First Merchants Corp. Q4 2008 Earnings Call Transcript

| About: First Merchants (FRME)
This article is now exclusive for PRO subscribers.

First Merchants Corp. (NASDAQ:FRME) Q4 2008 Earnings Call Transcript February 5, 2009 2:30 PM ET


Michael C. Rechin – President and Chief Executive Officer

Mark K. Hardwick – Chief Financial Officer

David W. Spade – Senior Vice President and Chief Credit Officer

John Martin – Deputy Chief Credit Officer


Brian Hagler – Kennedy Capital

Brian Martin – Howe Barnes Hoefer & Arnett Inc.


Hello, and welcome to the First Merchants Corporation fourth quarter 2008 earnings conference call. All participants will be in listen only mode. (Operator Instructions).

During this call, management may make forward-looking statements about the company's relative business outlook. These forward-looking statements and all other statements made during the call that do not concern historical facts are subject to risks and uncertainties that may materially affect actual results. Specific forward-looking statements include, but are not limited to, any indications regarding the financial services industry, the economy, and future growth of the balance sheet or income statement. (Operator Instructions).

Now, I would like to turn the conference over to Chief Executive Officer, Michael Rechin. Mr. Rechin?

Michael Rechin

Thank you, [Ryan] and good afternoon. I appreciate the interest of our listeners today and welcome to our earnings conference call for the 12 months ending December 31, 2008. Joining me today are Mark Hardwick, our Chief Financial Officer; Dave Spade, Chief Credit Officer, and John Martin, Deputy Chief Credit Officer.

I’ll lead off by highlighting our 2008 results and then adding comments on our highest priority objectives for the coming year. Mark Hardwick will follow me with some additional commentary on our financial results. Dave Spade and John conclude the details on our portfolio composition and its credits condition. We’re all available for question-and-answer dialog after our prepared remarks.

In the release that was let go before lunch time today, we would have seen that First Merchants Corporation earned $1.14 per share in 2008, and $0.01 per share in the fourth quarter. The annual earnings compared with $1.73 earned in 2007, and $0.51 earned in last year’s fourth quarter.

At the end of the earnings release, I referred to five specific priorities for 2009 and beyond. I would like to address each of those separately in my thoughts before giving way to Mark, Dave and John who will add greater detail around the financial results, capital positioning and credit quality.

I think I’ll begin with our acquisition of Lincoln Bank Corp closed at year-end. We successfully closed the transaction on December 31 and are moving towards an April integration of their systems in the field and back office. The core processing integration will be coincident with the signage and name changes for the Lincoln franchise. Our branding work and initial customer contact effort have also been initiated.

Our work in the adoption of common process has also begun in areas such as credit policy, credit adjudication and portfolio management. At this point, we've identified and acted on the vast majority of the expense savings we identified in our original due diligence and in working with Lincoln’s Management prior to closing.

Several of the senior managers at Lincoln have assume significant roles with First Merchants and our combination efforts in the field are being led by Mike Stewart, our Chief Banking Officer. I will offer additional thoughts on Lincoln later in the call.

A second key objective for the company is improving our credit quality metrics while our portfolio has deteriorated in a direction consistent with the midwestern marketplace, the growth trend in non-performing asset is exaggerated by the December inclusion of Lincoln’s balance sheet. We’re aggressively managing the portfolio and will continue to shift resources within the company that segregate the management of problem assets from the origination and servicing of our core borrowers and depositors.

While we have various limited clarity on the timing of the current run in the economy, we continue to have an extremely granular portfolio as it relates to individual exposure and loan types. Dave and John will provide more metrics into our credit condition later on.

Expense management has received the appropriate attention in our 2009 planning. We’ve implemented the salary freeze for all participants in our senior management incentive plan and absence of Lincoln acquisition will be reducing our workforce in overall numbers through a combination of attrition and elimination of positions of redundancy throughout First Merchants.

In following with the charter consolidations of mid-2007, we're continuing with structural realignment that are producing the required high service levels we need yet are providing greater expense efficiency which should be very evident in our 2009 results. A strength for us in 2008 and an objective for maintenance is our high margin level that we achieved. Despite the series of rate declines we experienced, our net interest margin peaked at 3.88% in the fourth quarter and was 3.79% for the month of December despite the Fed funds moved 50 basis points mid-month.

Several factors play into our net interest margin strength and Mark will cover some of those items in his remarks. In short, I would add that we've been extremely proactive in the use of rate floors on prime based loans and getting paid for the use of our balance sheet.

In addition, we’ve been proactive in the pricing of all liability categories, recognizing the market share and market power we enjoy in many of our key markets without sacrificing our deposit volume goals.

Mark, I’m going to ask you know if you take over to discuss our liquidity and capital position as well as additional detail on full year earnings.

Mark Hardwick

Thank you, Mike. I would first like to thank the accounting team of First Merchants and Lincoln for working such long hours over the last month to complete the consolidation of the year-end financial statements to include the completion of the actual onsite field work by BKD, our outside auditing firm. For everyone in the call, today thanks for your interest in First Merchants Corporation.

As Mike mentioned, First Merchants Corporation reported earlier today its fourth quarter and 2008 net income and EPS results and the earnings per share for the year totaled $1.14, a decline of $0.59 from 2007 total of $1.73.

Net income for the year totaled $20.6 million compared to 2007 total of $31.6 million. The quarter is difficult to discern given the complexities of closing the Lincoln acquisition on December 31 of 2008 and several extraordinary non-interest income items and non-interest expense items, which I will discuss in a few moments.

Total assets reached a record $4.8 billion at quarter-end, an increase of $1 billion, from the December 31, 2007 total of $3.8 billion. Of the $1 billion increase, the completion of the merger with Lincoln accounted for $876 million.

Loans and investments, the Corporation's primary earning assets, totaled $4.20 billion, an increase of $876 million, or 26% over the prior year. Loans accounted for $846 million of the increase as investment securities increased by $31 million. And of the $876 million increase, Lincoln accounted for $637 million in loans and $122 million of investments. And these numbers are all included in our press release.

The Corporation's allowance for loan losses as a percent of total loans increased from 98 basis points to 131 basis points during the year, a $20.7 million increase. Provision expense exceeded net charge-offs by $12 million and Lincoln added $8.7 million to the Corporation's allowance at year-end. The increased allowance for loan losses is comprised of $2.4 million in increase to our specific impairment reserves, $4.1 million of increases in general historical loss component and $14.2 million of increases in environmental factors. None of the increases in the specific reserves were related to Lincoln as all recognized impairments were charged down to the fair value prior to closing the transaction.

Non-performing loans totaled $88 million, including the addition of $34 million from Lincoln. Dave Spade will provide the color regarding the loan portfolio in a moment.

The Corporation's total deposits increased during the year by $875 million as Lincoln Bank accounted for $655 million of the increase. Total borrowings increased by just $50 million including the $137 million increase from Lincoln. As of December 31, 2008, the Corporation's tangible common equity ratio totaled 5.01%, the tier 1 leverage ratio totaled 8.76%, tier 1 risk based capital totaled 7.31% and total risk based capital was 9.84%.

The decrease in the Corporation’s capital ratios for the year is primarily attributable to two factors. The first is a decline in other comprehensive income of $12.8 million resulting from investment security write-down under FASB 115 totaling $1.3 million and the decline in pension plan asset valuations totaling $11.5 million during the year.

The second factor is a combination of items all related to the Lincoln Bancorp acquisition. The Corporation used cash of $16.8 million as part of the $77.3 million purchase price resulting in increased common equity of $60.1 million to acquire an $876 million institution. Additionally, as the result of the acquisition, First Merchants added $32.3 million of intangibles through its books, directly attributable to Lincoln Bank.

The two primary financial criteria that the First Merchants uses in an acquisition are no tangible capital dilution and no EPS dilution. In this transaction, the credit and interest rate environments moved dramatically from the date of announcement to the date of close resulting in a transaction that was dilutive to tangible equity yet positively accretive to EPS.

Let me detail how this happened. To date of our announcement on September 3, First Merchants was anticipating approximately 16 million of intangibles comprised of 12 million in core deposit intangible and a $4 million market premium. It varies through pre-closing due diligence effort and a declining credit environment was also in additional marks to Lincoln's asset of $4 million after-tax and the interest rate environment caused purchase accounting adjustments required by FASB totalling $12.4 million.

Let me give an example of a purchase accounting adjustment. Now assume a $10 million advance has a stated rate of 5% and matures in three years. The current market is 2% for the three-year advance. FASB requires a premium or discount to be recorded on the balance sheet. Let’s assume this mark is a $1 million. So what is required to accord an additional liability of $1 million on our balance sheet and the offsetting entry is $1 million debit to goodwill, then we will amortize the purchase accounting credit for in this case of their home loan bank advance into our income statement over the remaining three-year life of the investment or of the borrowing.

The purchase accounting adjustments again in this transaction totaled 11.6 million reducing the total risk rate capital ratio by 30 basis points and tangible equity by 25 basis points.

Or said in other way, the PAAs were dilutive to tangible equity by 25 basis points. The amortization will positively impact earnings per share next year and will cause the transaction to exceed our original net income expectations creating EPS accretion.

Now back to capital. On November 12, 2008, the Corporation applied for participation in the U.S. department of Treasury’s Capital Purchase Program in an amount totaling $116 million. The application has been approved by the Corporation’s primarily regulator and most forwarded to the Treasury Department on January 16, 2008. We are at this time still waiting for the approval at the Treasury level, while we have received approval by our primary regulator. The addition of $116 million in preferred stock would improve the Corporation's Total Risk Based Capital Ratio to 12.8%, comfortably above the "well capitalized" guidelines. The Corporation recognizes the importance of continuing First Merchants history of being “well capitalized” and the treasury CPP program is of great interest to us.

Now let’s discuss year-to-date net income. Net-Interest margin, as Mike mentioned, expanded 29 basis points from 3.55 in 2007 to 3.84 in 2008. As a result, net-interest income improved by $16.3 million. Net interest margin remained strong during the fourth quarter and even through the second half of December as the Federal Reserve Board lowered the target Fed Funds rate. Aggressive deposit pricing and the use of interest rate floors on over $360 million of the Corporation's prime rate indexed loans helped preserve the Corporation's net interest margin.

Provision expense totaled $27.6 million in 2008, an increase of $19.1 million over the prior year, and the increase in the provision expense exceeded the margin expansion or the net interest income expansion by $2.9 million.

Total non-interest income decreased by $4.2 in ’08, and there are several extraordinary items that caused the decrease. Income from changes in the cash surrender value of bank owned life insurance or BOLI declined by $3.9 million during the year. And in the fourth quarter, the Corporation recorded a loss of $2.1 million due to declines in market value below the stable value wrap. BOLI losses are not tax deductible. Therefore the loss is not tax deductible, which resulted in a year-over-year decline in net income due just to the BOLI portfolio of $3.9 million.

On December the 18, management changed the investment elections under the separate account policy through a more conservative investment strategy. The corporation also lost $1.5 million on Federal Home Loan Mortgage Corporation preferred stock during the third quarter and the Corporation at this time has no additional equity exposure at this time to the Federal Home Loan Bank or Fannie Mae, and on a very positive note has no exposure to private label mortgage-backed investment security.

Additionally the Corporation elected to expense $1.2 million of its $15.5 million original book balance trust preferred pooled investment exposure. The loss is attributable to one specific investment for the book balance of $2 million and it’s the Trapeza IV pool, the only pool deemed to be other than temporarily impaired as of year-end. The remaining $13.5 million of exposure to trust preferred pools is diversified among eight FTN PreTsl investments.

Total non-interest expenses for the year increased by $7.2 million. The increase is more than First Merchants is comfortable with and as Mike Rechin mentioned and we begun taking actions on several cost production initiative in 2009.

Salary and benefit expense increased by $4.5 million during the year and other expense items worth noting include an increase of $1.8 million in other real estate expense and $860,000 increase in professional services related to loan workouts. First Merchants also sold the assets of Indiana Title Insurance Company in the fourth quarter, resulting in a $560,000 loss in the month of December.

Dave will now cover the details of our loan portfolio and our NPLs.

David Spade

Thank you, Mark. As Mike and Mark mentioned, First Merchants Corporation has continued to see challenges presented by a deteriorating economic environment at state, local and national levels. These weaknesses have manifest themselves in higher levels of non-performing assets and loan delinquencies in some areas of the Corporation. The credit department’s special assets officers, the local bankers and others continue to manage through problem loan identification, aggressive collections, legal actions in the marketing of other real estate owned.

I would discuss the trends and changes to our loan portfolios during the fourth quarter I will also highlight how we planned to continue to manage our risk assets as the economic issues continue in this country.

As of December 31, 2008, First Merchants Corporation solved the non-performing assets plus 90-day delinquencies, increased from $63 million to $73 million for the existing bank franchise.

With the addition of Lincoln Bank assets to the December 31 totals, those NPAs increased slightly more than $112 million. Total non-performing assets plus 90-day passthrough accounts represent 2.34% of actual assets and 2.83% of total loans and other real estate owned at the year-end. The top five non-performing relationships including other real estate owned represented 24.5% of total non-performing assets at the end of the quarter. All of these five assets were identified during previous quarters and specific action plans have been developed to either move the assets out of the bank or to sell the other real estate owned.

With the inclusion of non-performing assets from Lincoln Bank at year-end, total non-performing assets moved from $63 million on September 30, 2008 to the $112 million total I spoke about on December 31, 2008. Of that $49 million increase, $10 million of that was attributed to First Merchants Corporations while $39 million was allocated to Lincoln Bank assets.

Total other real estate owned and repossessed assets with FMC decreased by $1.5 million during the quarter, while the same time Lincoln asset categories provide an additional $3 million a combined balance of $18.5 million on December 31, 2008. With the inclusion of the Lincoln assets a total 90-day and over past due loans decreased from 26 basis points in the third quarter of total loans to 16 basis points of total loans or $6 million at year end, compared to the total at the end of the third quarter, the overall 90-day and over past due loan category improved by $2 million.

Annualized net charge-offs to total loans or FMC, were 52 basis points for 2008 compared to 24 basis points for the year ending December 31, 2007. Losses recognized across all loan categories including commercial and industrial loans, commercial real estate and the retail lending areas.

For the entire year, net charge-offs we recorded $15.6 million compared to the net charge-offs experienced during the previous year of $6.8 million. Further breakout of those losses included $1.4 million in net write-downs of construction and land development while all other commercial real estate losses where an additional $1.4 million.

The commercial and industrial loan category was the largest write-off area at $5.8 million in losses. Net retail lending charge-offs were broken down by residential loans at $4.3 million and net consumer charge-offs of $2.0 million for the year. These performance numbers are inductive of the challenges faced by First Merchants Corporation during this current economic cycle. Residential loan delinquencies were closed-end 1-4 closed-end 1-4 family with junior liens and revolving home equity loans on December 31, 2008 were 2.1% compared to 2.39% during the previous quarter.

During the same period of last year residential delinquencies over 30 days past due were also reported at 2.39%. As presented in the latest statistical release provided by the Federal Reserve, delinquencies for residential mortgages provided by all banks in the United States stood at 5.08%, and that was during the third quarter. This number was slightly higher than one year ago when the Federal Reserve Bank reported delinquencies for residential mortgage loans at 2.72% nationally.

Total FMC, commercial, real estate delinquencies by [call] code we reported 5.6% at year end including the Lincoln bank assets. As of December 31, 2008, combined FMC and Lincoln Bank commercial and industrial delinquencies were reported at $25.7 million, or 2.47% of total commercial loans outstanding.

Commercial construction and land development loans including Lincoln Bank were $252 million at the end of the year compared to $165 million at the end of the third quarter. Increases in this category came from $16.6 million from the existing FMC balances while Lincoln balances added $66.9 million. Construction and land development loans represent 60.5% of total FMC capital.

Total construction and land development loans represents 6.8% of total loans, as compared to 5.4% of total loans at the end of the third quarter. We continued to closely monitor this portfolio for existing projects as well as being very selective with additional exposure to the industry.

Moving on, looking at multifamily loans, they were reported at $128.9 million on December 31, representing 31.4% of tier 1 capital plus the allowance, and 3.5% of total loans. Investment commercial real estate that is non-owner occupied at total balances of $497.5 billion, or a 121% of tier 1 capital plus the allowance.

That commercial loan category grew by an addition of the loans from Lincoln in the amount of $109 million at the year-end and that represented 22% growth in non-owner occupied investment real estate.

Overall the total commercial real estate including construction, land development, non-owner occupied and multifamily represent 23.6% of total loans at FMC after the addition of the Lincoln assets.

The consumer monitoring, collection and charge-off process has continued to improve in each of the banks. Specifically more standardized asset disposition, collection and charge-off process have helped to reduce the time that the repossessed and other assets are held prior to sale.

Additionally consumer charge-offs are now charged off at 90-days past due for non-real estate secured consumer loans while consumer real estate secured assets followed charged down procedures that are in line with the expectation of foreclosure and recovery.

As we continue to experience a rise in our non-performing portfolio, we were in the process of augmenting our special assets team through additions of people from both the inside and outside of the company. The existing team continues to meet frequently and work with those borrowers experiencing challenges and were necessary working to move those assets out of the bank.

I’ll now turn it back over to Mike Rechin for additional comments.

Michael Rechin

Thank you. Dave. I think as you heard in Mark's comment, today's credit risk management challenge extends beyond the loan portfolio. During 2008, I believe we dealt aggressively with the risk elements in our investment and BOLI portfolios. We're fortunate to have a diversification of investment classes that should limit additional loss exposure subject in large part to the future direction of the financial sector’s strength.

I would like to return for a minute to our Lincoln acquisition briefly. Lincoln has a long history with Indianapolis customers particularly on the growing south and west quadrants of the city itself, well placed physical franchisee in growing communities and a market recognized leadership team. Our combined team covering Indianapolis market will be focused on improving credit quality and growing our deposit base under the First Merchants name.

There is an availability of talent in the market and then our company will allow us to diversify Lincoln’s portfolio mix from its current real estate orientation to a more balanced coverage of the central Indiana marketplace. I guess I would say in summary I like our market positions. Significant market share in several substantial mature Indiana markets like Muncie, Indiana, Lafayette and Anderson coupled with expanding market share in Columbus, Ohio and Indianapolis Indiana. Behind Chicago, these are the two best growth markets in the Midwest.

We know our earnings potential. We’ve seen at it. We also understand the climate at hand and the growth that it calls for, the tempered growth and the work that needs to be done. The five priorities I listed in my earlier remarks will be our guiding posts to include items that we can control such as our expense level, the execution on the Lincoln integration and in some aspects to the net interest margin.

Dave described the resources that will be attributed to improving our credit quality, both on the front door as we greet new customers and continue to lend patiently as well as handling the portfolio at hand and Mark and our financial team were work as they have been ensuring we have the liquidities to take advantage of the opportunities that they present themselves.

So, this point after a more detailed calls and we have normally provided relative to this specifics of the income and expenses, our team would be open for question [Ryan].

Question – and – Answer Session


(Operator Instructions). Our first question comes from Brian Hagler of Kennedy Capital.

Brian Hagler – Kennedy Capital

Hi, good afternoon.

Mark Hardwick

Good afternoon, Brian.

Brian Hagler – Kennedy Capital

Mark, I think you said that your tangible common equity ratio was 5%. Just wanted to get I guess your thoughts on if you guys have laid out kind of a target range for that in the past and if you feel like it will organically grow the share?

Mark Hardwick

At the board level, we’ve said nothing below 5% with an eye towards growing the tangible capital ratio to 6. And we've been doing that pretty steadily over the last couple of years. As I mentioned the purchase accounting adjustments that 25 basis points or so out of the tangible capital ratio. Capital ratio were a little unexpected and yet they accrue into income over the next several years, so we’ll get a nice add back of that amount. At this stage, we are continuing to just evaluate our overall capital position, the impact of the TARP within the CPP program, which doesn’t have a tangible common equity component and continuing to assess our competitors and the need to potentially have some kind of an increase in the common equity position. But at this state, our board and our management team have not elected to move forward with any type of capital rates. The earnings beyond dividend should add in the range of $10 million to our equity ratio in the coming year. So we are continuing to monitor just earnings over dividends, the impact of OCI and how the purchase accounting adjustments will creep back in the capital.

Brian Hagler – Kennedy Capital

Okay and I appreciate that and what was tangible book value at the end of the year?

Mark Hardwick

I don’t have I think it was about 10.80.

Michael Rechin

I think that’s right I think it was right about $11 Mark.

Brian Hagler – Kennedy Capital

Okay and then finally you mentioned in the credit commentary that consumer loan charge-off at 90 days past due? Is that a change this quarter and if so did that lead to maybe kind of a say double counting but a little more charge-offs in that category, the normal or [VOAs] had that policy?

Mark Hardwick

We got a little more aggressive with respect to that. We had not always recognized charge-offs on auto loans for example at the 90-day status and we decided to do that. So, that stepped up our write-offs more than the past and then we used the 180-day issues with respect to junior liens and first mortgage loans to write those and aggressively mark those down with the appraisal information.

Brian Hagler – Kennedy Capital

So, you kind of want to stand on 90-days on all those categories now?

Mark Hardwick

Right and those really got written into our overall policy, so that we’re consistent.

Brian Hagler – Kennedy Capital

Okay thanks a lot guys.

Michael Rechin

Thanks Brian.


Our next question comes from Brian Martin of Howe Barnes.

Brian Martin – Howe Barnes Hoefer & Arnett Inc.

Hi guys.

Michael Rechin

Good afternoon Brian.

Brian Martin – Howe Barnes Hoefer & Arnett Inc.

Can you guys just give a little color, just given the capital - as far as the growth goes for over '09, as far as is it something a plus growth and maybe just more remixing of the portfolio or just kind of what your expectations are there? You've been growing the C&I book pretty nicely over the last 12, 15 months and kind of wondering what’s your expectations look to '09?

Michael Rechin

Brian its Mike. I'll answer that for you. Our orientation towards being a middle market, lower middle market C&I lender will continue not only in our core franchise but its part of the orientation we are going to try and bring to Lincoln’s franchise as well. Similar to the pruning of our own loan portfolio, and indirects will take that same discipline to the Lincoln portfolio as well and the originate and sell mentality around residential mortgages will also be applied there, which is a policy and a practice that Lincoln has adopted in great regard already. So, I think you will see, a flattish looking residential mortgage component, a shrinking indirect and installment component and then a growing C&I piece, perhaps less than what you’ve seen in the past which has been a high single to low double-digit number probably end of the middle single digits, a function both of what we see as loan demand and just the standards that we feel like we are appropriate for underwriting in 2009.

Brian Martin - Howe Barnes Hoefer & Arnett Inc.

Okay. All right thanks and then on the margin and you guys have talked about getting the TARP proceeds. I mean if you do get this, can you just talk a little bit about what impact that has on the margin? I guess based on what your expectations to do with the TARP capital?

Mark Hardwick

Yeah I can speak to that Brian. We have shared a couple of different models with our Board and our expectation really is to overtime, if we were to bring a $116 million. And we would like to move $116 million into the loan portfolio and look at another $116 or so in the investment portfolio. Obviously, the investment purchase happens pretty quickly and then you would kind of looked at the bond portfolio run off into the loan portfolio to create some of the growth. But the EPS impact, the margin impact on the bottom line of net interest income is just a little over $6 million of positive margin because the cost of carry of the CPP program and its dividend, or the $5.8 million in dividends is below the line. So as we've assessed the cost of the warrants, the limited amount of margin that we can create without excessively leveraging the capital, it ends up being somewhere in the $0.08 to $0.12 range as far as EPS dilution. So at this stage, given current environment capital positions and we are looking at, doing something modest with the dollars but obviously it allows us to continue moving forward with some of our growth initiatives in the loan portfolio.

Brian Martin - Howe Barnes Hoefer & Arnett Inc

Okay, all right. And Mike you mentioned a little bit. Just I mean the expenses were little bit higher than I guess I was looking for this quarter and you talked about some, and Mark talked a little about that in the call. I guess as far as the future evidence of some of the realignments you talked about Mike in the quarter, I guess can you give some thought as far as what I guess quantifying that as far as what do you expect on the expense side going forward? Or what we might see some and then I guess some assuming that the OREO and legal type of the expenses this environment will remain I think I was just wondering what piece you could control maybe bring a little bit lower?

Michael Rechin

Well I mean the absolute most controllable is direct salary expense and again kind of two pieces on that Brian. The first one is our evaluation right from the date of the definitive agreement of the talent mix and needs in the Lincoln franchise. And those decisions have been made. And so we’ll hit all our targets with relative to expense management at Lincoln but the point of my comments extended well beyond that both in regard to what we think is the behavior in 2009 around our highest compensated bankers about 90 participants and the plan that I referenced and then a very modest growth in the balance of our employee mix. But I think it’s safe to say that it would be a 1% time that or less quarter run rate at the salary level for existing First Merchants employees. And then the other area that we’ve just put some bright lights on is what I consider to be some discretionary expenses around travel prudent entertainment and a bunch of lower dollar items that aggregate into a sizable number.

Brian Martin – Howe Barnes Hoefer & Arnett Inc.

Okay, and then maybe Dave, I mean I just missed this trend right down the - you talked about the increase at Lincoln this quarter on the non-performing side I guess the other piece seem to be the $10 million to $11 million at the lead bank in it. Didn’t sound like any of the top five credits changed, But that additional add of $10 million in the quarter at the lead bank what was driving that and I guess a series of smaller credits was it one large credit and just by category what is it more C&I? Was it commercial real estate?

David Spade

I think with that it was probably a mix of C&I and commercial real estate. Most of land development where we recognized at the slow down and the issues regarding sell out of lots really impacted that credit. So we did move them to non-accrual.

Brian Martin – Howe Barnes Hoefer & Arnett Inc.

Okay that’s all I have. Thanks guys.

Michael Rechin

Thank you.


That does conclude our Q&A session. I would now like to turn the call over to our conductors for any closing remarks.

Michael Rechin

I would just echo my appreciation for the attentions to our detail of our results. We feel fortunate to have put together four quarters in 2008 that were profitable but clearly the second half of the year and the climate we’re operating in began to wear on our portfolio both in the loans and in the securities. I hope our efforts described today speak to our 2009 treatment of such. We look forward to talking you again in the April timeframe around our first quarter results. Thank you.


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 All other use is prohibited.


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