Public Meeting Regarding NationsBank and BankAmerica - Panel 24
Friday, July 10, 1998
Transcript of Panel Twenty-Four
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1 MS. SMITH: Good afternoon. I'm reminding the
2 witnesses about our timing system. We have a timer who
3 will give you a one-minute message when you have one
4 minute remaining. She'll hold it up. And then one
5 minute later -- we hope that you will see it. Sometimes
6 you may not because you'll be looking at your text. One
7 minute later, she will hold up the time expired message.
8 And then, if you still haven't looked up, then we have
9 the gong. So that's the system that we'll be using. Are
10 we all set?
11 This is Panel 23, and we're going to start with
12 Dr. Welbon.
13 DR. WELBON: Good evening, Chairman Smith and
14 to the members of the board. We are here representing
15 the Pastors and Ministers Congress of San Francisco and
16 adjacent cities and also the Northern California
17 affiliate of the National Congress of National Black
18 Churches, which represent over 25 million churches -- I
19 mean, 25 million members over the nation.
20 We are here in objection to the merger and the
21 resolution to the proposed merger by NationsBank
22 Corporation of Charlotte to acquire Bank of America
23 Corporation of San Francisco.
24 The Pastors and Ministers Congress of San
25 Francisco and adjacent cities, in conjunction with the
26 South Bay branch of the NAACP and the Northern California
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1 affiliate of the Congress of National Black Churches,
2 which represent over 500 churches in the Bay Area and
3 active community-based organization, have formed a
4 coalition against a merger and hereby file their concerns
5 on behalf of the neighborhoods about the merger's impact
6 on the banking services to lower income and minority
7 neighborhoods.
8 The federal law, the Community Reinvestment Act
9 of 1977, requires banks to make loans in all
10 neighborhoods in which they have branches. And we're
11 concerned about how Bank of America is closing most of
12 their bank branches in predominant African-American
13 neighborhoods in the area.
14 In addition, I'd like to put a little quote
15 there, too. If you now go to most of Bank of America --
16 especially they've closed down most of them in the
17 predominant African-American neighborhoods in San
18 Francisco however. But if you go into any Bank of
19 America, black males is an endangered species. They
20 don't exist on the windows as tellers.
21 I would hope that you would consider a
22 comprehensive recruiting program that can enable young
23 black males to participate and be workers in the bank.
24 That's one point.
25 The next point is that -- our concerns is
26 that -- we are concerned about the poor community lending
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1 records to minorities, especially African-Americans in
2 low-income areas. Federal regulators should look at
3 their records very closely. I'm talking about the bank
4 before the merger.
5 We feel that these giant institutions should
6 expand their loan commitments nationwide in community
7 development loans and other investments, such as
8 assisting worthwhile community service projects. We feel
9 that the bank should expand their small business loans,
10 affordable housing loans, loans to minority contractors,
11 especially African-American contractors, and economic
12 development loans and consumer loans.
13 It is our concern if these two banking
14 institutions are allowed to merge without these detailed
15 guidelines in place as part of this merger, it is our
16 views that these institutions may neglect or abandon this
17 community investment in California, especially in
18 African-American neighborhoods.
19 More important, we are very concerned about
20 these banking institutions' lending policies to
21 African-Americans, high-end policies of
22 African-Americans, especially African-American males as I
23 state.
24 Now let me just take you just a few steps
25 further. We have signed an agreement from the National
26 Congress of National Black Churches with the Justice
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1 Department. If you want to see crime go down in our
2 neighborhoods, you can be a player at the table to help
3 us. We have developed a very comprehensive innovative
4 program that we have submitted to the Justice
5 Department. They have accepted our -- a one-year pilot
6 program. And I submit the comprehensive program proposal
7 to NationsBank, to the Federal Reserve Board, to review
8 that proposal.
9 We're working in the school systems. We're
10 taking our churches to work and to the communities, the
11 school, with the police department, social service
12 agencies, et cetera, to put together a comprehensive plan
13 and to help young people stay out of trouble.
14 And another thing that we're trying to do as
15 well, we are trying to put together a proposal to stop
16 jails from filling up. Educate our young peoples, build
17 this nation, build a strong nation. And this is what
18 this should be all about. And this is why we're at this
19 time opposing the merger until such time that some of
20 these things are looked at very carefully and some of
21 these things are put in place so that we can really look
22 at the bank and you can look at America as it grows into
23 the 21st century, all colors, all peoples participating
24 and working.
25 We want that kind of vision and we can -- you
26 can help us make it. And that's why we're here at this
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1 time opposing this merger. Because you can be a great
2 player in helping us make this become a reality. Thank
3 you very much.
4 MS. SMITH: Thank you, Dr. Welbon.
5 Mr. Burgis.
6 MR. BURGIS: Yes. My name is John Burgis, and
7 I serve as senior vice president of financial services
8 and chief financial officer for Catholic Healthcare
9 West.
10 Today I represent the concerns and hopes of
11 Catholic Healthcare West and a number of institutional
12 investors, including the general board of pensions of the
13 United Methodist Church, the Presbyterian Church U.S.A.,
14 Christian Brothers Investment Services, the congregation
15 of the Sisters of Charity of the Incarnate Word, and
16 Sisters of Charity Health System. These institutions
17 alone hold over 650,000 shares of NationsBank stock and
18 over 400,000 shares of Bank of America stock.
19 Catholic Healthcare West uses Bank of America
20 for its cash transactions and credit needs. Both the
21 Sisters of Charity and the Sisters of Charity Health Care
22 System use NationsBank for their cash transactions.
23 Let me begin with some background on Catholic
24 Healthcare West's relationships with Bank of America.
25 Catholic Healthcare West is a 3.5 billion dollar health
26 services delivery system with facilities and affiliated
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1 physician groups in California, Arizona, and Nevada. As
2 a religiously-sponsored organization, CHW seeks business
3 partners that demonstrate corporate social
4 responsibility.
5 In 1991, CHW began a significant lending and
6 depository relationship with Bank of America, due in
7 large part to the bank's commitment to expanded community
8 reinvestment. During the ensuing years, we have noted
9 and admired Bank of America's efforts to differentiate
10 itself as a leader in corporate social responsibility.
11 Particular accomplishments include focused
12 attention to developing and promoting access to
13 affordable financial services and products, driven by a
14 formal goal to achieve outstanding ratings in every CRA
15 examination; substantial financial commitment to Bank of
16 America Community Development Bank; dedicated and expert
17 leadership devoted to community reinvestment and
18 development; inclusion of environmental and social
19 considerations and criteria for lending to developing
20 economies; development of a strong environmental program,
21 including endorsement of the serious principals for
22 corporate and environmental responsibility and
23 accountability; sustained commitment to diversity in the
24 workplace demonstrated by effective equal employment
25 opportunity and promotion programs, minority purchasing
26 programs, and expanded family benefits programs.
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1 Relative to the proposed merger of Bank of
2 America and NationsBank, we urge the new corporation to
3 embrace a comparable, if not enhanced, stance towards
4 corporate responsibility. In our view, the merger
5 presents a singular opportunity to develop an exemplary
6 enterprise that succeeds in the marketplace by becoming
7 the national leader in meeting community needs.
8 In particular, we are concerned that the new
9 corporation commit formally and publicly to meeting the
10 credit needs of every community where it does business,
11 with special attention to low/moderate income clients and
12 persons of color. To that end, we have asked Dr. Lind of
13 CANICCOR to prepare reports assessing both NationsBank
14 and Bank of America's performance in addressing the
15 credit needs of these historically under-served
16 populations.
17 Based on Dr. Lind's assessment, we ask the new
18 corporation to commit to both mortgage lending and small
19 business goals. In mortgage lending, especially on
20 purchased mortgages and home improvement loans, we ask
21 that the new holding corporation seek to achieve, first,
22 performance levels above the industry level in the
23 assessment areas of the banking subsidiaries and lending
24 to black, Hispanic, and low-income borrowers and in
25 lending in low/moderate income tracts and, secondly,
26 performance levels at parity with the industry in all
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1 other geographic areas in which the mortgage lending
2 subsidiaries operate in lending to black and Hispanic
3 borrowers.
4 With regard to business lending, we request that
5 the corporation achieve above the industry levels in
6 small business loans, especially first loans of 100,000
7 and under in low/moderate income tracts and, secondly,
8 loans to small businesses in low/moderate income tracts.
9 We believe that these goals would not impair the
10 financial viability of the corporation but would increase
11 the corporation's market. Such goals would provide a
12 firm basis for a further development of these communities
13 and help ensure the corporation against violations of the
14 Equal Credit Opportunity Act.
15 In recent negotiations with a number of
16 corporations, we have been gratified by their readiness
17 to adopt similar goals and are confident that the merged
18 corporation will demonstrate a comparable willingness to
19 implement such goals.
20 We were pleased with the announcement of a
21 community lending commitment of 350 billion over the next
22 ten years for the merged corporation. It is, indeed, the
23 largest commitment announced to any merger so far.
24 We welcome the new corporation's willingness to
25 detailed annual reporting of performance at national,
26 regional, and local levels. We view such reporting as a
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1 means to maintain public accountability and as a platform
2 for dialogue.
3 However, we believe that the goals which I
4 outlined above serve a different function from these
5 commitments. Commitments are what can be counted on,
6 while goals detail the benchmarks toward which the
7 corporation aims, thus goals are usually higher than
8 commitments and are more specific. We are particularly
9 concerned that goals be developed to apply to local
10 markets and market sectors.
11 As Dr. Lind points out -- well, I will stop
12 there and simply conclude by saying that, in closing, let
13 me reiterate my advocacy that the new corporation embrace
14 a vigorous stance toward corporate social responsibility
15 and seize the opportunity to develop an exemplary
16 enterprise that succeeds in the marketplace by becoming
17 the national leader in meeting community needs.
18 MS. SMITH: Thank you very much. And next we
19 will hear from Dr. Lind.
20 DR. LIND: Thank you. I'm John Lind, executive
21 director of CANICCOR, an agency of a nonprofit
22 corporation. CANICCOR serves as a consultant to
23 institutional investors on the social responsibility of
24 financial institutions. It provides services in two
25 fashions.
26 First, CANICCOR provides information to funds
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1 that have social screens. These include Kinder,
2 Lynderberg & Domini, Calvert, and U.S. Trust. Secondly,
3 CANICCOR provides analysis for and coordination between
4 institutional investors which take an active role with
5 the corporations in which they invest. It is out of this
6 second role that I speak with you today.
7 As you have heard from John Burgis of Catholic
8 Healthcare West, church-related shareholders have sought
9 agreements with a number of major lenders to have goals
10 of lending at or above the industry level to each
11 under-served group and area in which the corporation
12 operates. The industry level is defined as all reporters
13 under the Home Mortgage Disclosure Act.
14 Concerns focus primarily on home purchase loans,
15 home improvement loans, and small business loans. These
16 are products geared towards first-time home buyers,
17 households improving their living conditions, and small
18 businesses seeking to expand or sustain their
19 operations.
20 With regard to home purchase loans for owner
21 occupancy, neither NationsBank nor Bank of America have
22 been near the industry levels in their home areas, let
23 alone in distant areas.
24 Bank of America's performances were outstanding
25 in 1992 with their development of Neighborhood Advantage
26 loans, and these performances were particularly good with
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1 low/moderate income minority borrowers. But in the
2 intervening years, the industry overtook Bank of America
3 and its performance levels dropped continuously.
4 However, this decline was retarded by the manufactured
5 housing lending unit. Unfortunately, this unit was sold
6 during the spring of this year, and I have had to
7 eliminate its lending from my analysis to estimate Bank
8 of America's present performance level.
9 To its credit, Bank of America is beginning to
10 design some new products, but it will take time to get
11 these products into the marketplace.
12 NationsBank has performed poorly in its home
13 areas of North Carolina and surrounding states. It has
14 aggressive -- it has an aggressive acquisition program
15 and recently acquired Boatmen's and Barnett banks, both
16 of which perform much better than NationsBank. It
17 remains to be seen whether NationsBank will have learned
18 from its acquisition or whether NationsBank's policies
19 will prevail and cause the lending performances to
20 decline.
21 Let me give you a few numbers to illustrate the
22 problem. In 1996, NationsBank originated 14,092 loans to
23 black borrowers, the most difficult to serve group, in
24 its home territory of North Carolina, South Carolina, and
25 Virginia, 657 loans below the industry level of all Home
26 Mortgage Disclosure Act reporters. If NationsBank were
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1 to achieve the industry parity, lending to black
2 borrowers in these states should have increased by 45
3 percent.
4 In 1996, Bank of America issued 396 loans to
5 black borrowers in California, 186 loans below the
6 industry average. To have achieved industry parity in
7 its lending to this sector, lending to black borrowers
8 should have increased by 47 percent.
9 Overall, in 1996, the two corporations performed
10 at 24 to 27 percent below the industry in lending to
11 black borrowers, 12 to 15 percent below the industry in
12 lending to Hispanic borrowers, 14 percent below in
13 lending to low/moderate income borrowers, and seven to 22
14 percent below in lending in low/moderate income tracts.
15 I refer you to my filing for details on home improvement
16 lending and small business lending.
17 Let me summarize by saying that we have had a
18 recent phone conversation with NationsBank and believe
19 that the goals we propose are not foreign to the
20 corporation. However, even if these goals were adopted,
21 the merged corporation faces considerable challenge in
22 developing the necessary structures to attain these goals
23 in the near future.
24 NationsBank -- one, NationsBank and Bank of
25 America have very different corporate cultures which need
26 to cooperate and coordinate. Two, their market areas are
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1 very different, high housing price California versus
2 moderate-priced midwest and south. So they will need a
3 diversity of loan products, and those products will have
4 little overlap. And, three, both corporations are coming
5 from relatively poor performance levels in their distinct
6 market areas.
7 These challenges underscore the importance of
8 detailed reporting by loan type and market area on the
9 part of the merged corporation and the necessity of
10 providing a forum for discussion of the performance
11 results.
12 We do not expect miracles overnight, but we hope
13 to see progress according to a planned process. Thank
14 you.
15 MS. SMITH: Thank you very much. Ms. Hizel.
16 MS. HIZEL: Good afternoon. I have the
17 pleasure of representing Youth Enterprises System
18 Incorporated, which, along with its parent organization,
19 Youth Development Incorporated, is one of the largest
20 nonprofit community development corporations in New
21 Mexico. We develop affordable housing, as well as
22 counsel under-served communities primarily comprised of
23 residents with very low, low, and moderate incomes, the
24 majority of which are minority groups such as Hispanic,
25 Native American, and African-American.
26 Youth Enterprises System Incorporated is not
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1 opposed to the merger but asks that the Federal Reserve
2 Bank consider these concerns and address any foreseen
3 problems to ensure a successful merger.
4 Currently both NationsBank and Bank of America
5 are active lending institutions in the state of New
6 Mexico, and though NationsBank is a newcomer, some of its
7 employees are long-time banking partners from Boatmen's
8 and Sun West.
9 The impact of the recent Sun West acquisition
10 was fairly smooth because the preliminary transactions in
11 which we were actively involved did not appear to slow or
12 diminish. The residual effect has been, however, less
13 than favorable in that our current transactions are
14 tediously slow and inconsistent. The cause seems to be
15 due to the fact that some of the new loan officers are
16 unfamiliar with our market and transaction types are not
17 properly prepared or informed of our needs. We hope the
18 merger will not displace any bank officers who are
19 familiar with our market and who are intimately familiar
20 with our client and agency obligation. The needs of our
21 communities are unique to New Mexico, as are the needs of
22 communities in say San Francisco or Houston.
23 NationsBank was generous in its debut in New
24 Mexico, and Bank of America has also contributed to our
25 communities via organizations, businesses, and other
26 institutions. We would suggest increased and more
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1 focused bank contributions targeting affordable housing
2 and economic revitalization of older neighborhoods via
3 mini/macro-loan programs, nonprofit neighborhood credit
4 unions, and other new initiatives as necessary given the
5 current economic climate in our community.
6 One of our major concerns is that the two bank
7 personalities will distort one another and cause chaos in
8 the delivery of contributions and bank products. If the
9 cost of the merger is passed through to the
10 organizations, then the communities we serve by reducing
11 contributions and/or minimizing discounted and wavered
12 products, then the people we serve will suffer the
13 burden.
14 Many bank employees from both banks are
15 uncertain of their future. Combine this with the Norwest
16 buy-out of Bank of New Mexico and Wells Fargo buy-out of
17 Norwest and the entire banking community is on its ear in
18 New Mexico. Our organization and others like us are not
19 able to function at full capacity because of the turmoil,
20 because of the lack of fluid transactions, new staff
21 coming, old staff going, and contributions at a
22 standstill.
23 Last year we conducted over $11 million of
24 business not inclusive of our day-to-day banking business
25 in excess of 12 million a year. This calendar year we
26 have not been able to close a single transaction with
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1 NationsBank despite the fact that we have nine sites
2 under contract and were scheduled to close one bond
3 transaction on June 30th, 1998. We had commitments from
4 the bonding agency and the rehab granting agency since
5 March and April of '98 respectfully and began discussions
6 on this 4.2 million deal in March of '98. The deadline
7 has now been given as August 15th.
8 We have memorandums of understanding with other
9 major mortgage lenders in our market but have not been
10 able to get one with NationsBank due to the lack of
11 response, nor Bank of America. Again, I believe it is
12 due to the fact that policy changes are occurring,
13 staffing changes are occurring, and employees are
14 entering our marketplace with ideas that may have worked
15 in San Francisco but will never work in New Mexico.
16 Our mortgage and commercial product is important
17 to our constituency and to us, and if this merger slows
18 the delivery of our product, of that product, then our
19 production and growth potential is also diminished. The
20 bank contributions are important to us and, without them,
21 we cannot conduct feasibility analysis and other
22 pre-development duties necessary to commit ourselves to
23 long-term loans and other bank products. Therefore, it
24 is critical that local officers conduct business as usual
25 to ensure the bottom line of the bank and the services of
26 the agencies are fulfilled.
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1 Deals work only if the bank is willing to
2 provide below-market interest rate, fee waivers, and
3 discount portfolio products to our constituency.
4 The new merger is going to add to the existing
5 chaos, and though we are thankful we're not in your
6 shoes, it is important that this merger not diminish our
7 relationship but that it strengthens our relationship and
8 endeavors to build new and innovative ones to ensure our
9 common goals are met.
10 We fear contributions will diminish,
11 below-market interest rates will go away, and New Mexico
12 employees will be replaced by employees unfamiliar with
13 New Mexico communities.
14 The method of the merger is critical to all of
15 us, and we would like to stay abreast of all the changes
16 and expectations as they occur and provide as much
17 assistance as we can during the period to hope that our
18 existing products do not fail or falter. Thank you.
19 MS. SMITH: Thank you very much.
20 MR. FRIERSON: I have a question for
21 Dr. Lind. Could you go into a little more detail about
22 the methodology of the study that you used and address
23 whether the data allowed you to control for income as
24 well as race?
25 DR. LIND: Well, my general methodology is to
26 take the home mortgage data and take the full HMDA report
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1 for each MSA and basically scale down that portfolio to
2 the size of the lender in that MSA and then compare the
3 two.
4 And so if the lender -- if the scaled portfolio
5 which is of the same size as the lenders had, you know,
6 65 loans to black borrowers but the lender had only 35
7 loans, then I say that the lender is below the industry
8 by 35 loans. And then I can add those up as I go up to
9 higher levels of geography and corporate levels.
10 And obviously I used the HMDA data in terms of
11 the income that's provided by the HUD income levels for
12 that -- for the given year that are provided by the FFIEC
13 in looking at the income distribution of the borrowers.
14 This is equivalent to the old market fraction
15 rate that was proposed by the OCC back -- by the FFIEC
16 back in December of 1993.
17 MR. FRIERSON: Market share test?
18 DR. LIND: It's basically the market share
19 test, but I've -- actually, Stephen Cross at OCC agreed
20 with me that we're talking the same language. It's just
21 that it's convenient for me to phrase it this way because
22 I can add it up from -- to higher levels, whereas the
23 market share test is really good at the -- just at the
24 MSA level.
25 MS. SMITH: But the income that you use is the
26 demographic information from the Bureau of the Census?
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1 DR. LIND: That's right.
2 MS. SMITH: So that it tells you the income
3 level of given census tracts?
4 DR. LIND: That's right. I buy the FFIEC
5 census tape each year.
6 MS. SMITH: I have a question for Dr. Welbon.
7 You mentioned a pilot -- a one-year pilot program and
8 having submitted a proposal. I wasn't clear. You
9 mentioned the Department of Justice and you mentioned the
10 Federal Reserve.
11 DR. WELBON: That is correct.
12 MS. SMITH: And what exactly is the proposal
13 for?
14 DR. WELBON: We submitted in a very
15 comprehensive proposal that we submitted to the Federal
16 Reserve Bank and NationsBank as dealing with the school
17 systems. We have an initial 1.5 million dollar grant on
18 the national level from the Congress of National Black
19 Churches, which I serve as the Northern California
20 chair. And we are initiating a comprehensive innovative
21 program dealing with young peoples into the school
22 systems, also to make sure that they stay on the right
23 side of the track, and also that we haven't a lot of
24 violence in our school system at this particular time.
25 And we're trying to do something to bring that level
26 down.
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1 And we feel that -- and we feel that what is
2 happening in our school systems, there must be some sort
3 of proper -- reason why it's happening, especially kids
4 shooting one another and shooting our school teachers, et
5 cetera. And we need to try to focus on what can be done
6 to solve that sort of problem. And that's the type of
7 program that we have initiated with the Justice
8 Department and we're working with our school.
9 We put a summits on in San Francisco, also in
10 Oakland. And in the Northern California we're having
11 summits meeting with the teachers of the school, the
12 Justice Department, the social service department. All
13 of those entities are working to establish a network and
14 a joint partnership to order for us put -- to help this
15 comprehensive program at work.
16 I would rather see us take that $35,000 so we
17 incarcerate prisons, put young people in prison, and put
18 it into -- invest it into our young people. Because we
19 have to look at we're investing into our future, our
20 young people. America is on the -- it can be the most
21 beautiful country in the world, but we have to look at
22 the positive side and the negative side and work with
23 both sides to put together this innovative -- and with
24 your help, we can do that.
25 MS. SMITH: But the proposal is for joining in
26 a partnership? Is it for --
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1 DR. WELBON: The proposal has been submitted to
2 First Nationwide if you need to take a look at it, Bank
3 of America --
4 MS. SMITH: Well, I was interested in -- you
5 mentioned the Federal Reserve and I didn't know exactly
6 what role.
7 DR. WELBON: Well, we submitted a copy to the
8 Federal Reserve.
9 MS. SMITH: For our information?
10 DR. WELBON: For your information.
11 MS. SMITH: Okay. I understand.
12 Any other questions? If not, we thank you very
13 much for your testimony this afternoon. Be sure if you
14 have any supplemental comments to submit them by a week
15 from today close of business. Well, 5:00 Eastern
16 Daylight Time. And with that, I guess we're ready for
17 the next panel.