Wilmington Trust Corporation Q3 2009 Earnings Call Transcript

Executives

Ellen Roberts – VP, IR

Ted Cecala – Chairman and CEO

Bill North – Chief Credit Officer

Dave Gibson – CFO

Mark Graham – Head of Wealth Advisory Services

Bill Farrell – Head of Corporate Client Services

Analysts

Andy Stapp – B. Riley & Company

Rob Rutschow – CLSA

Cheryl Pate – Morgan Stanley

David West – Davenport & Company

Tom Alonso – Fox-Pitt

Steve Moss – Janney Montgomery Scott

Gerard Cassidy – RBC Capital Markets

Leo Harmon – FMA

Edwin Groshans – Ladenburg

Wilmington Trust Corporation (WL) Q3 2009 Earnings Call Transcript October 23, 2009 10:00 AM ET

Operator

Greetings and welcome to the third quarter 2009 Wilmington Trust conference call. At this time, all participants are on a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ellen Roberts, Vice President of Investor Relations. Thank you, Ms. Roberts, you may begin.

Ellen Roberts

Thank Victoria. Good morning everybody and thanks for joining us this morning. I want to remind you that supporting materials for what we would be discussing on this call are available on our Website at Wilmingtontrust.com. As Victoria said, this call is being recorded, also replay details are on our Website. Our agenda this morning features remarks from our Chairman and Chief Executive Officer, Ted Cecala. Also with us this morning are our President, Chief Operating Officer and Head of the Regional Banking business, Bob Harra; our Chief Financial Officer, Dave Gibson; our Chief Credit Officer, Bill North; the Head of our Corporate Client Services business, Bill Farrell; and the Head of our Wealth Advisory Services business, Mark Graham.

We’ll start off with remarks from Mr. Cecala, and at the conclusion of his comments, he’ll take questions. I want to remind you that news reporters may be attending this call. All participants are permitted to ask questions, and we take the questions in the order in which they are received. Now, I have to give you the forward-looking statement disclaimer. This release may contain forward-looking statements that reflect our current expectations about our performance. Our ability to achieve the results reflected in these statements could be affected adversely by changes in national or regional economic conditions, changes in market interest rates, fluctuations in equity or fixed income market, higher than expected credit losses, changes in the market values of securities in our investment portfolio, and other factors described in disclosure documents we filed publicly from time to time.

And with that, I’ll turn it over to Ted.

Ted Cecala

Okay. Thanks Ellen. Good morning. Thank you for joining us for this discussion of our results for the third quarter of 2009. I hope you have had a chance to review our earnings release. I don’t plan to repeat everything in the release, but we will speak to the significant items for the quarter, and afterward, we will respond to questions that you may have. As we reported earlier today, we recorded a net loss for the quarter of $6 million. This was primarily due to the $38 million charge for other-than-temporary impairment on investment securities or is generally referred to OTTI. If we look at our results, excluding the OTTI charge, we would have had an earnings of $18 million. Highlights for the quarter include a lower provision for loan losses, which amounted to $39 million and lower charge-offs.

Our net interest margin was 7 basis points to 3.23%, and was associated with lower funding costs. The performance of our corporate client and wealth advisory services businesses helped increase our noninterest revenue to 54% of total revenue. Expenses for the quarter declined slightly from last quarter, reflecting the special deposit insurance assessment level levied by the FDIC in June. Normalizing for that assessment, the expenses rose about 3%.

I will review each of the areas in more detail over the course of this call. In my discussion today, in my performance comparisons, we will be against the 2009 second quarter. I believe this perspective will help everyone understand how our company is responding to the challenges and opportunities that we see today. Now, I would like to begin our discussion of the regional banking business. For the quarter, average loans declined $317 million or 3%. Most of the decline was in the retail loans, which declined $276 million.

About half of that was associated with the run-off in indirect automobile loan portfolio, the balance was the sale of a portion of the residential mortgage portfolio that closed at the end of the second quarter. As we noted last quarter, the sales totaled about $130 million. Commercial loans declined about $40 million, less than 1%. Commercial mortgages rose just over $15 [ph] million or 3%. We continue to see opportunities to offer mortgages for owner-occupied properties as traditional sources of takeout financing. Insurance companies and the like have been absent from the market. While we are discussing the commercial mortgage portfolio, I would like to take a minute to talk specifically about our portfolio.

I think this is an important topic because of the commentary we hear and see from time to time regarding commercial mortgage portfolios. The length of the commercial mortgage loans that we are making is typically around five years. We do not offer the long-term structures that were historically provided by traditional commercial mortgage lenders. Over half of our portfolio is composed of owner-occupied properties. This is meaningful because we believe that overtime, owner-occupied properties are more stable. The remainder of the portfolio, the non owner-occupied portion is well diversified by property type. The largest segment in this portion of the portfolio is retail. This group primarily consists of small shopping centers designed to support nearby residential areas, rather than mega malls or large regional centers. Office space, to the extent, we finance it is typically low-rise professional fees often for medical or legal practices, not high-rise office towers.

Our commercial mortgage portfolio does not contain buildings that require tower cranes for construction. The areas that I have highlighted account for over three quarters of commercial mortgage portfolio, with the rest distributed over six other categories including hotels and motels, industrial and multifamily. I hope this information will help you understand the little about the nature of our commercial portfolio and importantly how it differs from portfolios that contain high-rise office buildings, mega shopping centers or multistorey condominiums. I’d like to move away from the loan portfolio for a moment and talk about the liability side of our balance sheet where we continue to see core deposit growth, with average balances of almost $100 million or 1% from last quarter. This deposit growth coupled with the soft demand for new loans have reduced our use of national market funding by over $500 million from last quarter.

Now, I would like to spend a few minutes discussing credit quality, as we have noted in earlier releases and on previous calls. While the Mid-Atlantic region has generally fared better than most other parts of the country, it is not immune to the economic downturn. Our credit metrics for the quarter are mixed. Net charge-offs declined, while the level of non-accruing loans and loans past due 90 days or more increased. The reserve grew by $17 million to $202 million and the reserve to loan ratio rose by 22 basis points to 2.24%. Non-accruing loans rose $67 million. Five credits made up 70% of that increase.

Other real estate home declined slightly for the quarter. In total, non-performing assets reached $398 million or 4.39% of total loans in (inaudible). This ratio is typically higher than the reserve ratio for several reasons. The amount of the reserve reflects our best estimate of potential losses. We base those estimates on conditions of our loss – on combination rather of our loss experience, qualitative adjustments to tax your current trends, and our estimates of underlying collateral values.

In assets, non-performs does not automatically lead to a partial or total loss. This means that we would not typically assign 100% reserves to every non-performing assets. Loans past due 90 days or more rose $12 million. The increase was spread across commercial and consumer portfolios.

Now, going to the charge-offs, net charge-offs were $22 million, down $14 million from last quarter. That corresponds to a quarterly charge-off rate of 24 basis points, down from 39 basis points from the second quarter. Net charge-offs declined in all categories of the commercial loan portfolio. Commercial net charge-offs declined $14 million, while consumer net charge-offs declined by $1 million. Within the commercial portfolio, construction credits continue to comprise the majority of charge-offs. Consumer credit charge-offs declined for the third quarter in a row. Charge-offs for indirect auto lending continued to decline during the quarter, but that improvement was partially offset by around $500,000 charge for residential mortgages.

To ramp up my remarks on the banking business, I would like to talk about the net interest margin. The margin was 3.23%, up 7 basis points from last quarter’s 3.16%, and just a bit over our guidance, the improvement was due to lower borrowing costs, both on core deposit products as well as on external funding sources. As the credit markets to improve, we have seen reductions in credit spreads that have reduced our cost of funding from non-core sources. Competitive conditions enabled us to reduce the cost of some deposit products. Given the current environment and assuming no rate moves by the Fed over the balance of the year, we expect the margin to remain in the tight range around the current level.

Before turning to our fee businesses, I would like to take a minute to talk about the OTTI charge that we recognized for this quarter. At the end of the quarter, our investment portfolio included 38 pooled trust-preferred and 9 single-issue securities. Of these securities, 23 of the pooled trust-preferreds were determined to be OTTI. This resulted in a write-down of $55 million. Of this amount, $36 million was determined to be credit-related and was recorded as a loss through the P&L. The remaining amount was recorded in other comprehensive income and reduced stockholders’ equity by $12 million.

The irony of the complex accounting associated with the securities is that the majority of the $36 million was already recorded as a P&L charge in the fourth quarter of last year. The performance of the securities continues to be influenced by the current recession. Given the pressure on regional banks, it’s difficult to predict how these securities will perform in future quarters.

Now, I would like to talk about our advisory businesses before turning to expenses. As I mentioned at the beginning of today’s call, our corporate client and wealth advisory services businesses continue to perform well in a difficult environment, and it increased our non-interest revenue to 54% of total revenue. In the wealth advisory business, revenue declined by about $1 million. Core trust and advisory services rose $2 million or 6% during the quarter, reflecting improved equity evaluations.

However, the strength of business development has been masked by market volatility and a shift in client preferences for cash management in the fixed income investments. These investments have lower fees than other investment management alternatives, making it difficult to see the benefits of new business development. Concurrently, low interest rates translate into old money market mutual fund yields where we have reduced the management fees. We have opted to waive fees in accordance with funds provisions, in order to maximize the yield available to clients. These waivers reduced wealth advisory revenue by $3 million during the quarter.

Now, I would like to turn to corporate client services. Corporate client services revenue increased $3 million or 6% from last quarter. The third quarter marked the fourth consecutive quarter of record sales activity. The growth engine for this business is the capital markets group. Capital markets revenue rose 19% from last quarter and accounted for almost all of the increase in corporate client services. The other parts of the business were leveled with last quarter. Our independent no-conflict approach to business development continues to be very successful. We focus on assisting firms in distress circumstances by providing default administration and bankruptcy services as well as successor loan agency services.

Record business development results include successor appointments where our competitors have exited certain product lines including insurance securitization, custody and corporate debt trusteeships. We continue to guard additional work on bankruptcies and are serving on the unsecured creditor committee of the largest US bankruptcies in the past year, including Lehman Brothers and General Motors.

In entity management, our domestic business is experiencing some challenges, while our overseas business continues to grow. In Europe, we are seeing gains from new securitization and opportunities to provide loan agency and other services for distressed organizations and transactions. Some of the strengths in Europe though has been offset due to fluctuations in currency exchange rates. To close out the advisory revenue discussion, (inaudible) notched another solid quarter on a combination of hedge fund performance fees as well as higher assets.

Moving to expenses, our expenses declined $1 million or 1%, reflecting the effect of the $5 million special assessment levied by the FDIC last quarter. If you exclude that special assessment, total expenses rose $4 million or about 3% from last quarter. About half of this increase was due to additional incentive accruals, driven by the continued strength of the corporate client services business, while most of the remainder was associated with increasing your reserve for off-balance sheet items, essentially primarily the letters of credit. And as our numbers reflect, we continue to be diligent in managing our overall expenses.

Now, I would like to briefly turn to capital and then I will lap it up to take your questions. The capital position of our company remains strong. All regulatory capital ratios improved from the second quarter. The company continues to exceed the amounts required to be considered well capitalized, both including and excluding the CPP funds obtained in December. To wrap up, while the Mid-Atlantic region has fared better than other parts of the country, we are still experiencing effects of a struggling economy. Our advisory businesses are doing well, despite the difficult operating environment and we will continue to manage our expenses very carefully. I would like to thank everybody for attending today’s call, and that, we would like to open it up for questions.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from Andy Stapp with B. Riley & Company. Please proceed with your question.

Ted Cecala

Hello?

Ellen Roberts

Andy? Victoria?

Operator

Yes.

Ellen Roberts

We are not hearing his questionnaires.

Operator

Andy, if you can please speak, your line is in question.

Andy Stapp – B. Riley & Company

I have been speaking.

Ellen Roberts

Now, we can hear you.

Andy Stapp – B. Riley & Company

Okay. If you have the dollar amount of raw land loans at quarter end?

Ted Cecala

Raw land loans, yes. I do have that, Andy, and of course you are going to make me dig through my – this is still more picking up high amount of stuff here. Yes, thank you. It is basically about $200 million. And by raw land, I am looking at this, I think this is your definition, too, which would be not having full approvals, obviously no improvements if you don’t have the approvals. So, with that as the definition, raw land is about $200 million.

Andy Stapp – B. Riley & Company

Yes, that’s what I was looking for. And have you seen any sign of stabilizations in the value of raw land and lots.

Ted Cecala

Certainly, we have seen a decline in the value over the last year to two. I think on average in terms of most of everything we are seeing in the last six months or so, I would characterize as kind of a period of more stabilization and I think that probably holds true for land as well. We are starting to see more people that have capital that are interested and acquiring some land that we are involved with, some of the larger buildings that we don’t finance directly, those who are in need of land and sitting on the sidelines now for a couple of years plus, and are interested now in booking some of these prices. And the land values that we are talking about are, you know, in line with where we have seen values over the past six months or so, which again is down more than a little bit from the peak. But I would tell you, I would characterize over the last six months has been a more stable environment.

Andy Stapp – B. Riley & Company

Do you have 30 to 89 delinquencies at quarter end?

Ted Cecala

Yes, we don’t have those numbers, yet, Andy.

Andy Stapp – B. Riley & Company

Okay.

Ted Cecala

We will have them.

Andy Stapp – B. Riley & Company

Incentives and bonuses were up about $2 million linked quarter. Could you provide some color on that increase?

Ted Cecala

I did, Andy.

Andy Stapp – B. Riley & Company

You did, I missed it, I am sorry.

Ted Cecala

I will say it again. It’s a result of the strength in the corporate client services business.

Andy Stapp – B. Riley & Company

Okay.

Ted Cecala

That reflects some incentives.

Andy Stapp – B. Riley & Company

Okay, I apologize for that.

Ted Cecala

It’s okay.

Andy Stapp – B. Riley & Company

I have some other questions, but I will just hop into queue and let other folks get on.

Ellen Roberts

Victoria?

Operator

Our next question comes from Rob Rutschow with CLSA. Please proceed with your question.

Rob Rutschow – CLSA

Hi good morning.

Ted Cecala

Good morning.

Rob Rutschow – CLSA

I guess first question is on the reserve. I think you did about 55% of non-performing loans, and you know, maybe like 23% of the loans that you have listed it substandard and doubtful. So, that’s a pretty low level relative to where you have been historically and even during the last recession and earlier part of the decade. So, how should we think about that? Is this the reflection of greater confidence that you won’t realize losses than what you had during the last downturn or should we look for those percentages to sort of come back up for the historical averages?

Bill North

Rob, this is Bill North. I mean, when we have a situation, it gets to that level of risks and all of our incurred assets, I think we have talked about before. We do and we are required to do a thorough examination of either the future present value or the expected future cash flows or if it’s a real collateral of loans. Obviously we are going out and getting in new appraisal, and obviously what we provision and what’s going to deserve is address for a relation to those, you know, today, based on today’s market conditions and the expectations, it’s based on those value. So, I am not quite sure how that compares to moving other periods in different cycles, but today, we are taking these models and we are putting them under the microscope and we are doing the analysis and setting the value at today’s market and the expected cash flow is based on today’s performance and our reserve levels and what we provision every quarter is a result of that.

Rob Rutschow – CLSA

And so, for the non-performing loans, how much of that would you say is cash flow based lending and how much is collateral based lending, and are you marking those to cash flows or are you marking those to the market value?

Dave Gibson

Rob, this is Dave Gibson. I think just by definition, the largest percentage of our non-performers are in construction. And that’s really a collateral-based lending. And predominantly if there are impaired loans, we are using collateral values for those properties.

Rob Rutschow – CLSA

Can you give us an idea of how much of the principal has been written down once they are going to NPLs?

Ted Cecala

It’s going to be all over the Board depending on the project we own and the underlying collateral. So, we have some situations where there isn’t a need to satisfy dollars, and obviously some will, say a vigor, That’s not a real specific answer to your question, but it just all depends on the situation.

Rob Rutschow – CLSA

Okay. Last question is on the money market fees, I think that’s been common around some of your other peers in private banking sector. Would you expect to continue to waive those fees and are you encouraging your money market clients to shift in to bank deposits?

Ted Cecala

I will say yes to both of those. We will continue to waive fees, because we want to continue to provide our clients with the highest yield possible and retain that basic business. At the same time, we are offering some additional sweet vehicles that bring some of that money into our deposit base.

Rob Rutschow – CLSA

Okay, great. Thank you.

Operator

Our next question comes from Cheryl Pate with Morgan Stanley. Please proceed with your question.

Cheryl Pate – Morgan Stanley

Hi good morning.

Ted Cecala

Good morning.

Cheryl Pate – Morgan Stanley

I just wanted to talk a little bit about the change in assets under management composition and client shift towards more money market and fixed income, can you give a little color on how that’s changed over the past couple of quarters and what sort of historical composition split has been?

Mark Graham

Yes, it’s Mark Graham. Certainly a shift over the last year or so, obviously both in terms of the raw numbers as markets have declined, but the shift within the portfolios to more fixed income cash-oriented vehicles, which we think has begun to settle and turn around as folks get back into a little more broader asset allocation. Those fees that we recognize on those types of investment vehicles will certainly be less than we do on a fully allocated equity driven type portfolio. So, those shifts have been coming down on a pretty systematic basis I guess over the last 12 to 15 months, and I think we have seen that turning other way. I will Bill Farrell, if you could talk a little about what you are seeing on the AUM on the corporate side of the things.

Bill Farrell

Sure. On the corporate trust side of the market, we have actually been finding additional opportunities to do institutional fixed income money management, and many of those opportunities are on the longer side of the spectrum versus just managing short-term money. So, lot of the pickups that we have made, we made in the third quarter where from our perspective long-term investment management opportunities for the organization.

Ted Cecala

This is Ted Cecala. I am looking at page 17 from our release and again I don’t know how that shows up electronically, but if you go back to the third quarter of last year, the mix was 41% equities and 26% fixed income. Fast-forward a year, it’s 37% equities and 33% fixed income, and some of the gains that we see in assets under management at Wilmington Trust, last quarter, we had assets under management of $35 million [ph] and at the end of the third quarter this year, it’s – excuse me, $35 billion last quarter and $40 billion this quarter, and something a lot of that associated with some pickup in fixed income associated with our corporate client services business.

Cheryl Pate – Morgan Stanley

Thanks. And my follow-up question is just any thoughts on TruPS repayment?

Ted Cecala

We would like to see it back in the hands of the US government as soon as possible.

Cheryl Pate – Morgan Stanley

Okay, great. Thank you.

Operator

Our next question comes from David West with Davenport & Company. Please proceed with your question.

David West – Davenport & Company

Good morning. Your balance sheet declined pretty materially, both declines in loans and securities this quarter. Wonder if you could offer some commentary around your expectations here for the next quarter into around balance sheet side?

Dave Gibson

David, this is Dave Gibson. I think our balance sheet declined partially because we did have some sale of mortgages during the – end of the second quarter that affected our balances for the third quarter, as well as we continue to see pay downs in the consumer portfolio pretty rapidly. In the indirect auto portfolio and volumes of new loans are down significantly, I think the cash for compers took a fair amount of business off of the table in terms of new opportunities for us going forward. On the commercial side, we see demand is pretty flat. Ted mentioned in his comments, we see a little bit of opportunities in commercial mortgage side, the alternative source is insurance companies, for example, are not in the market today, but we see it fairly soft in the near term.

Ted Cecala

And Dave, I would add is when the permanent financing markets kind of get back to some semblance of what was normalcy, we would expect, we fully expect that there’s going to be a piece of that commercial non-owner occupied commercial balance that will leave us and go to the market where we are going to get more favorable terms and probably real longer terms and better pricing. So, that hasn’t happened, we haven’t see the real signs of that market opening up as at some point it will. And when it does, that’s going to be something that’s going to take some of your loans off our books over a certain period of time.

David West – Davenport & Company

Very good. I know you have been asked a lot of questions around the construction loan portfolio and you gave us some good breakdowns in the release, but is there any way to try to guesstimate how much of the construction development portfolios or unit towards second home market in particularly the beach markets?

Ted Cecala

Well, I think we have said before that it hasn’t changed, about 17% of our commercial loans are all residential in nature. What I would tell you very relatively very little of it is true vacation housing. Now, the stuff in the southern part of Delaware is near the beach, it’s kind of beach area, but it’s all really more year around living oriented, and now, what we saw and we continue to see down there are people that may buy that may not be their only home, it might be people doing kind of pre-retiree staging. They buy a place with the anticipation that they will move fulltime in the next two to five years.

Obviously, the pace of that is well, but we have see that to be a pretty top of the move. I would characterize that it is very different than a seasonal kind of a vacation home if you will. We track our, what we call, kind of our beach/vacation exposure kind of excessively. And that’s not a big part of what we have done, it’s not a big part of what’s on our balance sheet. So, even the stuff is down in the southern part of the state that might be anywhere from 5 to 15 miles from the coast, is really sold to folks that are looking to use that either as a year-around resident today or according to some point depending on their life style moods will use it as their primary residence in the future. That answers your question.

David West – Davenport & Company

Very, very good, yes. And one follow-up to your earlier question about assets under management. You are, sequentially Wilmington Trust, Roxbury and Cramer all gained assets, I am sure mostly to market appreciation, but did you generally experience net inflows into Q3?

Ted Cecala

Yes, we did. And that’s again reflecting some of the sales efforts that occurred both in the wealth of larger business as well as in CCS. CCS probably had a bigger chunk of that.

David West – Davenport & Company

Very good, thank you very much.

Operator

Our next question comes from Tom Alonso with Fox-Pitt. Please proceed with your question.

Tom Alonso – Fox-Pitt

Good morning everyone.

Ted Cecala

Good morning.

Tom Alonso – Fox-Pitt

Just a couple of quick items here. The total of the temporary was $38.1 million, correct, and you said $35.6 million, that was related to the trust-preferreds, what was the other little piece, the 2.5?

Ted Cecala

We had a small loss on an old investment that we had from several years ago that we were off.

Tom Alonso – Fox-Pitt

Okay. And then just, the tax rates kind of been thrown off for the past two quarters, should we expect that close sort of a 35% on a go-forward basis?

Ted Cecala

Yes, it has been moving around a fair amount, and we would expect to be in that 35% or 36% range on a normal quarter.

Tom Alonso – Fox-Pitt

Okay. And sort of to that end with what’s happened, your deferred tax assets, I assume that’s increased as the years went on here, given the losses in the past two quarters that you reported?

Ted Cecala

Yes, that’s correct.

Tom Alonso – Fox-Pitt

And to look back on that is three years right, sort of to be able to keep it on the balance sheet?

Ted Cecala

I am going to hesitate answering that definitely without a tax proof sitting in front of me.

Tom Alonso – Fox-Pitt

Understood.

Ted Cecala

But we do look at those details very carefully.

Tom Alonso – Fox-Pitt

Okay. And then just sort of one last question on credit, I am trying to get a sense of how you guys are looking at it, given sort of the internal numbers that you have in the migration this quarter, which you know, again was kind of weaker than, I guess you look at linked quarter versus we getting the change in the second quarter but the provision this quarter was lower, and I understand if there’s a process, but from the outside, it looks like maybe you guys need to catch up given what’s happening to the portfolio internally. How are you looking at it when you have past rate of loans keep moving down each quarter? How do we get comfortable.

Ted Cecala

Yes, it’s an ongoing process, and not only we are looking at these things on a daily basis, since how it’s performing, but we are also looking at them relative to the source of payment, collateral etcetera. So, it’s a live and ongoing process. To the extent that you see some loans that slip into the non-performing category, they always have a direct correlation on what you think you have to put away for a particular loan relative to future ability to repay your loan. So, I am not sure what else to say about that, other than these are situations that everyone is under the microscope if you will and continually evaluate it. And so, you are going to see a little disparity on the non-performers.

Historically, you know, because of who we went to and how we do business, and how we work with folks, you should know our non-performers, as long as I have been here have always run higher than our peers, but at the end of the day, where the rubber meets the road in terms of how much we get back or how much we don’t get back, there’s always very favorably to the folks that we met are up against. So, I don’t know if that’s an answer to your question. I mean, it’s an ongoing process, it’s very active, and there isn’t always a direct correlation between bumping on somebody that we choose to put a non-performing status relative to the ultimate ability on the loan.

Tom Alonso – Fox-Pitt

Okay. Sort of just following up on that, is there any sort of specific reserves this quarter that you allocated to the stuff that moved into substandard?

Ted Cecala

Generally yes, there’s always, you know, anything that’s going to go into substandard, as Bill said, they are very close scrutiny and we will based on the facts and circumstances and size, we will put specific reserves against those loans and we will not disclose exactly how much that is, but we certainly anything that goes into those sub and below will get that level.

Dave Gibson

And Tom, the trends for us continues. You know, our biggest area of focus is the residential developers, and so in this quarter with no exception. So, when we do look at some of these larger relationships, we feel they are going to need it with some dollars away for future collectability. It’s going to have that flavor, it’s going to – and it has had that flavor, the residential development side.

Tom Alonso – Fox-Pitt

Okay. Terrific. Thanks very much for the color.

Operator

Our next question comes from Steve Moss with Janney Montgomery Scott. Please proceed with your question.