Cullen/Frost Bankers Inc (CFR) 2002 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Cullen/Frost Bankers second quarter earnings conference call. All lines are in a listen-only mode. I'd like to turn the program over to your host - Senior Vice President and Director of Investor Relations, Mr. Greg Parker.

Thank you and welcome to this morning's conference call that will be led by Dick Evans, Chairman and CEO, and Phil Green, Group Executive Vice President and CFO.

Before I turn the call over to Dick and Phil, I need to take a moment to address the Safe Harbor . Some of the remarks made today will constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 as amended. We intend such statements to be covered by the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 as amended. Please see the last page of the text in yesterday evening's earnings release for additional information about the risk factors associated with these forward-looking statements. If needed, a copy of the release is available at our website or by calling the Investor Relations department at 210-220-5632. And at this time, I'd like to turn the call over to Dick Evans.

Thank you, Greg. I'm happy to report our second quarter overall performance was strong at $32.7 million, or 61 cents per diluted common shares. The majors factors that contributed was the continued growth in fee income, representing 41 percent of our total revenues, on going expense control, and recent positive trends in that interest margin. Three cents per share was the accelerated sale of a student loan package of $100 million on our books $2.6 million. We're pleased to be back reporting return on assets greater than a 150, and a return on equity greater than 20 percent. Asset quality trends were positive and within the projection range. As always, these results are only possible because of the outstanding staff that we have.

As I travel about the state trying to get a good feel for the economy, I find the words that are most used are - cautious, uncertainty and mixed conditions, but at the same time Texas continues to grow and prosper extremely well. I think as we take a look at growth we get a good feel of it, and particularly poor growth. Our overall growth as you look at our statements from June to June were slightly down or were almost flat. growth for the second quarter was down 5.4 percent, however, if you look closer, and you take out the $100 million in student loans we sold, we were flat for the second quarter, but I think the core growth is really where you get a good understanding of what's happening. When you exclude the mortgage that we exited those business, the volatility in our shared national credit, what we have purposely managed, and then the sale of the student loans, you'll find that the growth from June to June was 5.9 percent, and for the second quarter 10 percent. I'm also happy as we look at this core growth, that we're experiencing this growth in all our regions across across the state. As we look at the pipeline and the indication of the future, I would describe it as slightly stronger and certainly stable, to the quarters that we've experienced the last - in the first and second quarters. It's also encouraging as we look at the new loans we're bringing on, that they have a little better risk rate, in other words they have higher quality.

I think the wild card that we have in this uncertain environment is that we also see the payments increasing. That's good news from a customer's standpoint, in that they're taking their liquidity and reducing their debt, but also we see another characteristic, and that is that people are pushing off their decisions as long as they can, and so there's a little bit of slowness in the closing of loans. As we look at credit quality, it looks very good. The delinquency percentage was 1.02 percent. 90-days and over delinquencies have been trending down this year. Today, we're less than half of where we were at the yearend. Our non-performing assets at .41 percent of total assets are within the range of 40 to 50 basis points of assets, in fact, at the lower end.

Our reserve we built from a 170 to a 175. That covers non-accruals has improved from a 211 to a 261. Our were .37 percent and , they're .29 percent. In this last quarter, we made a decision to charge down a $7.9 million non-accrual by $2.7 million. We had three . This is a project that a couple of years ago cost $10.5 million. We have an appraisal for $14 million, and we have an appraisal for $5.2 million, and it was our decision to charge it down to the lowest value. This is a company in bankruptcy, and it just takes longer to work out.

Also, we announced yesterday of an item that will affect the third quarter, and that was to dispose of the capital market segments that include research, sales, trading, and capital market related investment banking. This is a subsidiary had about 50 people, and we have eliminated 43 of those positions. It's important that you know, and that our public know, that we were extremely proud of this team at Frost Securities. They've worked hard in an extremely difficult market that I don't have to explain to you.

We expect to recognize an charge for discontinued operation in the third quarter of $3.9 million or .7 - seven cents per common diluted share. We intend to maintain a small group of investment banking professionals to continue providing advisory and private equity services to the middle market companies in our market area. With that, I'll ask Phil Green to make some comments.

Thanks, Dick. I want to expand on some of Dick's comments and provide a little additional detail, and I'll be referring generally to information that's included on schedules and earnings press release on page six and seven. It was, I think in fact, a solid quarter. Some things went our way, and it's nice to be back more in line with what we were having in year 2000.

The first thing I wanted to get out of the way was the unusual item for the second quarter, which was the gain on the student loans. We sold around million more in student loans in the second quarter this year than we did last year. It represented most of the portfolio, and we recognized a gain, as it is in the release, at $2.6 million, or about 3 cents a share. I want to talk about the reasons why on this.

First of all, we made and sold student loans for a long time, and we're going to continue to do so. We originate about - excuse me - about $60 million a year. We sell about 90 percent of that on our annual basis. We sell these loans before they go into repayment, which means they still have the government guarantee on it. So, that's not unusual. The thing about these loans is this particular portfolio, was scheduled to have a dramatic reduction in the interest rates on the portfolio because of the reduction in the treasury base on which they're tied. In round numbers, they from 5.5 percent yield to 3.5 percent yield, and what we thought was that we felt we could do just as well in the agency securities market as we could on these loans, in terms of yield, and still pick up the premium on it. So, we consummated the trade on this. If you adjust out the sale, it affects , I said three percent. That'll take our to 58 cents. Still our ROI would be a 154, and return on equity would right at 20 percent. So, still very good levels for the quarter.

I want to take a look now at our regular operations, not including the student loans, and I was glad to see another increase in margin, even if it was slight. I could tell you that it sure beats the alternative. We were up about four basis points to a 472. It really wasn't any one thing. We did, however, decide to of some interest rates we were carrying on some fixed-rate loans, which had the effect of making these fixed-rate loans , and by removing that, what it did was it increased the duration of the loans by a couple of years back to their original fixed rates and increase the effective yield. That probably was a couple of basis point impact on the margin, but as I look forward, we're continuing to see flat rates till the end of the year. We've been expecting that, and saying that for a long time. Looks like it's going to happen, margin expansion in that environment. In fact, in my opinion, we could see a little more margin pressure for a couple of reasons.

One is that these student loans, even though we sold on that reinvesting in agencies, the agency yields, they compared great to what yield would have been on the loans at but it's still lower than the rates on the loans that they were carrying before they re-priced at the end of the quarter. So that's going to affect us for those balances.

And secondly, and this is a good thing, I think, we've consciously increased our rates on our premium money market account to be more aggressive in the market, and we're really looking to expand our relationships, and also bring in some new money into these accounts.

Take a look at the balance sheet. Dick talked about growth but let me add a couple of things. The markets that we're seeing the most growth in year over year are in Dallas, Fort Worth and Houston, in that order, and as far as where we're seeing, or what we're seeing the growth in, we're seeing it in regular loans. We're seeing it in commercial real estate, and the focus in commercial real estate is on our occupied properties.

If you look at quarter, more recently, and can take a look at growth, I think our growth is even more positive, as Dick pointed out. In this case, we're seeing growth in all markets, but we're seeing it if you were going to rank order the top three markets, you'd see it in Dallas, Houston and Fort Worth, in that order.

One other thing I wanted to point out on growth is that particularly recently we're seeing some increases in asset base lending balances, and leasing volumes. With the economy being the way it is, that portfolio is somewhat counter cyclical in terms of demand for that product, and we're seeing more volume there than we'd see in the past.

If you look at the deposit side, really it's the same story. It's good deposit growth, and it's in all markets. Year over year is up by 13 percent on an average basis, and even though it's flat, if you look at the quarter basis, if you adjust out the relationship we've been talking about for several quarters with the - for the good customer or large national mortgage originator , or we're the clearing bank for those balances, and you adjust out that relationship, it was up by 16 percent average on a quarter basis, that's because balances related to that account happen to be down for the quarter.

We shift and look at non-interest income for a minute. It's continued to be a positive story. We're up by 8.5 percent on an adjusted basis, taking out the student loan sale on a year over year basis, and look at some of the main components of it. Number one would be trust fees. Trust fees are down six percent on a year over year basis, but investment fees are only down two percent. I think that's a good story, and we all know what's happened to the market, and the drop in trust fees have been driven really by the component, which is down by 750,000 from where it was a year ago, and that down about 50 percent, and that all related to energy prices, and as I said before, there's about a two to three month lag on price changes and how it affects these fees.

Deposit service charges are strong. They're up eight percent. It's primarily driven the commercial side. We're seeing increases in billable services. We sell additional treasury management products, and in addition, lower rates tend to help us have higher deposit charges because balance paid for less fees, or paid for less services, I should say.

Insurance commissions, again, a strong story for us. They're up 53 percent, and you know we did have an acquisition of AIS during last year that tends to make that higher, but still, an organic growth rate of 18 percent year over year. So, that's to go very well.

The growth in other service charges was, I think, very good. It was up 19 percent. All of this represents growth fees related from Frost Securities. Most of the fees were investment banking related - most of the increase, I should say, were investment banking related. Remember, last time we told you that we had a timing difference, and we had a - around a $400,000 fee. We expected last quarter in this quarter, and so we did have good growth there relative to where we were before. As far as the loss at Frost Securities, in the second quarter the company lost $564,000 after tax.

With regard to non-interest expenses, I think the thing to say there really is just been good control, and if you look, all the components look in good shape. When you see increase in benefits, you know, it's really medical, what your seeing. I think all companies are experiencing that. That's the one area that just continues to grow, but I don't want that to reflect negatively on expense control. It is very good. Even if you take out the $2 million drop related to intangible amortization because of the implementation of FAS 142, we still would have been down year over year expenses, and that's just good, hard work on the part of our staff.

Finally, looking at the provision expense, it was $5.4 million for the quarter. It was up by $4.4 million from where it was a year ago. We continue to build a reserve, in addition to meeting charge offs, and as Dick's already mentioned, we moved the reserve from loan losses up to a 175 during the quarter.

So, in light of our recent performance, and the current outlook that we have, today we're revising our guidance for earnings per share from continuing operations. We are going to move from the low end of the range to the middle of the range, more in line with the consensus of what the market has for us today, and just to be specific operations will exclude the seven-cent estimated charge related to Frost Securities that Dick's already mentioned, and will occur in the third quarter. So with that, I'll turn it back over to Dick Evans.

Thank you, Phil. Just a clarification in referring to exiting of the capital markets business, that is a total relationship to our Frost Securities operation in Dallas. We do have our capital markets operation here in San Antonio that primarily deals in bonds.

Fixed ...

Fixed income, and it's a successful business, and that will continue, and we're very pleased with it. With that, let me see if there's any questions.

Very good. If you'd like to ask a question, please press one now on your touchtone telephone. To withdraw yourself from the queue, you may press pound. Once again, to ask a question at this time, please press one now on your touchtone phone.

We'll take our first question from Charlie of Securities. Go ahead please, sir.

Hey, guys. How are you doing?

Hi, Charlie.

Hi, Charlie. How's it going?

Good. A couple questions for you. First of all, I just wanted to get a little bit better color on the loan portfolio, particularly where did syndicated credit stand in the quarter, and also how much ran off in the quarter? And then, kind of given your guidance for a little bit better volumes, I believe, in the loan portfolio. How that impact the margin. Does that kind of factor into your thought process about potentially a little bit of compression as the year goes forward. Thanks.

Well Charlie, the shared national credits, as of June 30th outstanding, were $201 million. Just to give you a point of reference, $236 million at yearend, and the - to the second part ...

Yes, Charlie. The - if you look at the other areas that we've been talking about the last few quarters that are paying down - I'll talk year over year now. Year over year for family residential mortgages are down $71 million. Indirect's down $55 million. Student loans - I'm going to include that in this - are down about $89 million, and then national credit's down $58 million. On a link quarter basis, it's pretty much the same thing. Mortgages are down about 12, indirect 10, student loans about 100, and national credit's down $36 million on a link quarter basis.

As far as what we see going forward in growth, I think we're - we've got a good pipeline. I think we're being conservative. I'm thinking that we're factoring in something around the mid single digits, but we might see it better. Again, our recent growth's been picking up somewhat. So, we're still trying to be a little cautious on that.

Charlie, the - you know, we now can follow really good kind of what's happening in our loan growth and projecting out. We have - it really looks like we've got a good pipeline from - I don't want to overstate it - but with what we've experienced this year in core loan growth, we feel good about and we see that that will continue.

We'll take our next question from the site of of SunTrust Robinson Humphreys.

Good morning.

Good morning.

Could you give us a sense of how much cost savings is coming down from the shutting down of the capital markets piece of Frost? In terms of salaries and office expense?

I think the way, there's really, there's really two things that there's going to be revenue, which is reduced, and there's going to be overhead as well. And I just tend to look at it as it, we'll be looking more along the lines of, let's just say breakeven at those operations initially versus some of the losses that we were experiencing on a quarterly basis.

OK. Thanks a lot.

Once again, if you'd like to ask a question, please press one now, on your touchtone telephone. We'll take our next question from of Lehman Brothers.

Hi. I wonder if you could just give us a little bit of more, let's say color on the quarter on quarter growth in the other service charges, which was 1.9 million. If I understood you correctly about 400,000 of that was from Frost Securities?

Well let me make sure I'm doing the right quarter for you. You're looking for the quarter a year ago or linked quarter?

Linked quarter, sorry.

OK. Versus, hang on just one second, I'll get you some detail. On a linked quarter basis, other service charges was primarily Frost Securities. If we were to tell you how it compared on fees versus linked quarter, I'll just go ahead and mention some detail. I apologize if it's too much. We had about $2.7 million worth of sales in trading. We had a million 250 in investment banking related fees.

We go to the previous quarter, that compares to about 2.3 million in sales and trading, and we say sales and trading, that was all pretty much commissions. And then around $300,000 in investment banking fees before. So you're looking at an increase just as relates to the other service charges, going from about 2.5 in the first quarter to about 3.8 in the second. For related to Frost Securities.

Thank you.

We have a follow-up question from of Putnam Lowell Securities.

Hey .

Can you guys hear me?

Yes.

Yes.

Sorry, just a couple more questions. One, I guess the margin part of the question, I don't know if we got a complete answer there. From my last round, and then, the other expenses line, I've got in the first quarter at 20.1 million, and in the second quarter at 21.9, and was hoping to get a little bit more clarity there. Thanks.

OK, can you be a little more specific on your question on margin ?

I was just, the question was in regards to a little bit better loan pipeline. It seems to me that that would, at least help stabilize the earning asset yield. So does that factor into your thoughts that you might see a little bit of compression later on into the year?

let me just make one comment in regard to that. While the pipeline looks good, and we're very pleased with it as I mentioned, I also talked about the wildcards being the payments and, you know, slow to close, so it's an environment that you've got to ride your bicycle awful fast to keep all that running. So I think the good news is that we're bringing on good new business into this company.

The other thing is, our good quality customers are using their liquidity to pay debt down, and as a result, the overall total, you know, is not as much as the, as the work that we're doing to grow the pipeline.

One thing I'd say about that , you know, I think the loan, the loan growth is going to help, you know, the margin and other things equal. One thing that we're seeing, is we're seeing a lot of good liquidity growth right now, demand deposits are strong. And I didn't mention it because I don't think it's, I don't think it really affects the net interest income, because obviously we're going to employ that liquidity, you know, albeit at a low spread, a profitable one.

But just the arithmetic of that higher liquidity, and those higher earning assets could tend to reduce that interest margin ratio a little bit, so. I just think that what you're hearing from us though, is we're just being a little conservative on the margin. There are some things that are still out there that we think could press it a little bit, but I think the more important thing for us continues to be that we're still very asset sensitive, and once we see rates begin to move up, that should be a big positive for us.

And then as far as the other expense line Phil, can you add a little bit of color there?

Yes. On other expense, I mean, we did see a pick up in the second quarter versus the first, and, you know, we're sort of in line with where we were a year ago, relative to the first. We did have a write-down on a, on a foreclosed property, it was, it was a large home, $350,000, we did have some sundry losses in other things, just seem to have a little bit of an increase, and it wasn't any one particular deal, but just a few that came in and sometimes you just get snake bit during a particular quarter. So probably the other expense number for the second quarter's a little bit inflated over what you should see it be going forward.

Just to add to that, I think it's again, just a characteristic of our conservative approach. That was a foreclosed asset, we got an offer, you know our philosophy is to move those assets on out, and so we charged it down, sold the home and that's behind us.

One last question if I could, your guidance, I'm assuming you're maintaining the range of 210 to 225 but pointing people towards the higher end of the range. If you call this quarter a 58 cent operating, and then, you know, extrapolate a little bit and say potentially 59, 60 next quarter, that's getting you closer to kind of the 230 level. What kind of prevents you from, you know, maybe even expanding the upper end of your guidance range a little?

OK, well first of all, let me say I think I said we were more towards the middle, and kind of in line with consensus would be our guidance. I think that the things we would see, that you need to be careful of, we want to continue to watch provision levels. A lot of uncertainty in the economy as Dick mentioned, and we're going to watch charge-offs real close. I mean, I think that, you know, as Dick said a couple of times I think on the call, we tended I think to be a little conservative on those, and I think that's a good position to be in. So I'd have - I'd say you need to watch the - watch the provision number. And, you know, if it's - if it's better, that's great.

What we said earlier, you know, the years that we were trying to get out ahead of this thing, and I think we for sure did that in the first quarter. I think we did it a little bit more in the second, and we'll just have to watch and see how it goes in the - in the second, I mean, in the third and fourth.

Again, we're going to watch the margin, see what happens there. I don't see any expansion there. And one thing I think we ought to also watch is, you know, our trust group is doing a great job and they are, you know, they have historically beat the S&P 500, but I mean, it's still going down. And , are something I think we need to also be watching. I think everybody's watching who's managing money today.

Our next question comes from of .

Hi, - good morning.

Good morning.

I was wondering, with regard to your MPAs, you guys are operating in a lot of areas in this state. Is there any geography with that, that is weakening or it may become weaker in your estimation?

Thank goodness for the non-performers, the answer is no. There's no particular segment. Just looking at the markets, Austin, if you look at jobs, probably is the best indicator. Austin is the weakness although slightly positive. Dallas is next. Houston has really been amazing to withstand it's blows of all the different things it's had. It continues to grow jobs and then San Antonio and Fort Worth are very stable markets, and Corpus Christi. And so they really don't move that much one way or the other. They're just good stable growth markets.

So now you know. There's a lot of color on what's happening, and a lot of things in the press. But you got to get below those high profile things. It's still amazingly good steady economy. I have said to you and I'll continue to say that Texas is going to trend with the United States. It's a diversified economy. And so, if the whole country's up, it's going to be up. If the whole country's down - but, we will perform, I think we will continue to perform better than the country as a whole.

Oh - OK. And then if I could ask briefly on the insurance commissions, the growth is still strong. I was wondering if there was - if you saw any type of product or maybe a type of customer who was really demanding, and is there any cyclically to that revenue stream?

Actually, the cyclically for this quarter is that - second quarter is usually our lowest quarter. And it's just a seasonal factor in this business for us. We are, as far as - as far as what we're seeing in terms of revenue growth. You know, we're primarily commercial related. I'd say in round numbers, we're, you know, we're 55 percent or so commercial and we're about 25 percent round numbers on benefits, which is primarily commercial. The rest is what I'd say more or less high-end .

You know, the things that are driving it, you know, we've got a referral success rate of about 62 percent for a qualified referral from the bank to the insurance company. And that's continuing to be strong. That's a real positive for us in terms of being able to leverage our bank customers with the quality of service that our insurance agency provides.

I'll tell you another thing that's helping us, it's - as you probably know personally, it's a tough market with regard to insurance prices. What happened with , other things, risk in the - around the country and this state, people are charging more for premiums, and we get a commission of premiums and we try to make those as low as we can for our customers. But it does tend to help our commission revenues as well.

Another thing I'll say is I think we've done a great job on the benefits area. That's an area that we've had some, you know, some really good success with - some particularly large cases recently. So, I think that's good.

Dick, do you have any comments on that?

Let me just add to what said. You know, with the rates up, you might come to the conclusion well, it's just easy to sell insurance. Quite frankly, our insurance professionals are working harder than they ever have and doing a great job, because they now have to explain almost every contract. And so they're working long hard hours. And we're extremely proud of what they're doing in offering product.

We are big enough to give our customers choice and it's really made difference. And so, they've done a good job to note lose any business. They've done a good job to execute and close, as we said, 62 percent of the referral business. And so, we're very proud of this operation.

Thank you very much.

Our next question is a follow up from Mr. Robert of Lehman Brothers.

Hi. I was wondering if you could just give us a little bit of details about the branch that you bought from JP Morgan? How much loans and deposits, for example, did it added?

No loans. They didn't sell the loans and it's $20 million in deposits. It gave us an opportunity to be in the market and really leverage the operation that we have out of Mack Island. And hopefully, build some good loans and expand the commercial deposit.

If I could just on a slightly different topic, how much do you think the run offs in the syndicated mortgage and direct group would be in the following quarters? Do you think it'll keep at the same pace that you've been experiencing?

On the - on the - I really don't. The national credits, quite frankly is, I think I've been saying for six months, I really hope they would advance up on the, you know, about a third of that portfolio is energy. And those loans are still have a lot to advance on and just looking for the right opportunity. So, I have really been expected for some time for that portfolio to advance up on the current loans. But in this weaker environment, it just hasn't.

Indirect is about at the end of it's life. What we've got now are some that are just slowly move out over a period of time. So, and then our mortgages, I think your guess is as good as mine. I'll ask to to - if he can add anything. But quite frankly, dependent upon what's happening with the rates, it's really down to refinancing.

Yes, I think that same level is what we expect - the same level of mortgage prepayments with the rates being down. I wouldn't expect any let up there. As Dick mentioned, the indirect is down pretty low. We've only got about $25 million worth of automobile indirect left. So, I think we're going to have to see the payoffs there slow up a little bit over the next couple of months.

Thank you.

You're welcome.

We'll take a follow up from Mr. Charlie Hersch, once again, of .

Hey, guys. Sorry to keep butting in here. But, could you give a little bit of color about San Antonio and the recent flooding? And then could you also confirm for me the charge you took on the one credit that you talked about earlier in the conversation? I think you said 27, but I missed it. Thanks.

The 27 is correct. There was a 7.9 balance and we charged it down to the lowest appraisal we had at 52.

As - in regard to the flooding, certainly for those people that lost their homes and individuals, from that aspect, it was a strategy. From effecting the economics of this city and the overall market, it did not effect the economy.

Any thoughts as to, you know, whether that'll provide a little bit of stimulus to the San Antonio economy with people maybe having to do a little bit of rebuilding or things like that - of that nature?

Well, the good news is it didn't effect a lot of people. The bad news is that it didn't - it won't be a big stimulus. There might be a little stimulus from some aspects.

You know, Charlie, I think one thing people might have a tendency to compare it to is the Houston flood. I think the Houston flood had a whole lot more damage. It effected the medical center and lot of the office buildings - it effected the city property more verses the flood. It effected it some, but it effected a lot of the smaller outlying communities - the communities. So it wasn't quite the same thing that you saw in Houston.

We did offer as a - as we in tragedies like this, we did offer a $50 million pool of money for those people that need - or want to get to work on their house, and before they receive the money from FEMA. And I would expect a little activity there, but not to any great extent.

Thanks a lot.

Once again, if you'd like to ask a question, please press one now on your touch-tone phone.

We'll take our next question from of Investors and Advisors Direct.

Yes, I had a question. Dick, with the price of the stock down below 30 now, has there been any thought of a buyback? We had a couple a years ago when the corporation buying some of the stock back.

Well, we've got...

I might - I might respond to, Dick, in that. We do have a program in place. We've been buying about 400,000 shares per quarter. We did about 400,000, if I recall, in the first quarter. I think we did 400,000 in the second.

What our position has been on that is we had sort of been slowing up on that with the eye to looking towards acquisition opportunities that might come our way. We want to keep some powder dry because we said for a long time, we much rather buy a good bank or insurance agency with that just buying the stock back. So I think we'll continue to look at it. But right now, what I'd like to see is we utilize that capital in a good acquisition.

Thank you very much. operator: Our next question comes from of .

Hi, good morning.

Good morning.

Good morning.

Morning.

I just wanted to follow up on question about the charge off. I guess you reported 4.1 billion charge off, and then, you know, one big chunk of that was the 2.7. I think you said there was a recovery of 1.2 in the text of the ...

That's correct.

So if I kind of, you know, net out those big chunks, I'm coming out with a 20, 25 basis point charge off ratio for this quarter. And I guess it was the same West. Is that the kind of level you think we're going to stay at, or do you think we're going to see some improvements given these MPA trends.

Well, that's awful good to be. You know, we've been around the 20. I think if you'd compared us to other organizations, you'd find those charge offs around the 20 basis points. Quite frankly, yes I always want them better, and I don't like to charge off anything. But, frankly, that's a real good level.

And if you kind of take out the, you know, the strains of last year and these specifics, yes, I'm comfortable with where we are. If you're going to have any charge offs, that's a good level. And compares very well.

Right.

We can't argue with the math, I mean, we just want to keep in mind that there is still some uncertainty out there. And we want to, we don't want to be too optimistic.

OK. And is there, you know, as you look at your MPA levels and your other credit indicators, is there anything that would suggest that there could be some deterioration in those charge off levels?

Well, you know, you're asking crystal ball questions. I think we've got a good strong reserve. I think all the indicators - the reason I pointed out delinquencies and over 90 days that really look good, those are indicators of the future. Those look good. The range from non-performers from 40 to 50 basis points of assets, that's tight.

You know, we're at 41 today. You know, that's what a range is for. Certainly we could be at 50 like we were in the first quarter. And when you got an economy with as much uncertainty and mixed conditions, it's hard to thread that needle too thin.

Quite frankly, I feel good about our credit quality. I think the indicators are good. I think the reserve is strong. I think we're conservative to address issue, such as we did with that specific loan, and charge it down to the lowest of the values that we see, as I described in the three choices. And now that I say all that, this economy is not perfect. And, I think we've got to be careful. And so.

OK. And my last question is, this reserve bill, you know, relative to your loan book, has been, you know, just fantastic over the last year or two, two years, three years. Is there any point where you're going to feel like you have enough reserves, relative to the loans, or do you think this reserve build will continue?

Well, you don't go up forever. But it, it's always been our tendency to have a good, strong reserve. Just got through saying I thought 175 was a good one. And certainly we're going to continue to look at the circumstances each quarter, and do what's prudent within the environment in which we're all operating. And certainly with the facts that we know at that time.

OK, great. Again, congratulations. Great quarter.

Thank you.

Once again, if you'd like to ask a question, press one now on your touchtone telephone.

There are no further questions at this time. I'll turn the program back over to our hosts for any closing remarks.

We appreciate, very much, the support of our shareholders. And we appreciate your questions. And, we look forward to visiting again with you in another quarter.

Thank you very much.

This concludes today's conference call. You may now disconnect your lines. And, thank you for participating.