FirstMerit Corporation F4Q09 Earnings Conference Call

Jan.26.10 | About: FirstMerit Corporation (FMER)

FirstMerit Corporation (NASDAQ:FMER)

F4Q09 Earnings Call

January 26, 2009 2:00 p.m. ET

Executives

Tom O’Malley - Director, Investor Relations

Paul Greig - Chairman, President and Chief Executive Officer

Bill Richgels - Chief Credit Officer

Terry Bichsel - Chief Financial Officer

Mark DuHamel - Treasurer

Analysts

Scott Siefers - Sandler O’Neill

Steven Alexopoulos - J.P. Morgan

Tony Davis - Stifel Nicolaus

Terry McEvoy - Oppenheimer

Jeff Davis - FTN Equity Capital

Operator

Good afternoon. My name is [Shoji], and I’ll be your conference operator today. At this time, I would like to welcome everyone to the FirstMerit Fourth Quarter 2009 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you, I would now like to turn the conference over to Mr. Thomas O’Malley, Director of Investor Relations. Please go ahead, sir.

Tom O’Malley

Thank you. And good afternoon, everybody. Welcome to our fourth quarter 2009 conference call. On the call today we have Paul Greig, our Chairman and Chief Executive Officer; Terry Bichsel, our Chief Financial Officer; Bill Richgels, our Chief Credit Officer; and Mark DuHamel, our Treasurer. We will take you through some prepared remarks and then open the line up for questions.

Before I turn the call over to Mr. Greig, I just want to call to your attention that we amended our press release financial schedule shortly before the call for a clerical error on the consolidated financial highlights page. The change does not affect any of the financial information or earnings per share. I apologize for the inconvenience.

And now, I’ll turn the call over to Paul Greig.

Paul Greig

Thanks, Tom. And good afternoon, everyone. Despite our profitable results in the fourth quarter and full year of 2009 the economy continues to be a challenge for financial institutions.

For the quarter FirstMerit reported earnings of $0.17 per share, compared with $0.27 per share last quarter, and $0.35 per share for the year ago quarter. Net income for the fourth quarter was $14.5 million, compared with $22.8 million last quarter and $29.1 million for the fourth quarter of 2008.

While this quarter’s results does not meet expectations. There are some one-time costs associated with both accelerated charge-offs and operating expenses that Terry Bichsel and Bill Richgels will provide further detail on.

In putting the whole year of 2009 in perspective, I’m pleased with our overall superior performance in key profitability and credit measures against our peers and the industry. Should be noted that this is our 43rd consecutive quarter of profitability, a significant accomplishment given the current environment and the struggles of many of our competitors, I mean, admits the economic turmoil are numerous opportunities for a healthy institution such as FirstMerit to invest in its long-term growth.

In 2009, we added a significant number of talented bankers and hired several quality executives across the company. In addition, we invested in our business by expanding our asset based lending capabilities throughout the Midwest and reaching an agreement to expand into the Chicago market, which should close in a few weeks.

Let me provide some details on both of those transactions. In November we entered into an agreement with First Bank of St. Louis, Missouri to expand the FirstMerit franchise in the Chicago.

On December 18th we closed on the first part of the transaction, acquiring a Midwest asset based loan business from our First Bank affiliate, adding approximately $100 million of loans and $140 million of commitments.

We also added an experienced asset based lending team covering the Midwest. This significantly strengthens our commitment to this business, which we began to build out earlier in the year when we hired an asset based lending team of former national City executives.

The First Bank transaction also includes 24 Chicago branches approximately $315 million of loans within that market and $1.2 billion of deposits. As with the asset based lending portion of the deal, all of the loans are performing and non-fall under criticized and classified categories.

We are complimenting an experienced and talented team of acquired bankers with our own considerable banking experience in that region. A recent regulatory approval on this acquisition reflects a confidence our regulators have and our strengths and abilities to serve this new market. Our plans for closing the purchase and data processing conversion in February are on track.

Chicago offers exciting organic growth opportunities for our franchise and this acquisition provides a foundation to pursue other merger and acquisition opportunities, we believe we can raise the capital necessary for any future M&A transaction.

And finally, we’re maintaining a disciplined approach with respect to acquisitions requiring that any transaction clears both financial and strategic hurdles. I want to stress that no acquisition will distract us from our primary goal of organic growth.

The opportunities we continue to see in Northeast Ohio from weakened competition and our own enhanced position in the marketplace remain the single most important source of our growth.

We continued our community based lending practices throughout 2009, resulting in our recent designation from the Office of the Comptroller of the Currency have an outstanding CRA rating.

Financial highlights from this past quarter include continued expansion in our net interest margin and a ninth consecutive quarter of core deposit growth. In 2009 alone, we added over $1 billion of core deposits. This is clear indication of the success we’re having in our markets attracting and retaining customers.

Our superior customer service, convenient delivery platform and sound financial position is recognized and valued by our growing customer base, also during the quarter we further strengthened our balance sheet, increasing tangible capital, maintaining our strong liquidity levels and adding to our solid reserve levels.

We expanded our net interest margin in the quarter to 3.64% from 3.61% in the third quarter 2009. This continues a steady trend of increases since the first quarter of 2009 and reflects our success in remixing the deposit base and focus on core deposit growth.

As I referenced earlier, our core deposits continue to grow in the fourth quarter increasing $344 million or 6.25%, compared with the third quarter of 2009, and $1.1 billion or 22%, compared with the fourth quarter of 2008. The increase in core deposits results in lower funding costs and represents a more loyal customer base.

Net charge-offs rose in the fourth quarter to $31.2 million or 1.79% of the average loans, up from $18.8 million or 1.05% in the third quarter of 2009, and $15.2 million or 0.82% in the fourth quarter of 2008. Bill Richgels will provide more commentary on credit quality later in the call.

We maintained our reserve levels in the fourth quarter to ensure our strong and stable position throughout the credit cycle, our tangible common equity already have the 8.65% in the third quarter 2009 increased to 8.99% in the fourth quarter.

Our loan to deposit ratio of 94% at quarter end provides liquidity to our balance sheet giving us flexibility to respond opportunities in the banking environment.

Our loan loss reserve ratio also remain strong during this credit cycle standing at 1.77% at December 31, 2009 which is an increase from 1.72% at September 30, 2009, and 1.49% at December 31, 2008.

The economic and industry challenges of the past year and the future year 2010 or the year we are in now 2010 at both the national and local levels create opportunities for healthy institutions.

In 2009, we face these challenges and took advantage of opportunities. We strengthened our franchise by adding capital, building reserves and further refining our risk management practices. We extended business lines, added banker and executive talent and set the stage to enter a new and dynamic market.

Our entire FirstMerit team is focused on and incented to increase shareholder value in 2010. We are positioned to seek out and capitalize on opportunities in 2010 and beyond.

And I’ll now turn the call over to Bill Richgels, our Chief Credit Officer. Bill?

Bill Richgels

Thank you, Paul. And good afternoon. As we reported our charge-offs for the quarter ended December 31, 2009, totaled $31.2 million or 179 basis points of average loans, year-to-date our charge-offs totaled 122 basis points. These charge-offs are higher then we initially expected and we are disappointed and acknowledge this charge-off level is too high.

During the fourth quarter, we had two credits that increased charge-offs approximately $6 million. While these credits had been tracked through our portfolio reviews had aggressive action and ongoing restructuring plans, they suffered a more rapid deterioration in the fourth quarter necessitating aggressive action to maximize value. Our actions this quarter speak to ongoing recognition and timely disposition of problematic assets.

Rest assured, our portfolio practices and active reviews by credit line and executive management covering the portfolio is in place and will not change. Given what we know about our book, we don’t believe that the commercial charge-offs for the past quarter are indicative of what we expect in 2010 on a run rate basis.

Our consumer retail portfolio had a $13.7 million share of the charge-offs for this quarter. This level of retail charge-off is in line with our expectation and up $2.1 million from the linked quarter basis. Please keep in mind that 13.5% or 16 basis points of our total annual charge-offs are related to a profitable credit card portfolio most of our peers don’t have.

Within this $2.8 billion consumer portfolio, the change in charge-offs for each portfolio are, indirect charge-offs up $1.6 million from $3.5 million, direct book up slightly a $134,000 from $1.5 million, HELOC up $247,000 from $1.8 million, credit card up $211,000 from $2.9 million and mortgages down slightly $157,000 from $1.2 million quarter before.

While consumer charge-offs are elevated at these levels, the increase in charge-offs quarter-to-quarter was in line with expectations and a normalized seasonal cycle. While overall delinquency rates in the retail book are up modestly running 2.97 versus 2.84 at quarter end, early stage delinquencies are down on a linked-quarter basis and early stage credit card delinquencies are down on a linked-quarter-to-quarter, year to year and actually at the lowest level in eight linked quarters, this is an encouraging sign.

Non-performing assets rose $12.1 million from third quarter to $101 million or 1.46% of loans. Over the next few quarters we continue to expect non-performing loan and OREO balances to remain elevated reflecting broader economic stress, but we believe that inflows will slow over the course of 2010.

Our OREO book maintained its turnover velocity with 51 properties at the most recent quarter end versus 56 properties the linked-quarter previous. Roughly 60% of our commercial non-performing loans are concentrated in footprint multifamily and housing construction real estate.

On a positive note, total home builder portfolio continued to reduce nearly 20% down to $77 million from $94 million. We also saw an increase in velocity in the sale of lots in the fourth quarter greater than the total of the three previous quarters.

And finally our criticized and classified asset buckets decreased $24 million to $343 million this quarter. Although a point in time measurement it is a further encouraging sign of slowing inflows of credits in duress.

Within our commercial portfolio, we have approximately $2.4 billion of commercial real estate outstanding. Major components of that portfolio are comprised of, owner occupied real estate at $577 million, office medical at $431 million, multifamily at 211, retail at 204, industrial commercial construction at $319 million, healthcare at $168 million, industrial warehouse at $216 million, general income producing at $302 million and the previously referenced homebuilder portfolio.

Remember, this commercial real estate is within our footprint and not geographically remote. In general, this portfolio has performed to expectation and we expect it to continue to perform as well.

Within the retail consumer book, average utilizations of HELOCs remains stable at 43% consistent with last quarter, first lien HELOC are 48% of that book, 36% of the second lien HELOCs have FirstMerit first mortgages as either owner service and the total weighted average loan to value equals 70%, weighted average FICO equals 746 with rescores of that book stable to slightly up, NPLs for the $753 million portfolio equals $3 million or 0.39 basis points.

Overall foreclosures for our book both mortgage loans and HELOCs increased slightly from 81 to 101 at December 31, 2009, against a universe of 67,000 foreclosures in our footprint county.

As of quarter end December, 2009, our allowance for credit losses was $121 million, representing 1.77% of loans and 132% to NP or non-performing loans. This level is both appropriate and consistent with the loss inherent in the portfolio.

In summary, as the homebuilder housing portfolio becomes less effect on NPAs and you cycle in commercial real estate or C&I credits with some measure of continual cash generation, history would suggest loss content or charge-offs will abate as an absolute percentage. This would be consistent with late cycle asset composition shifts and greater liquidity in the market due to some stabilization of the economy.

To put it in context, we are encouraged by recent signs of stabilization but utterly realistic about our economic environment. Unemployment is and will continue likely to remain high and will ultimately drive results in 2010.

With that, I will turn over the call to Terry Bichsel, our CFO. Terry?

Terry Bichsel

Thank you, Bill. And good afternoon. As Paul mentioned, included in the fourth quarter was several items characterized as one-time or non run rate. Recorded in professional services is $2.5 million related to due diligence on a number of merger and acquisition opportunities and includes some of the acquisition costs for the First Bank transactions.

Shown in the quarterly expense detail -- $3.9 million for hedge ineffectiveness on certain fixed rate loan hedges, discontinuing these hedges enhance net interest income going forward by approximately $2 million per year over a six year span with an improved interest rate risk profile.

Beyond these costs explanations for changes in the categories are as follows, salaries and benefits are up $2.4 million less FAS 91 salary cost capitalization and a higher benefit [rule], which includes pension, healthcare and incentives offset by lower salaries.

Compared with the year ago quarter, salaries and benefits are $1.2 million lower reflecting 80 fewer full time equivalent employees continuing the trend where the prior two years showed reduced FDEs cumulatively of 188.

In equipment expense, third quarter contained a credit of negotiated settlement on a software contract thus the $600,000 variance appears large versus the run rate. In bank card and loan processing, the category was up $700,000, explained in part by less capitalized FAS 91 loan origination costs due to lower loan originations, other operating expenses up $1.2 million, which includes the increase of $1.3 million for unfunded commitments.

Our tax rate for the fourth quarter is explained as follows, the annual effective tax rate on pre-tax income for the full year moved from our estimate of 27.4% to 23.78% as a result of the lower level of pre-tax earnings in the fourth quarter. This represented an approximate reduction of $3 million in the full year taxes applied to the fourth quarter.

Turning to 2010, general guidance is difficult to provide. What we know is that our balance sheet with regard to capital, liquidity and credit is well positioned, executing on the opportunities that Paul outlined is contained in our business plans.

What we expect in our plans would be a return to third quarter run rate provisions for loan losses with a potential for additional provisions associated with loan growth or further loan downgrades.

Total loan growth is expected to be approximately 5% growth in 2010 average balances versus 2009. Within this growth, commercial growth near 10% includes the First Bank’s asset based lending and Chicago commercial loan business.

Consumer loan balances are expected to decline 4% to 6% consistent with 2009. The excess liquidity from the First Bank’s branch acquisition will be held in the investment portfolio, invested reasonably short at approximately 2.5 years, consistent with 2009, core deposits are expected to increase 15% including core deposits on, wait a second, CD’s would be expected to be down on average 9% from 2009 with total deposits up 13%.

Net interest margin is expected to improve to a 3.7% range, the improvement driven by some purchase accounting benefit, repayment of maturing high cost sub debt and continued mixing of deposits were core.

Noninterest income should average about $50 million per quarter recognizing that first quarter is always lower than fourth quarter by about 10% to 12%. Noninterest expenses will be well controlled with the addition of First Bank’s expenses will run about $96 million per quarter, which includes one time expenses associated with the acquisition. Lastly, the tax rate is expected to be approximately 25.4% for the full year.

That concludes my remarks, I will now turn the call to Tom O’Malley. Tom?

Tom O’Malley

Thank you, Terry. Operator, at this point we are ready to take questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Scott Siefers with Sandler O’Neill.

Paul Greig

Hi, Scott.

Scott Siefers - Sandler O’Neill

Good afternoon, guys. Let’s see, I guess, Paul, first question is for you kind of a strategic one, just as you look out, I guess, if you could look both on the organic and M&A landscape. You know, you have got kind of two distinct pieces of the franchise the Ohio piece and then the newer Chicago piece. Can you sort of delineate where you see on a relative basis greater opportunity and why you would think that?

Paul Greig

Yeah. I think we have pretty good opportunity in both places, Scott. We had really good production in new customers in our core franchise in 2009 and would expect even better production in 2010 as we see a little bit more stabilization of the economy.

We have yet to close on the core Chicago piece, so as far as getting a run rate and what type of improvement in activity, new customer generation in that location, I think it is going to take us several months to simulate the folks and hopefully hire some new bankers and get a run rate going but I see great opportunity both locations and I don’t know necessarily one would say the other, other than the scale and Ohio is so much brighter.

Scott Siefers - Sandler O’Neill

Okay. Perfect. And then, Terry, I guess, I think, I got most of the guidance down but would you mind repeating the expense piece of that, I think I got it, but I couldn’t tell if it included or excluded the one-time cost with the merger?

Terry Bichsel

Scott, the $96 million per quarter would include one-time expenses.

Scott Siefers - Sandler O’Neill

Okay. Then how much of those will run through the income statement?

Terry Bichsel

The onetime expenses?

Scott Siefers - Sandler O’Neill

Yeah.

Terry Bichsel

All of them, with the change in purchase accounting all of those costs, many of which before this year 2009, could be capitalized but those are all expense items now.

Scott Siefers - Sandler O’Neill

Okay. Perfect. All right. Thank you.

Paul Greig

Thanks, Scott.

Operator

Your next question comes from the line of Steven Alexopoulos with J.P. Morgan.

Steven Alexopoulos - J.P. Morgan

Hi. Good afternoon, everyone.

Paul Greig

Hi, Steve.

Steven Alexopoulos - J.P. Morgan

Terry, first was your NIM guidance for the full year or first quarter?

Terry Bichsel

It’s for the full year, Steve.

Steven Alexopoulos - J.P. Morgan

And actually to follow up on Scott’s question on expenses. What are the one timers in that number?

Terry Bichsel

For 2010 or ‘09?

Steven Alexopoulos - J.P. Morgan

You gave that $96 million per quarter expectation…

Terry Bichsel

Yes.

Steven Alexopoulos - J.P. Morgan

… that includes the one. What is that number without these one-time costs?

Terry Bichsel

Yeah. Did not disclose that number.

Steven Alexopoulos - J.P. Morgan

Okay. Could you disclose it or no?

Terry Bichsel

It’s approximately 3 million.

Steven Alexopoulos - J.P. Morgan

Okay.

Terry Bichsel

3, 3.5 million.

Steven Alexopoulos - J.P. Morgan

Okay. And just to entire your provision comment to charge-offs. Just looking at third quarter you were about $5 million over provision, fourth quarter you were $1 million under, how should we be thinking about your need to over provide or even under provide in the early part of 2010 and how does this shake out as we move through the year.

Terry Bichsel

Scott -- Steve, we didn’t give any specific charge-off guidance for 2010. What we did say is the return to the third quarter but it’s really a balance between loan growth and downgrades and charge-offs, such that the aggregates we expect to be within the numbers that we quoted.

Bill Richgels

And then, Steve, this is Bill Richgels. As you look at and I had put a comment relative to that where you are getting away from a concept of absolute project centric nonperformers where there is no cash flow coming.

Generally when the mix is changing it is starting to get income flow production assets and nonperformer they carry a higher load if you will and cut into the loss factor. And so what we are trying to do is balance with the loss inherent in the portfolio in our book. And again, we model and use our loss realization factors in that judgment in setting that reserve.

Terry Bichsel

I guess we could say that we would expect to see consumer charge-offs remaining elevated relative to where the unemployment rate would be expected to be.

Steven Alexopoulos - J.P. Morgan

Maybe just a final question, could you guys share if you bid on any FDIC deals during the fourth quarter?

Terry Bichsel

We cannot -- we are really precluded from sharing distinct information, I think you can have, as Paul has characterized, we will look for every opportunity. So the question is not just necessarily FDIC’s but it is the whole gamut of what is available.

Steven Alexopoulos - J.P. Morgan

Okay. Fair enough. Thanks.

Paul Greig

No. Yeah. Just to further put some color on it. We are examining FDIC opportunities as they become available and candidly we are also looking for similar situations like the First Bank transaction.

Whole bank transactions for 2010 are much less likely given the necessity of severe loan marks. But we are looking at all of the opportunities and I think you can take from the mount of due diligence expense that occurred in the fourth quarter that that activity was quite robust.

Steven Alexopoulos - J.P. Morgan

Perfect. Thanks.

Operator

Your next question comes from the line of Tony Davis with Stifel Nicolaus.

Paul Greig

Hi, Tony.

Tony Davis - Stifel Nicolaus

Hey, Paul, Bill, Terry, how are you?

Terry Bichsel

Great.

Paul Greig

Great.

Tony Davis - Stifel Nicolaus

Just a few things, I guess, on the loan side, if you could talk a little bit about unfunded commitments and line usage rates. And maybe some color on the fact that one of your large end market competitors I understand has centralized underwriting for small business in its home office and if you seen any pick up from that? I think you know what I’m talking about.

Bill Richgels

Yes. Tony, Bill Richgels, line utilization is at one of our all time lows. I think our book is running 41.39%, 41.49% utilization, extremely low and we are seeing that relative all over the industry.

In terms of the centralization, we have not seen, if you will, a falloff particularly in that business as that tends to be by nature small business. You’re seeing a lot of pressure on a national cycle there and I’m not sure the demand or the reason to borrow much less creation of new outstanding in that book is evidence by many banks nationally.

Paul Greig

Tony, let me add, this is Paul. The usage of 42% would be down from somewhere in the mid-50s a year ago, so it really has been a precipitous drop in usage in a relatively short period of time.

As far as central underwriting is concerned, owners of businesses have a strong preference for doing business with people where decisions are made locally and any time something is centralized out of district it gives us a distinct opportunity.

And as Bill indicated the viability of many small businesses today is less than it was in the past but as the economy stabilizes and we move forward, we see a lot of opportunity in the business banking segment of the commercial bank.

Tony Davis - Stifel Nicolaus

Paul, I wonder where you stand in regard the search for Julie successor and if you are contemplating perhaps any fine tuning of your retail strategies?

Paul Greig

The retail strategies are doing quite well, much of the core deposit growth that I talked about earlier has come out of our retail banking segment. All three segments have produced a good amount of core deposit growth but retail in particular.

And as far as where we are at, we have a national search going on and that commenced a couple three weeks ago. So as far as getting results and live candidates through that has yet to occur. There are some good internal candidates and Julie, as we released in the 8-K will be staying through the end of March.

Tony Davis - Stifel Nicolaus

Thank you much.

Operator

Your next question comes from the line of Terry McEvoy with Oppenheimer.

Terry McEvoy - Oppenheimer

Thanks. Good afternoon.

Paul Greig

Hi, Terry.

Terry McEvoy - Oppenheimer

It’s been a little over a year since one of your largest competitors in northeast Ohio was acquired, but I still think the conversion has yet to take place at some point later this year, all last year you were really benefiting from the market disruption.

Could you comment on maybe your expectations for further market disruption, has that kind of stabilized and you see the similar growth opportunities there as you did maybe 12 months ago?

Paul Greig

Yeah. The market disruption we’ve enjoyed is not simply the benefit of the one competitor you are referring to. We have ongoing market disruption as a number of our key competitors are continuing to lose money and particularly on the commercial side of our business. That provides opportunities as the customer base is becoming much more concerned over the ongoing financial struggles that these institutions are going through, so we have ongoing opportunities.

As far as the opportunities from the institution that was acquired much has been centralized other than business banking that was referred to earlier and rather than repeat the comment. The business owner likes decisions made locally and with everything being equal will vote with their feet and switch banks to those institutions where they can meet, have a relationship with and have a dialogue with the true decision makers. So we are seeing ongoing organic growth opportunities throughout the whole footprint.

Terry McEvoy - Oppenheimer

And then just one other question, have you had a chance to look at the going into deposits and the performing loans you were interested in acquiring next month and has there been any changes at all in terms of the mix, quality, et cetera?

Paul Greig

Yeah. All of the loans have to be performing and certainly there will be some upgrades and downgrades within the book, but the downgrades will not be to criticize, classified or nonperforming status. So, there will be a slight shift up or down credit by credit but nothing that would be worth mentioning.

And the deposit mixes has been maintaining itself, number one, at the level that we had talked about earlier and the shift has not or a shift has not occurred in any significant way. That book is pricing itself down as interest rates have continued at the low level that we’ve seen over the past six months.

Bill Richgels

And then, Terry, Bill Richgels, just to affirm, we keep a weekly status calls with them, we review any changes to this loan book, we will have a final if you will revisit of the portfolio right before acquisition and we will have ongoing discussions and opportunities thereafter for modification of those.

Terry McEvoy - Oppenheimer

Appreciate it. Thank you.

Paul Greig

Thank you.

Operator

(Operator Instructions) Your next question comes from the line of Jeff Davis with FTN Equity Capital.

Jeff Davis - FTN Equity Capital

Paul Greig

Hi, Jeff.

Jeff Davis - FTN Equity Capital

Paul, is it fair to say that within the commercial deposit base there has not been a drawdown yet of commercial deposits that would precede pickup in C&L on demand?

Paul Greig

That is correct.

Jeff Davis - FTN Equity Capital

And I missed your very opening comments, so if you said it I apologize. So in terms of a broad based inventory build no signs of that yet?

Paul Greig

I did not comment on that early on but that would be accurate. You do see or we have experienced some anecdotal stories about one-off company here and there with demand returning and build of inventory. But certainly would not see it on a broad basis and the comment that Bill made earlier of the usage of credit commitments dropping to 42% from somewhere in the mid-50s a year ago is evidence of the fact that there is limited demand for both working capital, as well as, for equipment and building purposes.

Jeff Davis - FTN Equity Capital

Yeah. And this question, I know, is a little bit better for a couple of your Ohio competitors. But for the auto dealers within your footprint, are they building auto inventory and I’m talking about retail?

Paul Greig

Bill?

Bill Richgels

We have a very limited peek if you will, Jeff, into that market because we don’t have a significant book there. But I would say in large inventory levels are down, now we are starting to see in some of the areas we are hearing of some more aggressive build in a Columbus area, we don’t have a lot of dealer exposure down there. So there may be some sub regional opportunities we are not aware of.

Jeff Davis - FTN Equity Capital

Yeah. And I just asked simply from a broader macro perspective because it is pronounced at least most of the areas I travel around the country where the, at least through year end that most of the dealer lots look to be sort of half empty, okay. That’s fine. Thank you.

Paul Greig

Thank you.

Operator

At this time, there are no further questions. I would now like to turn the call back to Mr. O’Malley for closing remarks.

Tom O’Malley

Thank you for joining us on the call today. We’ll be available if you have any further questions. Good-bye.

Operator

Thank you for participating in today’s conference call. You may now disconnect.

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