First Financial Bancorp. Q4 2008 Earnings Call Transcript

Jan.29.09 | About: First Financial (FFBC)

First Financial Bancorp (NASDAQ:FFBC)

Q4 2008 Earnings Call Transcript

January 29, 2009, 09:00 am ET

Executives

J. Franklin Hall – Executive Vice President and Chief Financial Officer

Claude E. Davis – President and Chief Executive Officer

Analysts

Scott Siefers – Sandler O'Neill & Partners L.P.

Ronaldo Lusemen – Investor

Christopher McGratty – Keefe, Bruyette & Woods

Daniel Bandi – Integrity Asset Management

Ross A. Demmerle – Hilliard Lyons

Daniel Cardenas – Howe Barnes Hoefer & Arnett Inc.

Operator

Hello and welcome to the First Financial Bancorp fourth quarter and full year 2008 earnings conference call and webcast. All participants will be in a listen-only mode. (Operator instructions). Please note this conference is being recorded.

Now I’d like to turn the conference over to Frank Hall. Mr. Hall the floor is yours sir.

Franklin Hall

Thank you. I would like to remind everyone today that our discussion may involve certain forward-looking statements, which are not statements of historical fact.

Our full year and fourth quarter 2008 earnings release should be read in conjunction with the consolidated financial statements, notes, and tables attached and in the First Financial Bancorp Annual Report on Form 10-K for the year ended December 31, 2007.

Management's analysis contains forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. However, such performance involves risks and uncertainties that may cause actual results to differ materially.

Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, management's ability to effectively execute its business plan; the risk that the strength of the U.S. economy in general and the strength of the local economies in which First Financial conducts its operations may be different than expected; and the effects of and changes in policies and laws of regulatory agencies, inflation, and interest rates.

For further discussion on certain factors that may cause such forward-looking statements to differ materially from actual results, refer to the 2007 Form 10-K and other public documents filed with the Securities and Exchange Commission. These documents are available at the Investor Relations section of our website at bankatfirst.com, and on the SEC's website at sec.gov.

Additional information will also be set forth in our Annual Report on Form 10-K for the year ended December 31, 2008, which will be filed with the SEC no later than March 16, 2009.

Please note that the content of this call contains time-sensitive information that is accurate only as of today Thursday, January 29, 2009. Now, I’ll turn the call over to Claude Davis.

Claude Davis

Thank you, Frank, and good morning and thank you all for joining us. I would like to start out by thanking our associates for their dedication and hard work. It is to their efforts that we have been able to manage the Company thus far through this unique and challenging time. I’m confident they will continue to work diligently and creatively to capitalize on the opportunities that are ahead.

While most of us have worked through a recessionary period in our careers, the current environment as some have described it, has now been experiencing in a very long time as ever. Even so we continue to execute our core strategies of quality loan growth, prudent capital and liquidity management and a continued focus on efficiency.

For the full year of 2008, we reported net income of $23 million and earnings per share of $0.61. And for the fourth quarter of 2008, we reported net income of $2.1 million and earnings per share of $0.06. A number of significant items impacted our results for 2008’s fourth quarter and full year. While Frank will provide you with more detail on those items, I will briefly highlight a few.

Throughout most of 2008, our credit quality trends were relatively stable and within their expected range, however as economic conditions rapidly deteriorated late in the year, we began to see both commercial and consumer clients come under increasing stress. As we announced in late December, we charged-off two large commercial credits, which resulted in a $2.4 million increase to fourth quarter net charge-offs compared with the third quarter of 2008 level.

These two credits represented approximately nine basis points of our full year 2008 net charge-offs to average loans ratio of 47 basis points. Additionally, while overall 30 to 89 day delinquencies have been relatively flat for the past few quarters. We are seeing weakening trends in both the real-estate sectors and other consumer related credit.

Despite higher credit costs in the fourth quarter, our coverage ratios remained strong. As of December 31, 2008, the allowance for loan losses as a percent of total loans was 1.34% and was a 197% of non-performing loans.

During the fourth quarter, we also saw a modest increase in classified assets, which was an additional factor in the increase in the allowance for loan losses. Although our fourth quarter and full year 2008 credit costs were higher than previous levels, they were still favorable relative to industry and peer levels.

Throughout 2008, we grew commercial loans, controlled expenses, and maintained strong capital and liquidity levels. Full year 2008 average commercial loans increased 15% from 2007. And full year 2008 non-interest expense remained relatively flat over 2007 excluding several significant items, which Frank will discuss in more detail.

Our capital position remained strong. All capital ratios continue to exceed regulatory well-capitalized requirements. Ourr total regulatory capital exceeded the minimum requirement by approximately $162 million on a consolidated basis at December 31, 2008. On December 23, 2008, we completed the sale of $80 million in preferred securities to the U.S. treasury under its capital purchase program. We’ve both short and long-terms plans for the utilization of these proceeds and we will provide quarterly updates on how the funds are being used.

Near term, we purchased agency-guaranteed, mortgage-backed securities and we will also use the funds on ongoing basis for increased lending. Although our loan growth remained strong throughout 2008, we are evaluating several ways to increase lending volume consistent with the intent of the program. It is expected that as additional lending opportunities become available, the cash flows from this investment portfolio will provide sufficient liquidity and capital support for the redeployment into loans.

We are also working with our third-party servicer for residential mortgage loans to evaluate appropriate foreclosure modification solutions. We expect that the earnings from this investment portfolio will have a positive effect on our net interest income and should exceed the quarterly dividends payable to the U.S. treasury on its preferred investment in the Company.

As mentioned in the news release, we are managing the company for the long-term success and making decisions to support client growth in this difficult economy. It is with that in mind that the Board of Directors made the decision to reduce the quarterly cash dividend to common shareholders, effective with the next quarterly dividend payment to $0.10 per share. The cash dividend paid last quarter was $0.17 per share.

We realized that this dividend reduction will be painful for shareholders, as we know many depend on their dividend as a source of steady income. However, we believe that it is right decision at this time given what most believe will be a continuing decline in economic conditions, and the uncertainty on the timing of an economic rebound. This action is consistent with our other capital management strategies. It will further boost our already strong capital levels and help us to successfully weather the economic challenges that lie ahead, while still allowing us to take advantage of growth opportunities.

As I stated the past several quarters on our conference calls, these are challenging and uncertain times. We will continue to manage the company with a long-term view by maintaining a strong emphasis on credit and risk management while pursing opportunities for growth that are consistent with our risk profile.

We recognized the need to grow organically and continuing our efforts to reach new clients and expand our market share. In 2008, we opened two new banking centers and entered the Indianapolis market with a commercial lending team. For 2009, we have plans to open additional banking centers including further expansion in the Cincinnati Metropolitan Area and in the fast growing Northern Kentucky market.

I will now hand the call over to Frank to review the highlights of the quarter and the year. Frank?

Franklin Hall

Thank you Claude. I will highlight some of the details of our quarterly and full year performance, but first I want to emphasize some of the significant items noted in table two of our earnings release for the fourth quarter and full year 2008. The cumulative 2008 loss on the preferred stock of Freddie Mac were approximately $3.7 million, or $0.07 per share. We will own these 200,000 shares, we still own them, and we’ll record market value changes through the income statement each quarter as trading portfolio marks-to-market. As of year-end, the per share price of these securities was approximately $0.31.

As Claude mentioned earlier, the effect of the 20 basis point increase in our loan loss reserve was approximately $0.09 per share and the increased charge-off level accounted for approximately $0.04 per share in the fourth quarter. As 2007 marked a final period of our corporate transition, we have listed significant items for the previous year in table 2 of our earnings release for reference.

Net interest margin was 3.67% for the fourth quarter and 3.71% for the full year 2008. Linked-quarter net interest margin decreased by only one basis point and the full year margin decline was just 23 basis points. Comparable quarter year-over-year net interest margin is down a modest 12 basis points. Our balance sheet remains asset sensitive and is yet to feel the full effects of the latest Fed rate cut.

Additionally, the margin will be impacted by the funding strategy supporting the near-term investment securities purchases associated with the capital purchase program. These securities have been funded with overnight borrowings as of year-end 2008. The anticipated spread on the resulting portfolio is between approximately 150 and 200 basis points.

Our earnings assets have increased both through organic loan growth and a planned increase in the investment portfolio. Claude has already highlighted our success in the lending area, I should also note that we are continuing to see wider spreads in our loan pricing, which should help offset some of the downward margin pressure associated with Fed fund declines, the purchase of lower yielding securities, and a more permanent wholesale funding strategy.

The investment portfolio has to run significantly throughout 2008. $122 million of the $346 million in full year net growth is due to the utilization of the capital purchase program proceeds. Our investment portfolio was approximately 19% of our total assets as of year-end 2008, up from approximately 10% at year-end 2007.

Our investment philosophy is to buy intermediate term, agency-guaranteed, mortgage-bank securities opportunistically. We do not have a target size for the investment portfolio, but view the portfolio as a vehicle to enhance our net interest income when there are opportunities in the market to do so.

Our primary businesses are lending, deposit gathering, and wealth management and we will manage our capital such that we have sufficient capacity for those activities. Our fourth quarter investment portfolio yield was 4.99%, which compares favorably to our fourth quarter loan portfolio yield of 5.60%. It should be noted however that the incremental yields on our loan portfolio relative to the investment portfolio have returned to more traditional levels.

Our total average deposits have remained somewhat flat year-over-year. We have continued a gradual mix shift from time deposits to transactional deposits. This growth has occurred primarily in our business deposit product with consumer and public funds remaining somewhat flat.

Our Cincinnati and Northern Kentucky markets have experienced the highest growth rates and greatest success in garnering new deposits due in large parts to our local market talent, our recent entry into those markets and the local disruption in the competitive landscape. Pricing has remained disciplined with some late quarter relief in competitive pricing.

Our availability of wholesale funding remained strong with an expansion of sources of wholesale funding recurring throughout 2008. As of year-end, we had over $1.4 billion available in wholesale funding sources. We maintain a detailed contingency funding plan and continuingly update it for current market conditions. We also actively manage our derivative counterparties list to address current market conditions.

Our net interest income excluding the significant items listed in table 6 of our earnings release, decreased as a result of two key external factors. First, the overall decrease in market values of our trust assets under management for the year had decreased by approximately $371 million, or 16.7%. Second, the decline in consumer spending has had a negative influence on [NSFBs] and interchange income on debit and credit cards.

We have noticed significant improvement in our client derivative programs designed to aid our lending clients and taking advantage of fixed rates in this low rate environment, while receiving a variable payment, and thus helping us to manage our interest rate risk.

Our normalized non-interest expenses for the fourth quarter and for the full year remained relatively flat with prior period variances due largely to the timing of certain expenditures such as marketing.

We remain disciplined in managing our non-interest expenses as we expect several external factors to create headwinds in 2009 such as FDIC insurance premium increases of approximately $3 million to $3.5 million. We may also be opportunistic in hiring as competitor institutions managed through their difficulties.

Our capital ratios remained strong. As of year-end 2008 and after the receipt of the $80 million capital purchase program capital, our leverage ratio was 10%, total capital ratio was 13.62%, tangible equity to tangible assets was 8.70% and our ending tangible common equity to tangible assets ratio was 6.52%.

Excluding the investment securities purchased as a result of the capital purchase program, our tangible common ratio was 6.74%. We remained diligent in managing our capital and will deploy it in a prudent manner in this difficult operating environment. Due to the continued uncertainty in the overall economy and consistent with our previous practice, we will not provide earnings guidance for 2009. We will remain focused and disciplined in executing our strategic plan, but are mindful of the challenges facing us this year.

This concludes the prepared comments of our call. We will now open the call for questions. Mike?

Question-and-Answer Session

Operator

Yes sir. (Operator Instructions). And our first question comes from Scott Siefers of Sandler O'Neill.

Scott Siefers – Sandler O'Neill & Partners L.P.

Good morning guys.

Claude Davis

Good morning Scott.

Scott Siefers – Sandler O'Neill & Partners L.P.

I’m assuming maybe Frank, this part of the one is probably best for you. Can you detail the size of the OREO write down in the fourth quarter?

Franklin Hall

Sure Scott, that was approximately $400,000 pretax.

Scott Siefers – Sandler O'Neill & Partners L.P.

Okay. And then either Claude or Frank, just given the focus on tangible common these days. I was just hoping to get a little more color even beyond what you said on the way you’re thinking about tangible equity. Just since that the metric at which investors seemed to be paying the closest attention these days is good. And then Frank you gave the comment on TCE kind of extra leverage from the TARP, but having said that you are in a somewhat unique position of being able to leverage the TARP ones. The others don’t have that kind of favorable dynamic, and you can do so in several more times than you have so far to help avoid any earnings solutions. Obviously the trade office that’s leveraging the TARP funds dilutes the TCE. So how do you guys think about that balance in this type of environment?

Claude Davis

Scott, this is Claude. You are definitely right. I mean I think we are sensitive to the market’s current view as tangible common being the most critical measure. So, we’re factoring that into our thinking. Our Board has not established a target for tangible common. We have established, as we’ve disclosed previously targets for the other ratios, but we’re sensitive to kind of the market’s view that as you said we’re in a fortunate position that we can’t continue to leverage the TARP capital without kind of going below the 6%. And so which seems to be what the market is looking at as a kind of a threshold level. So, we are mindful of it. We are sensitive to it. Would expect to keep it above the 6% level, and then look for opportunities to leverage it appropriately.

Scott Siefers – Sandler O'Neill & Partners L.P.

Okay, perfect. And then I guess just had one other question on sort of general deposit pricing dynamics with the Nat City transaction having closed, I guess almost a month or so ago. Would you say there has been any relief or kind of return to normalcy or things still pretty competitive?

Claude Davis

And it’s an interesting question Scott. I would say to you that it’s moderated some, but not as much as we would like to see it or I would have expected it to, principally because other organizations follow National City’s aggressiveness and while they may have backed off some, it’s not been significant. So we still see what we view as unusually high CD pricing as well as the money market pricing is still we think a bit high for what makes sense, given the overall rate environment.

Scott Siefers – Sandler O'Neill & Partners L.P.

Okay, perfect thank you.

Claude Davis

You bet.

Operator

The next question we have comes from [Ronaldo Lusemen], Investor.

Ronaldo Lusemen

Hello this is Ronaldo Lusemen. I’m wondering what you expect your stock price to be at the close of business today and what it might be 30 days from now?

Claude Davis

Sir, we don’t comment on stock price expectations and certainly don’t think it’s appropriate to do so, and though wouldn’t want to comment on that.

Ronaldo Lusemen

I see, okay thank you.

Operator

The next question we have comes from Chris McGratty of KBW.

Christopher McGratty - Keefe, Bruyette & Woods

Good morning, guys.

Claude Davis

Good morning Chris.

Franklin Hall

Hi, Chris.

Christopher McGratty – Keefe Bruyette & Woods

I was a couple of minutes late joining the call, but a couple of questions. In your prepared remarks, did you make any comment on your near-term margin expectations? You have an asset sensitive balance sheet, but the rates I mean they can’t go much lower. How are you thinking about the margin?

Claude Davis

Yeah Chris, we did not offer any guidance in that area. I would say, we have seen some improvement in the pricing -- on our loan pricing. But certainly deposit pricing is a little more difficult in this low rate environment. But we did not offer any specific guidance on margin.

Christopher McGratty – Keefe, Bruyette & Woods

Okay. In terms of credit, again, I know it’s tough to predict guidance in this environment, but is the fourth quarter in terms of the credit provisioning levels in the reserve increase, is that a decent starting point for '09? It seems like your tone is a little more cautious in your release and given the preannouncement at the end of the year, I’m just trying to get a sense of what you guys are thinking about credit?

Claude Davis

Sure. Chris this is Claude. We are cautious right now. I think we were and actually all being in the industry and the overall economy were surprised at the severity of the fourth quarter downturn, and we felt that it was appropriately based on our model and our approach to kind of modelling the economic conditions that have resulted in the reserve increase that we announced late in the year, and then included more color on in our press release. Consistent with Frank's comment about providing '09 guidance, we are choosing not to just because of the uncertainly that exists. So I can’t say to you whether that’s a good starting point or not other than we think we have. If you look at our ratios, our non-performing loans are still less than 70 basis points. Our coverage is still two times. Both of which as I look at the landscape would appear to be in the top quartile pretty easily. So it’s like we start on a good point, but we are going to be very cautious.

Christopher McGratty – Keefe, Bruyette & Woods, Inc.

No, I understand, I agree with that too. My last comment is on the dividend. You offered some guidance in terms of a pay out of 40% to 60%. Is that a long-term or is that a '09 kind of expectation to imply kind of where you expect profitability to be?

Claude Davis

Wasn’t intended to imply '09 profitability. It was really articulating the Board’s view of what an appropriate pay out ratio is for the company long-term.

Christopher McGratty – Keefe, Bruyette & Woods, Inc.

Okay.

Claude Davis

Based on what we see happening over the next several years both in terms of opportunities, in terms of maintaining good internal generation of capital for supporting our organic growth, but also providing for reasonable yield to shareholders.

Christopher McGratty – Keefe, Bruyette & Woods, Inc.

Okay.

Claude Davis

So, I would view it as a long-term target.

Christopher McGratty – Keefe, Bruyette & Woods, Inc.

Okay. And then in terms of I guess capital decisions. What’s your thinking on acquisitions?

Claude Davis

Cautious, we’ve always said in our planning that we would opportunistically and strategically look at acquisition opportunities. We would certainly kind of do the same in this environment, but as you would expect us to say, we’re very cautious in looking at any opportunities that includes acquisition, that includes looking at new lending opportunities, but exaggerates just. Until we get a better feel for where this economy is headed, we are going to continue to be very cautious in our management.

Christopher McGratty – Keefe, Bruyette & Woods, Inc.

Okay. Great thanks a lot guys.

Claude Davis

Thanks Chris.

Franklin Hall

Thanks.

Operator

The next question we have comes from Dan Bandi of Integrity Asset Management.

Daniel Bandi – Integrity Asset Management

Great. Thanks for taking my call. I’m wondering if you guys are looking at I think you’ve said in terms of supporting client growth going forward. How do you continue to do that in this environment where the downturn is so rapid? What looked like a good client three months ago is a non-performer today? I mean what are you guys doing from an underwriting standpoint to try to protect from making bad loans in this environment as opposed to just sort of tuck and tail and doing nothing?

Claude Davis

Sure. Now it’s a very good question, Dan and actually and it’s probably the biggest challenge on a day-to-day basis that we face. The things that we are doing today is first as I've just mentioned being very cautious, but still I would tell you that even in this environment there are a lot of good businesses out there. They may not be as profitable as they were two years ago, are still doing well and have managed for the current downturn. So, first we’re looking at what their history has been, the steps they’ve taken to managing the downturn. The other thing I’d tell you is we’re being more cautious, as it relates to kind of equity that they have either in a company if it’s an operating entity, or if we’re doing a real estate transaction, the equity based on a current appraisal. And then the other critical part is what’s their reserve capacity, should they see even a more significant downturn. And that reserve capacity can come from either cash in the company or the entity that we’re lending to, or cash that the guarantors may hold and be able to use to support their company or their real estate project through this period of time. And then finally, we’re obviously going to be stress testing for looking at cash flows again for either an operating entity or real estate project to make sure that they can sustain a drop in revenue from where they are at today. And in many respects, because of the way we’re approaching it, I would say loans that we are doing today are as good or better than those that were made a year or two years ago. Certainly, you can still make a mistake. We’re going to free rigid diligence process, but feel like it’s important to continue to grow and expand the lending business.

Daniel Bandi – Integrity Asset Management

Could you give any metrics in terms of maybe hurdles that have changed in terms of equity in a deal or cash flow covers or anything like that that has changed and also you had mentioned that maybe you’re getting a little bit better spread on the loans and can you also then, just a dovetail, talk a little bit about any additional pricing you might be able to extract in this environment?

Claude Davis

We’ve tried very hard to maintain our loan policy, where it has always been. I would say that the additional things that I had spoke to that we’re doing are more what I would view as the subjective element of lending were based on the specific of that transaction. What is an appropriate, a cash flow coverage or equity coverage to protect against this downturn? And I think that’s important for a bank like ours, because we can’t make individual decisions, and in this environment, individual decisions are critical because every project, every business is affected differently by the environment. So, we try not to change our policy, but instead be very rigid in our subjective analysis of that specific transaction. As it relates to pricing, I wouldn’t want to, because we haven’t disclosed comments specifically on our increased spreads, but I would tell you what we’re seeing in general in the market is that minimum loan spreads have increased by 50 basis points and up. In some cases, 100 to 150, so we’re seeing nice spread widening in general throughout the market, not just loans that we price, but what we see competitively.

Daniel Bandi – Integrity Asset Management

Okay, great. Thanks a lot.

Claude Davis

You bet.

Operator

And the next question we have comes from Ross Demmerle of Hilliard Lyons.

Ross Demmerle – Hilliard Lyons

Hey, good morning.

Claude Davis

Hi, Ross.

Franklin Hall

Hi, Ross.

Ross Demmerle – Hilliard Lyons

Hey, I was hoping you might have the FDIC insurance premium amounts for the fourth quarter and for 2008 available?

Claude Davis

Yeah, what we disclosed on that Ross was an increase in ’09 from $3 million to $3.5 million.

Ross Demmerle – Hilliard Lyons

Okay, and so I guess you don’t have the exact dollar amounts for…

Claude Davis

No.

Ross Demmerle – Hilliard Lyons

Okay.

Claude Davis

’08.

Franklin Hall

That’s right we haven’t disclosed that. We’ve given you the delta.

Ross Demmerle – Hilliard Lyons

All right. And then secondly, the weakness that you’ve seen in the portfolio. I’m wondering if that’s geographic at all, I mean as far as Indiana, Ohio, Kentucky?

Claude Davis

Not really Ross. Again we are fortunate in that we’ve certainly seen some weakness, but they’ve not been in significant amounts. But I would say there is no geographic concentration of representation. You always have selected commercial deals that may go past due or go non-performing. So those will skew the geography, but I don’t think any of the deals that we’ve seen specifically relate to a geography. Does that make sense?

Ross Demmerle – Hilliard Lyons

Okay. And then I think as I look at the press release, it looks like your 30 to 89 days past due really hadn’t changed all that much from the third quarter?

Claude Davis

No. Both were about 84 basis points.

Ross Demmerle – Hilliard Lyons

And I guess with that in mind you seem to be overly cautious. I mean just by the shear numbers or is there I guess what else are you looking at outside of what’s past due here near-term?

Claude Davis

Sure. And that’s what we’ve been trying to articulate to shareholders in the market. It is that we are trying to be ahead of what we see in the trend and kind of just the economy in general and with the abruptness of the decline in economic activity in the fourth quarter, our view is that most banks will see credit quality deteriorate throughout 2009 because of that, most things move back quickly. You are right. Our numbers have not moved as significantly as other banks either in non-performing levels, past due levels, and our charge-offs were elevated in the fourth quarter because of the two large commercial deals, but we are just taking an abundance of caution based on the economic environment. The one metric obviously that we’ve referenced was that we had $9 million increase in classified assets. Again, if you look at our classified assets compared to capital. It’s still very low compared to peer, but we are cautious. We think the economy has got substantially worse in the fourth quarter and that’s continued into early '09. So it’s an abundance of caution more than pure numbers.

Ross Demmerle – Hilliard Lyons

Okay, all right thanks for your comments.

Claude Davis

You bet.

Operator

And the next question we have comes from Daniel Cardenas of Howe Barnes.

Daniel Cardenas – Howe Barnes Hoefer & Arnett Inc.

Good morning guys.

Claude Davis

Hi Dan.

Franklin Hall

Good morning, Dan.

Daniel Cardenas – Howe Barnes Hoefer & Arnett Inc.

Can you remind me one of your loan portfolios that had floors in place?

Claude Davis

It’s not significant.

Daniel Cardenas – Howe Barnes Hoefer & Arnett Inc.

Is that something that’s going to be introduced in 2009?

Claude Davis

Yeah it already has been.

Daniel Cardenas – Howe Barnes Hoefer & Arnett Inc.

What’s the customer reaction to this?

Claude Davis

Well as you can imagine they don’t like it. But I think more and more of our competition has introduced floors and I would also say that I think right now more than, even with where we’ve established floors they are certainly higher than current market rates. I think act as to credit is important to them today as the absolute rate is in our case because we’ve continued to lend both to current clients and toe new clients. There is a balance there. So, I wouldn’t say to you it doesn’t go over easily. It’s a negotiation process, but it’s one we started in the fourth quarter and we’re pretty firm about.

Daniel Cardenas – Howe Barnes Hoefer & Arnett Inc.

Okay. Then relating to your comment on acquisitions, potential acquisitions or expansion in ’09. Is that going to be through de novo expansion or potentially branch acquisitions?

Claude Davis

On the growth side we will continue to open new banking centers, and look for talent that we might be able to recruit that we think would be good, kind of long-term revenue producers for us. On the acquisition front, we’re going to be cautious. We’ll certainly look at opportunities. And you’re right Dan, it could be branch deals. It could be whole bank deals. We don’t know what may be available, but we’ll certainly, if strategic for us take a hard look at it.

Daniel Cardenas – Howe Barnes Hoefer & Arnett Inc.

Okay, and then just one last kind of cleanup question here. The tax rate that we saw, what’s a good tax rate to use for 2009?

Franklin Hall

I would say the effective rate for what I would consider to be a normal quarter is the second quarter, roughly 33%.

Daniel Cardenas – Howe Barnes Hoefer & Arnett Inc.

Thank you.

Claude Davis

Thanks Dan.

Operator

The next question we have comes from Chris McGratty of KBW.

Christopher McGratty – Keefe, Bruyette & Woods, Inc.

Hi, guys. Just a quick followup. I know the construction portfolios are under 10%, but last couple of years it has increased a little bit. I was just wondering included in the current quarter, I was just wondering the types of credits you’re booking?

Claude Davis

Sure. They would be predominately commercial Chris. No one specific area or type and many of those in terms of the recent increases, have been some of the originations, but also some funding up of kind of past-approved projects. But I’d say it’s predominately commercial and it cuts across from kind of projects for client businesses to some real estate investment projects. As you would expect, we’re not doing much in the way of any new residential development or some of the other higher risk categories, but there is no one concentration type in the portfolio.

Christopher McGratty – Keefe, Bruyette & Woods

Okay. And in terms of the commercial real estate, of the approximate $816 million, what’s the breakdown roughly? And how much is retail? How much is strip malls? What can you provide?

Franklin Hall

Yeah, we haven’t disclosed to that level of detail.

Claude Davis

The one thing we had disclosed in the past, Chris, is that and it remains the same is that we have approximately $50 million to $60 million in residential land development.

Christopher McGratty – Keefe, Bruyette & Woods

Okay.

Claude Davis

And that’s really the one we disclosed in that category.

Christopher McGratty – Keefe, Bruyette & Woods

And that’s in the commercial real estate line or the construction line?

Claude Davis

Yes.

Christopher McGratty – Keefe, Bruyette & Woods

Okay.

Operator

(Operator Instructions) And we see no further questions at this time. I would like to turn the conference back over to Mr. Davis for any closing remarks.

Claude Davis

Great, thanks Mike. And thanks everyone for your interest and we appreciate your attendance on the call. Thank you.

Operator

Yes, thank you, gentlemen. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!