First Republic Bank (FRC) 2012 Q2 法說會逐字稿

Welcome to the First Republic Bank second-quarter 2012 earnings conference call.

During today's presentation, the lines will be in a listen-only mode.

Following the presentation, the conference will be opened for questions.

(Operator Instructions)

I would now like to turn the call over to Dianne Snedaker, Executive Vice President and Chief Marketing Officer.

Please go ahead.

Thank you, and welcome to First Republic Bank's second-quarter 2012 conference call.

Speaking today will be the Bank's Chairman and Chief Executive Officer, Jim Herbert; President and Chief Operating Officer, Katherine August-deWilde; Senior Executive Vice President, Mike Selfridge, and Chief Financial Officer, Willis Newton.

Before I hand the call over to Jim, please note that any forward-looking statements made during this call are made as of today, are based on Management's current expectations, and are subject to risks, uncertainties, and assumptions.

Potential risks and uncertainties that could cause the Bank's business and financial results to differ materially from these forward-looking statements are described in the Bank's periodic reports filed with the FDIC, including the Bank's current report on Form 8-K filed today.

In addition, some of the financial information discussed on this call includes non-GAAP financial measures.

The Bank's earnings release, which was issued this morning, and is available on the Bank's website, presents reconciliations to the appropriate GAAP measures, and explains why the Bank believes such measures are useful to investors.

And now, I'd like to turn the call over to Jim Herbert.

Thank you Dianne, and thanks to everybody for joining our call today.

We are very pleased with our second-quarter results.

Loans, deposits and wealth management assets all grew very strongly.

Credit quality remains excellent.

Importantly, book value per share has increased 15% from a year ago.

We are very pleased to declare an initial quarterly cash dividend of $0.10 per share.

This payout rate represents approximately 15%, and we would like to operate in a payout range of 15% to 20% over time.

First Republic continues to perform well across all of our businesses in each of our carefully-chosen urban coastal markets.

Second-quarter results highlight the strength of our business model, even under the currently challenging yield conditions facing the banking industry.

Let me quickly summarize our quarterly numbers.

Core net income was up 31% year-over-year.

Core earnings per share, excluding all purchase accounting adjustments, were up 22% year-over-year, to $0.50 per share.

GAAP EPS was $0.60 per share, after a $0.10 per share one-time charge, which was in connection with a redemption of our REIT preferred.

Quarterly loan volume totaled $4 billion, our highest ever, and it was 62% higher than the same quarter last year.

Loans outstanding increased 7% in the quarter, and 10% for the first half of the year.

Deposits rose by 4% during the quarter, and 8% for the first half of the year.

And total wealth management assets grew by 6% in the quarter, and 14% so far this year.

Our asset quality remains very strong.

Non-performing assets at quarter-end were at a very low 10 basis points of total assets or 0.1%.

On the capital front, our Tier 1 leverage ratio was 9.55%, including the issuance of our new non-cumulative perpetual Series B preferred.

We raised, net of all redemptions, $85 million of Tier 1 capital in the quarter and through the first half of 2012, we have raised, net of redemptions, $250 million of new Tier 1 Capital through two preferred stock offerings.

This increase in capital is intended to support the further development of our business and its franchise.

The current low interest rate environment and flatter yield curve present both challenges and opportunities for us.

The average yield on our loan portfolio does continue to decline, while the average cost of funds cannot decline much further.

However, the low interest rates have resulted in a significant amount of home loan refinance and home purchase activity in all of our markets.

This activity level has led to a meaningful increase in new client opportunities for First Republic.

We are, and we intend to continue, to take advantage of this opportunity aggressively.

Now, let me turn the call over to Katherine.

Thank you, Jim.

As Jim indicated, growth was strong across all areas of our business, deposits, loans, and wealth management.

Quarterly loan originations and wealth management revenues were the highest ever.

Home loans were 66% of total loan originations.

Of these, 42% were for home purchases.

On average, loan balances were 5% higher in the second quarter than in the first quarter of the year.

I'd like to note that First Republic has not altered its credit standards.

We continue to lend very conservatively.

Each loan is fully documented and fully underwritten.

In the second quarter, our weighted average loan to value on home originations was 60%.

Deposit taking was robust.

Total deposits grew to $24.2 billion in the quarter, up 4% on average during the quarter.

Liquid deposits continued to grow, and were up 6% in the quarter, and 13% for the first half of the year.

Private wealth management also had an excellent quarter.

Assets under management grew to $23.3 billion, increasing $1.2 billion for the quarter and $2.9 billion for the first half of the year.

These increases are primarily from net new client funds.

Wealth management revenues grew 25% year-over-year.

Our wealth management business is benefiting from the hiring of seasoned wealth management professionals, client referrals and ongoing success in cross-selling Bank clients.

I want to take a moment to provide some perspective on the progress of our growth initiatives.

We have carefully invested in the franchise over the past few years, and we expect these planned investments to continue to produce solid results.

An anticipated consequence of our growth initiatives is a modest reduction in core efficiency.

Our efficiency ratio rose slightly to 60.5%.

This is within the 58% to 62% range we have discussed on previous calls.

Going forward, we look to selectively hire outstanding business bankers and wealth management professionals, but we have substantially completed our new relationship manager private banking hiring for now.

In the second quarter, we opened three preferred banking offices.

We plan to focus on completing the opening of the 10 new offices currently in our pipeline over the next 12 to 15 months.

Economic conditions in our carefully selected urban coastal markets remain solid.

Home sales activity continues to be strong, and supply is constrained in each of our markets.

Apartment and commercial rents are increasing, and vacancies are decreasing.

Overall, we are very pleased with the quarter.

And now, I'd like to turn the call over to Mike Selfridge.

Thank you, Katherine.

Let me talk about the San Francisco Bay Area, and our business banking activities throughout all our markets.

The San Francisco Bay Area continues to perform well, in particular, real estate markets remain strong.

In Silicon Valley and San Francisco, home prices are rising, inventory levels are declining, and multiple offers are increasingly common.

Rents for residential and commercial properties are climbing.

Business banking is doing well, and continues to be an important contributor to our growth, both in terms of loans and deposits.

Business loans outstanding grew 13% for the quarter, and 23% for the first half of the year.

Business deposits were up 13% in the quarter, and now account for 44% of total deposits.

We continue to see good success with our business banking activities throughout our markets.

We are primarily focused on venture capital and private equity firms, as well as other professional service firms.

For example, law firms, medical practices, and accounting firms.

We also focus on independent schools and other nonprofit organizations.

Business banking is benefiting from the recent hiring of very accomplished bankers.

At the same time, we have been successful in executing our strategy, which is to follow our satisfied private banking clients to the businesses and nonprofits which they lead and influence.

And now, I would like to turn the call over to Willis.

Thanks, Mike.

In the second quarter, our core net interest income was up 7% annualized, due to a higher average balance of loans.

Our contractual net interest margin decreased 16 basis points to 3.48%.

This change was primarily due to declining loan yields, an increase in average cash balances, and the absorption of the full expense of higher-cost term Federal Home Loan Bank advances, drawn mostly in the first quarter.

Declining interest rates on new loans, both refinance and purchases, resulted in a decline in our average contractual loan yield of 13 basis points in the second quarter.

Despite lower cash balances at quarter-end, our average cash balances for the second quarter actually increased 37% compared to the prior quarter.

Such increase in average cash balances, which earn only 25 basis points, decreased our overall asset yield by 3 basis points.

On the funding side, our contractual funding costs were unchanged for the second quarter, compared to the first quarter.

We were able to reduce our contractual cost of deposits from 40 basis points to 38 basis points during the quarter.

However, the full quarterly cost of the additional $1 billion of longer-term advances offset the benefit of our lower deposit cost.

We had another exceptional quarter for mortgage banking.

Our gain on sale of loans sold was 109 basis points, compared to approximately 70 basis points last quarter, and well above the prior six-quarter moving average.

This resulted in a gain on sale of $4.8 million for the quarter.

For perspective, in the first quarter of 2012, our salary and benefits included extra payroll taxes.

Excluding this seasonal variance, I would note that salaries and benefits in the second quarter were up 4% versus the first quarter.

Following the capital transactions that Jim mentioned, our Tier 1 leverage ratio climbed to 9.55%.

At June 30, our $350 million of non-cumulative perpetual preferred stock meet all Tier 1 capital criteria under existing and proposed US and international guidelines.

In closing, let me emphasize that we do not engage in proprietary trading or utilize credit derivatives.

We have never originated sub-prime loans nor have we invested in foreign sovereign debt.

In short, we remain highly focused on executing our simple, straightforward business model.

And now I'd like to turn the call back to Jim.

Thank you very much, Katherine, Mike and Willis.

In summary, it was a terrific quarter.

While we find the pressures on rates and net interest margin challenging like everyone else, we couldn't be happier with our success in growing the business safely.

To reiterate, these low interest rates have stimulated a tremendous amount of home purchase and refinance activity in our markets.

This high level of activity offers us a great number of new relationship opportunities, which we are taking advantage of aggressively.

Our wealth management business is also firing on all cylinders.

Finally, we are especially gratified by the 15% after-tax increase in book value per share over the past year, particularly in such a low rate environment.

Now, I'd like to turn the call back to the operator, and we would be glad to take questions.

Thank you.

We will now be conducting a question-and-answer session.

(Operator Instructions)

Our first question comes from the line of Dave Rochester with Deutsche Bank.

Please proceed with your question.

Nice growth this quarter, by the way.

Could you give some color on the yields for resi ARMs in the pipeline today and if you have the all-in residential yield and the C&I yield?

The yield of five-year loans, which are the predominant loan that we're booking for single families, is 2.67 in July.

The income property loans are higher than that.

And where would those income property loans range, I guess north of 3% or are they below 3?

They are north of 3%, yes.

Okay.

Great.

Thanks.

I saw that money market rates were up a little bit this quarter.

You had touched on not a whole lot of flexibility to move those down.

Can you just talk about what the driver was for that increase, is it competitive pressures, new products, and I guess we should expect those to maybe come down maybe a little bit from here?

Dave, they could come in a little bit from here.

The pressures move around a little bit, depending on competitors, but as you can see from our cash position and the comments we made on the average cash position during the quarter, we're still a little cash rich.

So, we have room to tighten in a little bit, maybe.

Okay.

Great.

And can you just talk about the size of the loan pipeline versus last quarter, and maybe given the activity you're seeing, are you thinking that the loan growth rates from this quarter are sustainable, at least near-term or should we expect them to decelerate?

The pipeline at the end of March versus the pipeline at the end of June is up a bit.

The summer can be a little bit slower, because clients are on vacations, and so that impacts the closing rates.

But at the moment with where our pipeline stands at the end of June, it looks to be a strong quarter.

Great.

All right, I'll step back.

Thanks.

Thank you.

Our next question comes from the line of Ken Zerbe with Morgan Stanley.

Please proceed with your question.

Just in terms of the NIM compression this quarter, just want to make sure that we have all the pieces correctly bucketed.

When we look forward to next quarter, obviously the cash balance, that's going to help you, I think you said it was 3 basis points of the compression this quarter.

So that goes away.

The FHLB advances stay, so that's kind of an ongoing issue.

Lower loan yields.

How much -- when you guys think about NIM compression versus -- in third quarter versus second quarter, where do you end up?

Hi, Ken, this is Willis.

Relative to the NIM of 348 this quarter, you are correct that the Federal Home Loan Bank costs are included and baked into that level of NIM, as well as average cash balances of about $1.3 billion.

So, if those numbers stayed the same, then we would look to see -- we would likely see a similar trend in the contractual loan yield, depending on the amount of the new loans that we originated, and the rates that we put them on.

We would expect to see a continued trend in the decline in our average loan yields, but we might be able to offset that a little bit with lower deposit costs and/or using some of that excess cash over the next several quarters.

Okay.

And I think at one point you had given -- this is maybe a quarter or two ago, you had given a blended rate of average new loans, I think it was about 3.25%.

Do you have a blended updated rate, what's going on in the books?

Let's move on and Ken, let us come back to you with that in a minute, okay?

We can probably get it in 2 minutes.

Thank you very much.

All right.

That's it.

Thank you.

Our next question comes from the line of Steven Alexopoulos with JPMorgan.

Please proceed with your question.

Hey, everyone.

I wanted to start on the expenses.

Several of the non-comp items were up pretty sharply in the second quarter.

Was there some type of catch-up?

And how should we be thinking about this run rate from this $171.5 million number?

Let me start, Steve, but I'm going to ask Willis to weigh in here.

But one of the things that's going on is, as you know, we're opening so many new offices, we're beginning to pick up the expense run rates on those and the rentals.

We also took on some new office space, and furnished it, and brought it sort of online.

And that's one of the items.

We also had some increases buried in the advertising and marketing numbers in the quarter.

Willis, you want to pick up from there?

Well, I think that, as Jim commented, occupancy is on a trend that -- and information systems is on a trend that we had expected with some investment that we're making.

We did have 2 seasonal things, slight increases in the advertising and marketing line, and in the professional fee line, that might not repeat themselves quite to the same extent.

And then our other expenses is just the larger operations, the more people that we've hired, and the bigger Company, the more origination volume and higher deposit growth.

To address the bottom line to your question a little bit Steve, there's really nothing that caught us off guard, particularly.

Okay.

Jim, I wanted to ask you on the loan growth, could you break out the split between originations for purchase versus re-fi, and maybe discuss what you're seeing on the purchase side?

Katherine?

Yes, I can do that.

Thanks.

Our purchases were 42% of our home loan originations this quarter.

In Q1, they were 29%.

And for the last half of last year, they were in the mid-30s.

We are seeing very active purchase markets in all of our markets.

The reason that the re-fi percentages are so high is that because clients are refinancing, and of course, that's an opportunity for us, because it's an opportunity for us to grow our households.

Got you.

And just one final on the tax rate, the 30.5%, it's a pretty low rate.

I know you said it's going to be there for the rest of 2012.

Maybe for Willis, is this the rate that we should be thinking of longer term or should that be trending higher long-term?

Thanks.

The tax rate is -- at 30.5% is our best estimate for 2012.

And that reflects the tax preference items that are currently recorded and on the books.

We take each year as it stands, but we would expect the tax rate to be somewhat in line as we go forward.

As a follow-up to the earlier question, our blended rate of loan originations in the first quarter was around 3.25, and we think that this quarter, it was around 10 basis points less.

Steve, the tax rate's not trending higher, to answer your question.

Okay.

Perfect.

Thanks for taking my questions.

Thank you.

Our next question comes from the line of Aaron Deer with Sandler O'Neill & Partners.

Please proceed with your question.

Thanks for taking my questions.

Synthesizing some of the ideas previously discussed, with respect to the pipeline and margin, over the past several quarters, you've been growing net interest income by about $40 million year-over-year.

Is that a sustainable pace, or at what point do we start to see that slow down somewhat?

Well, Aaron, one of the reasons why we've raised the capital is because we think we have the opportunity to continue to attract clients, and to originate loans, and to have a higher average balance sheet.

And so I think what we're trying to do is to continue to build on the strengths of our balance sheet, and trying to continue that is part of our overall strategy and our execution.

Katherine?

We have, as you know, hired a lot of relationship managers over the last two years.

Most of them originate safe home loans, and they're beginning to click it into place and as they do, their clients that they acquire follow them.

We continue to do this very safely with the same very conservative underwriting standards, but the larger production machine we now have will allow us to continue to grow.

Aaron, it's Jim.

One of the things going on here is that we, by luck or by choice, are in good markets that are actually quite active.

And so the opportunity to develop a growing number of new relationships for us, and we are 100% focused on relationships.

It is unusually good at this moment, and good both in number and in quality.

And so, we're doing our best to take good advantage of that while it exists.

That's great.

The performance has obviously been impressive.

As you continue to grow, and it sounds like you've had some excess liquidity, you're continuing to put that to work.

Your loan to deposit ratio's up now to about 105%.

What are the thoughts on taking that higher, and might we see deposit rates start to come up a little bit as you try to generate a little more funding on that side?

We have basically tried to keep ourselves funded strongly with deposits.

The reason we're at 105 is basically FHLB advances in there.

The FHLB advance level is at a level that we like at this point and we would expect it to be stable for a while.

So, our deposit growth has been reasonably parallel to the loan growth, and we would expect that to continue.

Okay.

With respect to the FHLBs that were added recently, what was the rate on that?

The $1.0 billion that we added was at about 1.4%, but for the quarter, our average borrowing costs were around 1.8%, and that's on advances which have a remaining term of 4.25 years.

That's great.

Thanks so much for taking my questions.

Thank you.

Our next question comes from the line of Erika Penala with Bank of America-Merrill Lynch.

Please proceed with your question.

My question is a follow-up to that of Steve's.

I know that Katherine alluded to some of the investments tapering off a little bit in terms of expansion.

I guess, as we look forward to the next year, I'm wondering, Jim, on an operating basis, where do you think the efficiency ratio of this Company can go with -- assuming a chunk of the build-out is behind you?

Erika, I think that we're -- first of all, we're comfortable in the guidance that we provided in the past of 58% to 62%.

We've got 2 quarters here where the increase in -- or the results of our investment spending are going to be upon us.

We've said that, I think, before.

But longer term, I would hope we could operate in the low end of that range.

But it's going to take a while to get there.

It will take a while to get there.

Of course, the narrowness of net interest margin has an impact on that, because it is a ratio.

Got it.

Thank you.

Thank you.

Our next question comes from the line of Joe Morford with RBC Capital Markets.

Please proceed with your question.

Just wondered if you could talk a bit more about the types of securities purchased in the quarter and the yields you're getting currently, and related to that, if you could just update us as to how big the muni portfolio was at the end of the period.

Thanks.

Sure, Joe.

The municipal portfolio represents the lion's share of our held to maturity investment securities.

So it was about $2.2 billion at the end of the quarter.

We added about $200 million to our investments during the quarter, about 50% of that was in the munis.

The yields that we are looking at are down just a touch, but on a tax-equivalent basis they're still very attractive.

Okay.

Do you have any kind of target as to how big that -- or how much bigger you're willing to let the munis grow as a percentage of the portfolio or --?

Well, we would think that the investments in general would grow with our balance sheet as we go forward.

Once again, we have such a strong component of mortgages in our loan portfolio, we look to have other types of investments in our investment securities portfolio.

I wouldn't expect the munis to grow.

The rate of growth will slow down, because we've now reached a diversified portfolio that's in the range of 8% to 10% of our total assets.

Okay.

And then just lastly, recognize the average cash balances were higher in the period, but on an end-of-period basis, it looked like they were down to right around $800 million from $1.4 billion last quarter.

Just curious how much lower would you be willing to take that cash balance down?

Is there some kind of minimum level that you would like to operate on, either dollar amount or percentage of assets or something like that?

Well, we're actually seeing good deposit flows and our cash balances are back up after the quarter end.

We have clients who have some seasonal flows in and out, and we could achieve lower cash balances, significantly lower than that, and we used to be an overnight borrower from the Federal Home Loan Bank.

I think we're a long way away from that at the present time.

Okay.

Thanks so much.

Thank you.

Our next question comes from the line of Casey Haire with Jefferies.

Please proceed with your question.

Just had a quick question on the provision.

Little surprised to see it stay flat despite the pickup in loan growth.

Just any color there, I'd appreciate.

Provision was driven primarily by allocation relative to our growth in loans, as you know.

The new loans of growth.

But Willis, you want to provide some more color to that?

Right.

I think we have a very comprehensive model in that the provision will continue to grow as the net new loans grow.

It depends a little bit on the types of loans, but with the economy strong and our loan performing very well, we're comfortable that we're adding an appropriate amount of provisions as we go for these loans.

Okay.

And just a follow-up on the FHLB draw.

Jim, you said you're happy with where you are right now.

The FHLBs, I think only went up $100 million on the quarter, which was a strong loan growth quarter.

Sounds like the pipeline is still strong.

I would have thought that given your commitment to keeping the book matched, that we would have another FHLB draw coming shortly.

Just trying to reconcile that.

Well, two things, actually.

One, we're in pretty good shape going into the quarter, as you know.

We were running about 7% asset sensitive.

That gives us room to maneuver, particularly in the current climate.

In the quarter, the Fed's indication of extended low rates basically added about a year.

We all have our opinion on that, but they're currently not shortening their target time.

And last, the growth and the liveliness of the secondary market for resale of loans has picked up, and our ability to lay off any term loan that we want, quite frankly, is quite extraordinary.

And so we have more maneuverability on the asset side than we previously had and the need to emphasize the liability side has declined a bit.

Okay.

Got you.

And then just last one, just a model question.

The preferred issue coming on mid-quarter, is the right quarterly dividend, is that just under $6 million or so?

That's right.

It's about $775,000 a month, so we will be at about $5.7 million for the quarter.

Okay.

Thank you.

Thank you.

Our next question comes from the line of Brian Zabora with Stifel Nicolaus.

Please proceed with your question.

Question on loan growth.

Just want to get a sense of how loan growth was in say the northeast, or maybe the LA market compared to your home San Francisco market.

Loan growth was quite strong in all of our markets.

As you all know, the Bay Area is particularly strong.

But we had good loan growth and we had added strong bankers in each of our markets, and all of our main markets are actually doing very well.

Thanks for taking my questions.

Thank you.

Our next question comes from the line of Herman Chan with Wells Fargo Securities.

Please proceed with your questions.

I wanted to drill down on the growth in the commercial business loans.

Was the growth concentrated in capital lines of credit, or was it more broad-based?

And also I want to get your thoughts on the outlook for commercial loans, and the pace of hires going forward?

And would the hires be concentrated within the San Francisco markets?

Thanks.

Hi, this is Mike Selfridge.

I would say the growth in the business banking side was centered on our Business directed toward private equity.

That was d also with our lending to nonprofits and schools.

So, we saw an increase in commitments for the quarter and a slight increase in the utilization.

As far as the team we have in place, we have a very strong team in place.

They work well with the relationship managers, but I won't comment on our future hiring plans for business banking, nor our growth opportunity.

We think they're going to continue, but I wouldn't say at what pace, because I don't have that information.

Okay.

Great.

And a question on the purchase accounting accretion.

On the loan side it looked like it ticked up in the quarter.

Could you add some color on the dynamics seen there and also on the loan types that drove the accretion higher?

Yes, hi, this is Willis.

The purchase accounting accretion is directly related to the payoff of loans that were purchased, and have the discounts on them.

We did see continued high rates of repayment in the high teens to low 20s for all of our property types, commercial real estate, multi-family, and single family.

So it was pretty much across the board.

We do provide information about the remaining net un-accreted discount, it is right around $409 million, a portion of that is more of a credit reserve, say $25 million to $30 million, and the balance is the remainder that will be accretable as those remaining $10.6 billion worth of loans pay off.

Okay.

Thanks for taking my questions.

Thank you.

Our next question comes from the line of Tim Coffey with FIG Partners.

Please proceed with your question.

Good morning, everybody.

I just want to circle back on the -- I think Katherine was talking about it, the yield on new originations of home mortgages.

Did you say that was 2.7%?

The five year fixed rate loans are coming on at about 2.67% in this quarter.

In this quarter.

Okay.

And the income property loans are coming on at higher rates in the mid-3%s.

And the business loans tend to be priced around prime.

Okay.

Great.

And then most of my other questions have been answered.

I do have one question about the First Republic investment in management, the assets under management.

Is there any kind of seasonal impact in there?

There wasn't a seasonal impact.

The assets increased for several reasons.

The primary one is the new wealth managers that we hired were very successful in bringing their clients over.

We're also doing a better job increasingly cross-selling our bank clients.

Okay.

Do you have any indication that this is sustainable, the growth?

We can't tell you whether it's sustainable, but we have continued to hire strong wealth managers.

Very good.

Thank you.

Those are all my questions.

Thank you.

Our next question comes from the line of Joe Hall with Sandler O'Neill Asset Management.

Please proceed with your question.

Mr. Hall would you like to re-queue to join the queue, sir?

Thank you.

Our next question comes from the line of Julianna Balicka with KBW.

Please proceed with your question.

Good morning.

I have a follow-up question on some of the loan momentum you had referenced earlier in your remarks about purchases in terms of your new loan originations.

What is the momentum and outlook that you're seeing in the refinance business, is there going to be a point where that slows down and runs out?

And so what are your thoughts around that, please?

That depends very much on interest rates.

As interest rates continue to decline, clients of ours, even more significantly other bank's clients, tend to refinance their loans, and that leads to the increased refinance volume.

So it's quite separate, but the rates are what funds and what drives refinances.

Obviously, lower rates also drive purchases, as well as the strength in the economies in our particular markets.

Let me make a point there, if I could.

Refinance volume is, in some ways, negative to us, to the extent that the refinance volume is of our outstanding portfolio that might have higher rates on it.

But generally speaking, refinance volume is very positive for us, because clearly our book versus the universe of available clients at other institutions that are refinancing with them, and possibly out in the market looking for a chance to change relationship, provides us with a far greater opportunity than it does challenge on our own balance sheet.

So generally speaking, refinance moments like this, albeit rate-challenged, are ripe with relationship establishment opportunities.

We take a very long-term view of the business.

And so, moments like this are rare, and provide tremendous relationship-building opportunities that come along every once in a while.

Do you have a sense of the refinance originations, how much that came from outside versus inside the bank?

No, we actually don't.

We could track that.

We don't.

Okay.

Thank you very much.

Thank you.

Mr. Herbert, there are no further questions at this time.

I would like to turn the floor back over to you for closing comments.

Great.

Thank you all very much.

We really appreciate your time.

Just a quick couple of emphasis points.

We are challenged by the rates like most are.

However, the book remains extremely clean and credit.

Our markets are very strong and very active, which provides us with an extraordinary number of relationship opportunities, which we're pursuing aggressively.

Thank you very much.

Thank you.

This concludes today's teleconference.

You may disconnect your lines at this time, and thank you for your participation.