I think predicting things is rather difficult. What we tried to do is provide as much transparency as we can and again the slides on the website help provide further detail. I think in terms of what’s underlying here, what we’re trying to do is indicate by some of the things you just pointed out in terms of some of the stable positions out there, that we believe that we’ve identified the issues, we know where they are, we’ve got our hands around those, the third party review seems to be consistent with that point of view, we’re putting our special asset guys and a lot of resources into that group in order to get some resolution on that. Part of what you’re seeing with the charge-offs is the sense that we are getting our hands around those things and moving to the point of resolution a lot more of those transactions that we previously had simply put broad provisions against.

Christopher McGratty – Keefe Bruyette & Woods

I saw your cost of funds up a couple of basis points this quarter I assume that’s in relation to the increase in CDs going forward what’s your ability to reprice these higher costs, sources of funds.

Donald Wilson

To be honest with you a lot of that is going to be the cost of LIBOR and what you see on a lot of banks’ balance sheets right now is the cost of funding is being directly affected even as the Fed is trying to push down the index rates if you will, cost of LIBOR across the globe has been going up. To the extent we have funding but its based on LIBOR, we’ve been affected by that as well.

So I think its more that affect in terms of the cost of liabilities then anything else.

Operator

Your next question comes from the line of Stephen Geyen – Stifel Nicolaus

Stephen Geyen – Stifel Nicolaus

With regard to the delinquencies it looks like 30 plus days are included in the bucket, what else is included in that?

Donald Wilson

Well you take it all the way out to 89 days.

Stephen Geyen – Stifel Nicolaus

You mentioned delinquencies were down $12 million in the quarter, did all these move to non-accrual?

Donald Wilson

Some clearly did but obviously we got some resolutions of them, it’s hard to give you dollars on each component of that because obviously it’s kind of a flowing river there that’s your trying to take a snapshot of. We’re trying to show you both pieces, what is in non-accrual, what is the potential pipeline in terms of coming into next quarter that could become non-accrual as we go forward. We’re showing that that pipeline is at least shrinking at this point.

Stephen Geyen – Stifel Nicolaus

Those that you saw resolution on or restructured, were the net charge-offs fairly comparable to the provisions that were put up?

Donald Wilson

For the most part, yes. I think we historically have been fairly pleased with, once we recognized the weakness in the credit we’ve tried to be as clear and upfront as we can about our expected loss and try to move to resolution on that and have found us to be relatively close to those numbers, historically as well as in the current period.

Stephen Geyen – Stifel Nicolaus

A couple of ratios were provided, 10.5 and 10.7, the 10.5% I believe that’s the total risk based capital that--?

Donald Wilson

Total risk base at the bank, 10.7% is total risk base at the consolidated level.

Stephen Geyen – Stifel Nicolaus

How much excess capital is at the holding company that could be down streamed?

Donald Wilson

We did $16 million in terms of an asset that was able to be put down. There is some other components; I don’t have those dollars right in front of me right now.

Operator

Your next question comes from the line of Brian Martin – Howe Barnes

Brian Martin – Howe Barnes

On the expenses in the quarter there were a bit less then I was looking for but can you talk about what’s a core run rate look like going forward? Judith mentioned the FDIC expense was 800 or so higher then the year ago quarter, can you quantify what it was this quarter and what your expectations are as you look to next year?

Judith Sutfin

We’re going to look up to see how much it was this quarter.

Donald Wilson

On the overall expenses in terms of where we’re trying to go with that clearly as you go through these types of times you have to make sure that you are sizing the organization appropriately. We’ve had a fairly aggressive emphasis on overall costs across the organization. We continue to work on that. We think we’ve made a fair amount of progress. Obviously in times like this when you’re going through changes in credit and what not you wind up with a lot of administrative expenses and those are imbedded in these numbers, but we’re pleased at the amount that those have come down.

In terms of a run rate I would tell you we are sticking to and expect to well exceed the promise that we’ve made in the past which was 3%, at least, annualized decline in our operating expenses not counting provisions and FDIC expense. And we are meeting that goal and exceeding it at this point and expect to continue to make progress on that.

Brian Martin – Howe Barnes

Was there anything unusual in the quarter, expenses dropped from second to third quarter?

Donald Wilson

No that is--

Judith Sutfin

Well the big ones were goodwill and we mentioned that earlier. So we did take a goodwill charge last quarter, $6.1 million. We also took a charge last quarter to, $1.5 for our facilities charges and we’ve just looked up our FDIC assessment charge this quarter was about $1 million.

Brian Martin – Howe Barnes

Is the expectation of where that goes to the second quarter of next year?

Donald Wilson

That’s really hard because as you the FDIC is making lots of changes here and they haven’t said that as they increase the limit how they’re going to increase the price to pay for that. And that’s more of an industry question. I have no idea how to answer that.

Brian Martin – Howe Barnes

How much did you say it was this quarter?

Donald Wilson

About $1 million.

Operator

Your next question comes from the line of Bill Chen – Barrington Partners

Bill Chen – Barrington Partners

Could you give more color around C&I loans, geography or are they small businesses, how much was the collateral?

Donald Wilson

The geography is easy we’re pretty much virtually completely in our footprint which would be central Illinois through the Chicago metro market up into Madison, central and western Wisconsin. So we’ve made very little, I would argue, virtually no loans outside of our footprint. In terms of the subcategories there, there’s not really a whole lot of specific concentrations there. So it ranges pretty much across all of the NAIC codes, etc. We got the concentration commercial real estate and developer loans but relatively little concentration in the C&I piece.

Bill Chen – Barrington Partners

How well are they collateralized?

Donald Wilson

You tend to, you want to loan on cash flow basis, and so what’s you’re looking for is both the coverage of cash flow as well as obviously what’s the capital and inventory of the organization. So there is a good chunk of that that does have inside the commercial real estate there’s a good chunk of owner occupied piece that also quasi CRE, that you kind of blend the mix between the CRE and the C&I with the owner occupied chunk. But the part that’s labeled just the commercial industrial loans on our balance sheet is not owner occupied real estate therefore its going to be driven by cash flow, inventory and capital on the balance sheet of the borrower.

Bill Chen – Barrington Partners

That‘s what I’m trying to understand is just the general risk of the C&I loans?

Donald Wilson

The idea of a rolling recession and going across the different units and that’s why if you go to our website what we’ve tried to show you on those slides that are there, does break out the non performings as well as the balances by the categories. Beyond that it’s kind of hard for me to give you aggregate numbers and again for this organization the dollars, the percentages are primarily focused at the moment on the CRE piece and particularly the developer component of that.

Operator

Your next question comes from the line of Brian Hagler – Kennedy Capital

Brian Hagler – Kennedy Capital

You mentioned earlier that your company like a lot of others saw some disruption in the quarters as far as your deposit base goes, just wanted your thoughts on whether you’ve seen any impact, positive impact from the changes that the government programs that have been introduced increasing the insured deposits to $250 and then unlimited on non-interest bearing transaction accounts?

Donald Wilson

It certainly doesn’t hurt that’s for sure, how much it helps I think is still kind of getting into the retail customer psyche at this point so I’m not sure you can say that over the course of a week, not sure you seen any material changes there but it certainly is helpful I think to provide stability to the whole industry.

Brian Hagler – Kennedy Capital

You mentioned in the upcoming quarters you expect more of these non performing loans to reach resolution and hopefully when they do they reach it at a point close to where you charged it down, would that imply that your provision should be less then what we’ve seen in the last couple of quarters?

Donald Wilson

Let me careful about how you said that, what I think what you said is somewhere close to level we’ve charged it down, what you will see is a migration towards charge-offs away from provision. What you will see is that you get more completeness. A lot of our provision right now is in pool level basis is what they call it or management factor basis. As you get closer to knowing what the individual credits are taking specific amount of risk and loss, that’s where you start seeing a charge-off. You started to see that happen this quarter. we will continue to see that over the next couple of quarters.

With regard to just a projection in terms of where provisions go from here, as I said earlier, we’re trying to provide as much transparency about our situation as we can but I don’t claim any great prophetic capacity at this point given this environment so we’re telling you where we are and we’re telling you what we’re doing about it, but this environment is difficult to navigate through.

Brian Hagler – Kennedy Capital

Just to clarify, I think what you said is that the charge-offs that you took this quarter on credits that you had provisioned for in the past few quarters was at the levels or close to the levels for the most part that you had provision for them, is that correct?

Donald Wilson

Yes.

Operator

Your next question is a follow-up from the line of Brian Martin – Howe Barnes

Brian Martin – Howe Barnes

Last quarter you talked about the regulatory exam being completed in [concurrence] with the third party review, has that been completed or is it yet to be completed?

Donald Wilson

That’s yet to be completed, what we said was the third party review would be completed in the third quarter. It has been and that’s what we announced. Obviously regulatory exams is an ongoing process in this industry and will continue to be so.

Operator

Your final question is a follow-up from the line of Stephen Geyen – Stifel Nicolaus

Stephen Geyen – Stifel Nicolaus

How does it typically take for a loan once it becomes non-accrual for you to move it towards foreclosure?

Donald Wilson

Let me be a little more general, how long does it take to get to some degree of resolution through our special assets or workout group, that tends to be somewhere in the six to nine month time horizon. Foreclosure is one of an array of alternatives that we have and so do not assume that foreclosure is the even primary tool that you use to get to that resolution. Obviously you can have the property owner sell the building, can refinance it somewhere else, there’s a variety of other tools that are at your disposal. Foreclosure if often not the one you want to use first anyway.

Stephen Geyen – Stifel Nicolaus

What percent of non performing loans are still accruing?

Donald Wilson

Zero.

Operator

There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

Donald Wilson

Thank you all very much for taking the time on this call and we appreciate it.

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