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PROVIDENT BANK SHARES, #745106
JULY 20, 2000, 10:30 A.M., EDT
FINANCIAL RELATIONS BOARD
MODERATOR: JOHN MCNAMARA
Operator Good morning, ladies and gentlemen, and welcome to the
Provident Bank Shares quarterly conference call. At this
time all participants are in a listen only mode. Later we
will conduct a question and answer session and instructions
will follow at that time. If anyone should require
assistance during the call, please press the star followed
by the zero on your touchtone phone. As a reminder, ladies
and gentlemen, this conference is being recorded.
I would now like to introduce Mr. John McNamara with the
Financial Relations Board. Please go ahead, sir.
J. McNamara Good morning, everyone, and thank you all for participating
on Provident's second quarter conference call. By now you
should all have received a copy of the press release. If
anyone still needs one, please call my office at
212/661-8030 and we'll fax you a copy immediately following
the call.
With us on the line from management is Peter Martin,
Chairman and Chief Executive Officer. Peter will also
introduce the other members of Provident's management team.
Before we begin, however, we would like to remind you all to
take note of the cautionary language regarding forward
looking statements contained in the press release. That same
language applies to comments made on this morning's
conference call.
We'll begin the call with a brief update on the quarter and
then we will open up the lines for questions. And now I'll
turn the call over to Peter Martin. Go ahead, Peter.
P. Martin Thanks, John. Welcome all of you. We're happy to discuss
our quarterly earnings with you. You all have the earnings
release which has earnings of $9,245,000 versus $10,990,000
in 1999 and the big story of course is the $13 million
provision.
At our conference call at the end of last quarter we talked
about our healthcare, two healthcare credits and you were
correctly very curious about our progress on those credits.
We determined that we had to address those credits in the
second quarter.
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Our first effort in May was to sell a Genesis credit for
64.5 cents on the dollar. Genesis had entered into a
forbearance agreement and we could see a bankruptcy looming.
We had the opportunity to reinvest the $9.5 million that we
got for that credit. We also took a substantial gain on some
swaps that we sold and we were able to reinvest that. The
net result on the Genesis transaction was that it will cost
us on earnings per share a cent in 2000 and 2 cents for the
next three years because the reinvestment of funds. Of
course we reissued debt at a higher interest rate which is
why we have the 2-cent difference on an annual basis.
That left us with HIS. There was a heavy focus on IHS and
there's potential for regulatory action on IHS, but we also
came to the conclusion that we should deal with that in the
second quarter. So we took $3 million out of potential
earnings and put that into loan loss reserve which grosses
up $5 million an additional $5 million, bringing us to the
$13 million. And of course that was already a non-accrual,
which cost us 4 to 5 cents per year on earnings per share.
There's still no bankruptcy plan for IHS so we're still not
clear on exactly what results are going to be, so we have
reserved heavily against that credit.
At the end of the second quarter you folks collective
lowered our consensus earnings by 5 cents in anticipation of
these credits, so we're pretty much in the same ballpark. We
have other initiatives that we're involved in. We wanted to
remove the healthcare cloud so that we could emphasize the
good things that are going on at Provident, those
initiatives make us comfortable with the present range of
annual estimates.
Dick Oppitz is going to talk to you about the loan
portfolios and some positive personnel additions on the
commercial side. Dick is a member of the Office of the
Chairman and heads up our commercial lending function.
Gary Geisel is also in the Office of the Chairman, as you
may remember, and heads up our branch system and operations
and human resources. He's going to talk about divesting our
Fast and Friendly check cashing operation as well as our
branch expansion and fee income, which is an interesting
story that we don't think we've emphasized enough.
Jack Novak, who's also Office of the Chairman and heads up
our mortgage and consumer lending, will talk about mortgage
and our progress in that business to date. Jack will also
discuss our decision to exit the indirect auto business. We
came to that conclusion in our second
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quarter as we reallocate our capital to assets bringing the
better return.
Dennis Starliper, our CFO, will talk about stock buyback and
downsizing. We also have Ellen Grossman and Lillian Kilroy
with us today. Ellen manages our Investor Relations, and
Lillian heads up our marketing area. We will be glad to
answer your questions after these updates.
Dick.
D. Oppitz Good morning. This is Dick Oppitz. I know that credit
quality has been a buzz word in all of the earnings releases
for the first two quarters of 2000. I thought I'd spend a
little bit of time on that today.
Much of the focus in discussions of credit quality have
centered around healthcare and syndicated loan portfolios
and I'll give you a little bit of a look at those here at
Provident.
Those of you who follow us are aware that we've closely
monitored two major relationships within the healthcare
portfolio since mid-1999. Peter mentioned that we exited the
relationship with Genesis healthcare by selling the credit,
incurring a loss of $5.1 million, and that we have set up
what we believe to be a conservative reserve against our
exposure to Integrated Health Services.
At 6/30 of this year our total healthcare portfolio,
including the Integrated Health exposure, stands at about
$75 million. The balance of that portfolio is diversified
over other healthcare related industries such as assisted
living, continuous care, retirement centers, hospice
facilities, doctors' groups, healthcare staffing, so we've
got a pretty good diversification in the balance of that.
All the remainder of that portfolio is performing and as we
view the portfolio today we expect that to continue in the
future.
Our shared national credits portfolio totals about $73
million, and also has diversification. Some of the
industries include sports facilities, communications,
manufacturing, and aerospace, among others. That portfolio
also is performing. There are no delinquencies in the
portfolio and more importantly that portfolio is going to
contract over the balance of the year. Strategically we
don't see the yield that we require in transactions
remaining in that portfolio. There is at least a transaction
or two we will probably sell out of. There are also two
other large credits in that portfolio that are in the
process of refinancing where the new debt will be at a lower
rate off our screen in terms of a desired yield, so we will
not remain in these credits. That portfolio will contract
further as we go through the balance of 2000.
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In regard portfolio quality in general, we're very
comfortable with the quality of our portfolio. Our problems
have been confined to a couple of specific relationships
within the skilled nursing care side of healthcare and
that's really an industry issue.
We're confident that we have the people, the systems and the
monitoring processes here in place to insure early
identification and I think we've demonstrated our commitment
to addressing credit problems as they arise.
I talked about our intent to de-emphasize syndicated
lending. We made an important management change in the
second quarter. We hired Hugh Newton, an experienced
commercial banker, to lead our commercial banking division
in the Baltimore marketplace. Hugh has over 20 years of
experience principally with Bank of America and with Chevy
Chase in this market. I think his presence will help us
refocus on doing business in our marketplace with local and
regional companies, and as I said previously, we're going to
be moving away from the small exposure we had in syndicated
national credits.
Our real estate group has been very strong this year. We're
taking advantage of strong markets, both here in Baltimore
and in suburban Washington. Look for the growth in real
estate lending, which we've seen in the first half of the
year, to continue through the balance of the year.
G. Geisel Good morning. This is Gary Geisel. I'm in charge of
community banking and Pete asked me to talk about three
things very briefly - network expansion, Fast and Friendly
and key income.
Let me start with network expansion, maybe touch upon Harbor
Federal. As many of you know, we should finalize the Harbor
Federal transaction in the third quarter and we would expect
to integrate Harbor into Provident's systems in the fourth
quarter. That would also include branch consolidations in
the fourth quarter, specifically nine locations that Harbor
currently has. We will end up with five locations that we
think strategically fit very nicely into our network.
In addition to Harbor, we opened five other locations during
the quarter; four of them are in-store, one of them a
traditional location. That brings our total network to 91.
More importantly 31 of those locations now are part of
suburban Washington as you see us sort of brings a focus to
our expansion into suburban Washington. And 51 of the 91
locations are in-store and we've talked before of the
success we've had over the years with
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in-store and the profitability we've been able to reach in
18 months.
Our checking volumes for the quarter have been excellent.
We've grown retail checking accounts 14% over the prior
quarter and 23% of this growth has come from branches that
are less than 12 months old. In the same timeframe, business
checking is up 23% from quarter-to-quarter so our
origination of accounts has been very solid.
On the Fast and Friendly front, as you may know, we entered
the check cashing business in 1993. We have eight check
cashing locations in downtown Baltimore and we have made the
decision to exit that business, as we were not able to
obtain adequate return. We have an agreement to sell in
place right now with Dollar Financial. Dollar is actually
the second largest check cashing company in the world and we
would expect to close that transaction in the third quarter.
There's no cost of exiting the business and from the
standpoint of earnings, there will be a modest improvement
in 2000 and a similarly modest improvement ongoing. The key
to our decision really was to deploy our resources more
efficiently and to improve our overall results.
The last subject I wanted to touch upon was fee income. As I
speak about fee income, I'd like to do that excluding our
mortgage banking activity as well as excluding security
gain. If you look at fee income we've grown from
quarter-to-quarter 22%. We're now at $15.6 million and of
that $15.6 million, $10.5 of it is really categorized as
deposit service fees. And when you look at that number
you're talking about ATM, you're talking about our checking
fees, retail and commercial, cash management. Our core
banking business, if you will is represented in this deposit
service charge and that grew actually 26% from
quarter-to-quarter. Our total retail accounts, retail
checking accounts stand at 244,000 accounts these days and
we were able to grow from year-to-year, quarter-to-quarter
core deposits 4.4%, so we're pleased with our fee income and
we're especially pleased that it's coming from our core
banking business.
J. Novak Good morning. This is Jack Novak. I run the consumer lending
operation at the bank, which also includes the mortgage
corporation. I'd like to talk today about two issues:
Progress we've made in the mortgage banking subsidiary and
our decision to exit the indirect lending operation.
First let me talk about the mortgage operation. From June to
June we've probably experienced a 50% reduction in volume as
most mortgage lenders have during this period of time. We
feel, though, that during that period of time we've also
implemented cost reductions that will bode well
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for us in the future and they have already. We've actually
reduced expenses during that same period of time by 45%.
This has brought us ... we've also, by the way, changed the
mix of business that we are doing right now towards a much
more profitable retail bank as opposed to the wholesale
operation. We've changed that mix to the tune that we are
now doing approximately 50% of our business in the retail
line of business and 50% in the wholesale and that's quite a
swing during that year's period of time.
I'm also happy to report with the changes that we have
implemented, the month of June saw us become profitable and
we think that the changes that we have made will carry us
through for the rest of the year also in that particular
mode.
Secondly, I will talk about our exiting the indirect lending
business. We have analyzed this business for many years and
we have implemented changes that certainly have made us more
profitable. In looking at the changes and the increased
profitability, we felt that as clean as the portfolio is and
as inexpensively as we operate it and as efficiently as we
operate it, the industry itself does not afford us the
opportunity to make the returns that we want to make in our
core businesses. We also looked at the cost of exiting this
business and there is very little cost of exiting this
business, so we implemented changes in the second quarter
that will see us exit this business over a brief period of
time. This will be very beneficial for the bank in the long
term.
D. Starliper Good morning, everyone. This is Dennis Starliper. There are
a couple of things I wanted to talk to you about. First to
start here with the share repurchase program. During the
quarter the authorization level on our program was increased
by about 2.3 million shares and over the past quarter we
have repurchased a little over 800,000 shares. Total shares
of the corporation are about 27 million outstanding.
We're out of the repurchase activity right now, the window's
closed for that until we settle on the Harbor Federal
transaction which should be the end of August. We will
continue to repurchase shares after the window opens in
connection with the integration of Harbor Federal and also
in connection with the downsizing of product lines that we
have made an election to exit.
Secondly, in the second quarter we began reviewing the
result of measuring returns on invested capital for our
various product lines. This process has assisted us in
gaining insight into the strategic position of
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those business lines in terms of optimizing our returns on
invested capital and more importantly prioritizing future
capital allocations. Doing this has confirmed that there are
certain product lines that we would be unable to reach our
desired returns and accordingly we discontinued two of them.
The first that Gary had mentioned earlier, Fast and
Friendly, this was eight check cashing locations. There was
no gain or loss or one-time charges associated with that
exit. The EPS benefit in 2000 is negligible and will be
about a penny in 2001.
The second was Provident Automotive. This is a $230 million
portfolio currently on our books. There again will be no
gain or loss or long time charges to exit that business and
the EPS benefit in 2000 is negligible; however, we expect
four to five cents accretive in 2001.
We're going to continue to develop the measurement process
on profitability for lines of business and we will use it to
assist us in setting strategic direction. But as most of you
know, capital allocation methodologies are complex and
require careful assessment of risks and allocation of risks,
but we do believe that in the long run this will better
align our performance with shareholder interest.
Pete, I'll turn it back to you.
P. Martin Alright, we're ready for questions.
Operator Thank you. Ladies and gentlemen, at this time, if you have a
question, you will need to press the one on your touch-tone
phone and you will hear a tone acknowledging your request.
Your questions will be taken in the order that they are
received. If your question has already been answered, you
may remove yourself from queue by pressing the pound key.
Also, if you are on a speakerphone, please pick up your
handset before pressing the buttons. One moment please for
the first question.
Holly Clark with Scott & Stringfellow, please go ahead with
your question.
H. Clark Yes, good morning. I had a question first with the Genesis
credit. Can you clarify the time, some of the timeline
related to that credit - when it became past due and when
that credit was actually sold?
D. Oppitz Dick Oppitz, Holly. Good morning. We met with management
of Genesis the last week of the first quarter. They
indicated at that point in time that they would be looking
to restructure, but the senior debt holders would come out
at 100% and it was based on that that we left it on not
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performing at the end of the first quarter. Early in the
second quarter they came back with a different story. They
asked for forbearance. The banks went along with that. It
became more apparent as the quarter went along that they
were headed down a road to bankruptcy, at least in our
opinion, and that was borne out. We thought the best way to
maximize our position was to exit the credit via sale in the
secondary market. We affected that late in June. I think the
transaction actually settled on the 30th of the month.
P. Martin We executed the transaction May 19th. It settled June 29.
H. Clark Okay and I had another question that related to Integrated.
What was the specific reasoning with that credit for the
writedown?
P. Martin We have not written it down. We have reserved, specifically
reserved quite heavily against the credit because it's still
an unknown situation to us, so we have a very conservative
reserve. We have not written it down.
H. Clark Okay and how much is the reserve?
D. Oppitz Probably be in excess of 60%.
H. Clark And where was that ... how does that compare to at the end
of the first quarter?
D. Oppitz It went from 35% reserve to 60%, so as Pete said, we
increased it significantly.
H. Clark Okay and then with the other piece that you have, I believe
it said $6 million, have you done anything different with
that?
D. Oppitz Increased that reserve also.
H. Clark And by how much?
D. Oppitz That's up from about 25 to probably be in excess of 40%.
P. Martin That is cash flowing still though, I might add.
H. Clark I'm sorry, what was that?
P. Martin The last credit you mentioned is still cash flowing.
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H. Clark Okay and then on a separate subject, Dennis mentioned the
buyback activity. Can you just clarify how much of the
proceeds from your preferred issue are of ... how much is
still tagged for additional buyback activity?
D. Starliper Of the 30 million that we issued back in the first quarter,
Holly?
H. Clark Yes. I remember at that time you all had designated about
half of that for buyback activity and I was wondering if
you've gone through all of that.
D. Starliper Yes, that's complete.
H. Clark Okay, thank you and then ...
D. Starliper But the buyback is not complete.
P. Martin No, we intend to do more.
H. Clark Okay, that helps. Thank you and then one other question. Do
you all have any plans to reposition your securities
portfolio?
P. Martin No, not at this time.
H. Clark And my last question and then I'll get off for other people
to ask questions, and this is more of a housekeeping item. I
noticed that on the non-interest, with the non-interest
income that other income was up about $600,000 on a linked
quarter basis. Was there anything specifically in there that
contributed to that gain? This is other non-interest income.
It went from about 3.1 to 3.7.
P. Martin We hear the question, Holly.
L. Kilroy We're looking for the answer.
D. Starliper There're several loan fee categories in here. I'll call you
back with an analysis of it, Holly.
H. Clark Okay that's fine. Thank you.
Operator Adam Barkstrom with Legg Mason, please go ahead with your
question.
A. Barkstrom Thank you. Good morning.
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P. Martin Hi, Adam.
A. Barkstrom How're you doing? I hope I don't have as many questions as
Holly just did. Just kidding. Let's see, the securities
gain, can you give us a little more detail? You mentioned
the swaps were sold. Specifically I was curious what the
notional amount of the swaps that were sold to recognize
that gain?
D. Starliper $270 million, Adam.
A. Barkstrom And Peter had mentioned or at least I think he did,
potential. What are the future ramifications of that swap
sale, the future EPS effect?
P. Martin The sale itself cost us 6 cents per share, however we're
looking at it as an entire transaction and the Genesis
reinvest of $9.5 million which would have been
non-performer, plus the gain brings back 4 cents a share, so
the net is 2 cents a share for the next three years, one
cent this year. Is that clear.
A. Barkstrom Yeah, kind of ... yes. How is that going to affect your net
interest margin going forward?
P. Martin It's just a trade of line items, approximately two basis
points.
A. Barkstrom Okay, second question - net interest margin. There was some
compression during the quarter. Wonder if you could share
with us what the main drivers behind the net interest margin
compression were?
D. Starliper Three of them really, Adam, I think we were talking about
before - reduced yields on our loans coming from (1) a
reversal of accrued interest in the healthcare category, (2)
the reduction of income in our acquired loan portfolio
coming from the correction of the amortization of discount,
rather premium in the first quarter where yields were
unusually high. I was explaining in the first quarter
teleconference how that was going to impact us going forward
that the 3.23 was not sustainable for that reason.
Another major component was the second half of the
trust-preferred issuance we leveraged and that put about
$230 million of assets on a spread of roughly 160 basis
points or so. That had an impact as well on the margins by
adding about a million dollar favorable impact to net
interest income. But it did impact the margin.
And those were the principal reasons why the margin
declined; however, going the other way, we had significant
margin improvement with about
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$81 million in average deposits, core deposits put on our
books improved our margin a bit. So when you take those
three things into consideration, those are the three things
that are responsible for about a 19 basis point decline.
A. Barkstrom Gotcha. The leverage that was implemented, how much was
that? You said $150 million?
D. Starliper No, about $230 million.
A. Barkstrom And that was during the second quarter?
D. Starliper That's right and that's into investments and into acquired
loans.
A. Barkstrom Right, right. Just briefly if you could, explain again the
middle, the second factor that you mentioned the premiums
and amortization or changes.
D. Starliper The amortization of the premium on the acquired loan
portfolio rises and falls with interest rates and the FAS
91, the financial accounting standard that requires us to
maintain a level yield on that portfolio. If you recall back
at the end of '99 or rather the beginning of '99, our margin
was depressed by having to accelerate that premium given the
fall in interest rate. Then the rise in interest rate
throughout '99 extended over the lives of that portfolio
where we essentially recovered in the fourth quarter of '99
and the first quarter of 2000 that which we had previously
written down a year earlier. So it has the effect of moving
our margin out about 8 basis points or so and that is not a
continuing benefit.
P. Martin It's basically on prepayments on those loans, Adam, on the
acquired portfolio because we pay a premium for the loans.
But on the other side, we do have that hedged. If rates were
to go down and they were to accelerate again, it would
depress the margin but we'd have some gains on securities
that we put on specifically to hedge that portfolio that
would offset that loss.
A. Barkstrom Gotcha. How will the Harbor transaction affect margins going
forward? What does their margin picture look like?
D. Starliper Almost on top of ours, Adam. It is a purchase accounting
transaction, so we will mark their balances to market and
therefore the margins will improve to market for the whole
balance sheet. It's roughly $220 million worth of assets on
top of $5.2 billion, it's not going to show.
A. Barkstrom Not a meaningful effect?
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D. Starliper No.
A. Barkstrom Well, I think that does it for me. Thank you.
D. Oppitz Thank you.
Operator David West with Davenport and Company, please go ahead with
your question.
D. West Good morning.
Management Hi, David.
D. West Wondering if you could talk about your activity in the
broker deposit market in the second quarter.
D. Starliper Activity with the broker deposit market, David, follows
directly with activity in acquired loans. To the extent that
we put acquired loans on, we put broker deposits on. Now
what we have done recently though is we have found favorable
rates with the home loan, using home loan borrowings instead
of broker deposits. Adam, back last year we securitized
about ... oh, I'm sorry, it's David. I'm so used to Adam
asking questions, everybody's Adam here. David, we
securitized $370 million in acquired loans last year and
having that as new collateral available to the home loan for
secured borrowings made that cheaper than doing broker
deposits. So in the last quarter or so, most of our
financing for acquired loan purchases have gone that way.
Last quarter we were approximately $1.5 billion in broker
deposits; we're about $1.4 billion, $1.3 billion now.
D. West Great. Just got a couple of unrelated questions here and
then, Dennis, while you've got the microphone, you talked
about the process that you're going through looking at
various product lines developing hurdle rates. Could you
tell us a little bit more about that process? Are you using
one hurdle rate for the corporation or are you developing
separate hurdle rates for different lines of business? How
are you going about that?
D. Starliper David, it's somewhat rudimentary right now. We're just using
simplified allocation of capital now based upon our leverage
and risk based ratios. And using that alone was sufficient
for us to determine how we should rank the priorities of
allocating capital going forward.
However, in the longer term, that is a much more detailed
process that involves, as you're probably aware, complex
methods of measuring risks
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for each of those lines and therefore gaining determinations
of how much capital to allocate to those.
That is a process that we are beginning now. It's a process
where we have proposals for seeking help, not help, but
advice and guidance along the way. It's something that's
going to be a strategic effort for us. I'm unable to
describe exactly how that will come out except that your
traditional methods of, call it what you want, you know,
shareholder value added or whatever the current buzzword is
for that technology, we think it's a good one and we think
it better aligns measuring performance of our units against
how shareholders want us to perform.
If you take your typical look at those kinds of systems,
that's where we're attempting to go, David. And it will be
something that will be a little ways down the road yet.
D. West You mentioned, obviously some of the things you're doing
will result in some downsizing of the balance sheet, exiting
into [inaudible] for example. Can you give us a rough
estimate of what level of assets you may downside to and
kind of what impact they'll have on your projected capital
ratios?
D. Starliper The only thing now that is available, David, is the $230
million indirect auto portfolio. We don't plan on selling
it, it will just amortize and we will repurchase shares in
connection with that downsizing and other initiatives that
we are currently working on, we'll follow basically the same
pattern.
Now if returns on asset alternatives are satisfactory, we
would not, but to the extent that they aren't, we would
continue to repurchase shares associated with discontinued
operations.
D. West Do you have a targeted leverage ratio that you're really
focusing on?
D. Starliper Not other than where we are now in the roughly 7 to 7.10,
tier II, 10-1/4.
P. Martin As Dennis is indicating, David, this is a work in process,
but you also have to tie it with the stock buyback. Our
leverage ratios will stay pretty much what they are, but our
capital would decline as we continue to buy back stock. I
don't think you'd affect the ratios, you'd affect the shares
outstanding.
D. West And then my last question, kind of getting to the reserve
for loan loss and following on some earlier questions about
Integrated Health. You've talked about your specific
reserves there. Could you tell us what
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additional specific reserves you have against any of your
other healthcare credits and then kind of an adjunct to that
question, what kind of the level of your unspecific loan
loss reserve is right now, that you're allocated on, rather.
D. Oppitz David, it's Dick Oppitz. There are no other specific
reserves against healthcare credits. As a matter of fact,
there are none against any commercial real estate credits as
we sit here today.
D. West And a rough idea what the unallocated portion of reserve is?
D.Oppitz $15 million.
D. West Thank you very much.
Management Thank you.
Operator Derek Statkevicus with KBW, please go ahead with your
question.
D. Statkevicus Close enough. Hi, guys.
Management Good morning.
D. Statkevicus One quick question here. How many new branches do you expect
to open through the rest of this year and what's the
breakout between supermarket and regular style branches? And
then as a follow up to that, how will those additions if
any, affect the run rate on non-interest expenses?
G. Geisel Derek, it's Gary Geisel. We have about ten more locations
that we should do between now and year-end and the
preponderance of them would be in-store. A couple of them
... Excuse me, let's do it a different way. We have 12 new
locations specifically between now and year-end. Five of
those would be Harbor Federal, that leaves us with seven and
out of the seven we would expect two of them to be
traditional and five of them in-store.
Does that answer the expansion question?
D. Statkevicus Yes, just one more quick question, though, again especially
with salaries, occupancy, furniture, equipment, what type of
run rate should we be looking for given the additions of the
branches there? Should we expect an increase X percent from
the second quarter to the end of the year?
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What kind of target should we see?
G. Geisel That gets a little complicated.
D. Starliper That gets very complicated.
G. Geisel Because we've got decreases in indirect auto and we've had
decreases in mortgage, but I think that's a good question
but ....
D. Starliper I'm sorry. I was just going to say the reason it's
complicated, Derek, if you'd remember we grew from 1998 year
end to 1999 year end 15 locations, so in a lot of ways the
run rate as you describe it and the expense growth is
already built into what you're already seeing from
year-to-year and we're simply moving that forward and taking
other actions as we already alluded to today to decrease
some of our non-interest expense.
P. Martin I think we'd like to give you a more specific answer than
we probably are prepared to give you right now, so we'll get
back to you on that, Derek.
D. Statkevicus Okay, that's fine. Thank you.
D. Starliper I think you saw a sizeable jump from the first to the second
quarter. I would not anticipate you're going to see that
kind of jump going forward in the quarters ahead.
D. Statkevicus Okay, great. Okay thanks.
Management Thank you.
Operator Collyn Gilbert with Ferris Baker Watts, please go ahead
with your question.
C. Gilbert Good morning, guys.
Management Hi, Collyn.
C. Gilbert I've got a couple of questions. First, surrounding your
loan portfolio, if you could give me an indication or give
us an indication of the gross that you saw in the consumer
portfolio, how much of that was acquired through the
acquired loan portfolio?
J. Novak Well I would suggest that for the ... are you talking ...
Collyn, this is Jack Novak.
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C. Gilbert Hey, Jack.
J. Novak Are you talking quarter-over-quarter?
C. Gilbert June 30 '99 to June 30, 2000.
J. Novak Let me take a look here. It was, for total consumer,
including the acquired, it was 5.43% and acquired
represented 7.93 of that, so we had some runoff in some of
the other portfolios. If you'd like I'll go down and tell
you what they were, including indirect auto.
C. Gilbert Yeah, I guess I actually would be most interested with what
the runoff was in the indirect auto.
J. Novak The indirect auto from quarter one to quarter two was $2.8
million. So we actually had growth in all of the other, as
we linked them, the other two categories.
C. Gilbert Okay, so essentially what you're saying is the increase in
acquired loans was pretty minimal given your overall
increase in the consumer portfolio.
J. Novak Collyn, it was really not minimal, we had ... if you want
to get into particulars here, we had roughly $118 million
increase in acquired and we had total of $124 increase for
the whole portfolio.
C. Gilbert Okay, with the 2.8 runoff there in the indirect?
J. Novak Exactly.
C. Gilbert Alright, that's clear. Also another question on the lending
side and without you having to go into too much detail,
curious about the decline and it could be attributed, some
of it to the Genesis credit as well as the IHS, but why
commercial loans dropped roughly $62 million from June 30,
'99 to June 30, 2000?
D. Oppitz Collyn, it's Dick Oppitz. Genesis was obviously a piece of
it. We've also ... I mentioned the de-emphasis in syndicated
lending. We've had three payoffs in this year and they would
have been credits, $10 million plus. That's been a strategic
focus on our part.
C. Gilbert So most of that's coming from Genesis in this syndicated?
D. Oppitz Yes.
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C. Gilbert Okay and one last question related to loans and then I have
just one more question about the outlook for 2001. The
mortgage business, you guys had said obviously you saw
dramatic reduction over what we were seeing last year. Kind
of from what I found it seems as if some of your peers
though are starting to see a pick up in that business. I
think whether it's lagged because of stabilization in the
rates or just the strength of the D.C./Baltimore market, are
you guys looking more optimistic about the rest of the year
in terms of your mortgage business or are you thinking it's
going to continue to deteriorate?
J. Novak Collyn, it's Jack Novak again. We have been optimistic
about the mortgage business actually from a beginning of the
second quarter and forward and we too, like our peers, have
seen an uptick in activity and we do feel good about the
rest of the year also.
C. Gilbert Okay and then my final question relates to what we can
expect in 2001 and I apologize. I don't know what the
consensus estimate is out there. Chances are I know I'm on
the high end, but just from what you've said in terms of
things - a couple cents here and there, are you comfortable
with where the consensus estimate is or can you give us an
indication of what's going to be driving earnings in 2001?
P. Martin We're comfortable with the consensus estimate for 2000, as a
matter of fact, it's built on that and talk about some of
the strategies we've discussed this morning that we're
comfortable with that.
C. Gilbert With 2000?
P. Martin Yes, 2000 and therefore 2001, as a range of estimates.
C. Gilbert I can look it up, but just curious, do you have the range
there, what the 2001 or what consensus is for 2001?
D. Starliper 180's the mean. Probably a nickel either way.
C. Gilbert So this couple cents here and there that you're talking
about really is not going to ... you're not causing or
suggesting that we raise or lower our estimates then for
2001?
P. Martin No.
C. Gilbert Okay, that's it. Thank you very much.
Management Thanks, Collyn.
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Operator Ladies and gentleman, if there are any additional questions,
please press the one at this time. Remember to pick up your
handset before doing so. One moment please.
There are no further questions at this time. Please continue
with any closing comments.
P. Martin We appreciate your participating in our teleconference
and we appreciate the questions which were excellent. I
think we have summarized that we're optimistic about 2000
and 2001 and having removed the cloud of healthcare, we can
concentrate on again the good things that are happening.
We've already indicated that we're comfortable with the
range of estimates for the year 2000 and we're moving ahead
with the integration of Harbor Federal and we're very
pleased with the trends in our non-interest income as well
as prospects for loan growth and continued deposit growth.
We look forward to talking to you all during the quarter,
obviously with any questions that you have, you're always
welcome to call any of us and we look forward to joining you
at the end of the third quarter.
Operator Ladies and gentlemen, that does conclude our conference for
today. You may all disconnect and thank you for
participating.
E. Grossman Thank you.
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