Glacier Bancorp Inc (GBCI) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Glacier Bancorp second quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference call, please press star and then zero on your touch telephone. As a reminder this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Mick Blodnick. Sir, you may begin.

Welcome and thank you for joining us this morning. With me this morning is Ron Copher, our Chief Financial Officer, Don Chery, our Chief Administrative Officer, Barry Johnston, our Chief Credit Administrator, and Angela Dose, our Principal Accounting Officer. Yesterday, we reported earnings for the second quarter of 2012, earnings for the quarter were $19 million, compared to $11.9 million in last year's quarter, that's an increase of 60%. Diluted earnings per share for the quarter were $0.26, an increase of 53% over last year's second quarter results of $0.17 per share there.

There were no one-time or extraordinary items, nor did we have any gains or losses on the sale of investments during the quarter. The second quarter's performance was pretty much straight forward with core operating earnings continuing to drive our results. We earned and ROA for the quarter of 1.04% and a return on tangible equity of 10.15%, our best quarterly earnings ratio since March of 2009.

The improved earnings were driven primarily by lower credit costs as we continue to see stabilizing and in some areas, better asset quality trends. As I stated on our last quarter's call in 2012, that 2012 would be the year that we provide better returns to our shareholders and we still believe that to be the case. In addition to better earnings, there were a number of other bright spots this past quarter. Our low portfolio increased for the first time in three years, and although loan demand is still soft and competitive force is still intense, it was nice to see a quarter of positive growth.

I thought the banks continued do a great job of adding new checking account customers, which translated into increased balances of non-interest deposits. Credit quality showed further signs of improvement. We continue to take a deliberate approach to the disposition of our distressed assets, and have been encouraged by the level of activity and interest in many of these projects and properties this past quarter. Non-interest income and non-interest expense both trended in the right direction, with the income category up 7% and the expense category down 6%.

Not everything went our way this quarter, however, as our investment portfolio and to a lesser degree, our loan portfolio continued to be negatively impacted by this low rate environment and the increasing amount of premium amortization, that it creates. Interest income was down 5% for the quarter. The majority of which came from premium amortization. By now, we expected a slowdown in refinance volume. Unfortunately, that is not materialized and we don't expect much relief in the third quarter as refinances have continued to run significantly above historical norms. Our assets grew at 12% annualized pace this past quarter, as we finally saw an increase in both loans and the investment portfolio. We were fortunate during the quarter to find the volume and structure of agency CMO's to offset the pay downs. Because of the size and short-term duration of our CMO portfolio. We received significant payments each quarterThis past quarter we were fortunate to cover these reductions, something that's not always possible.

A majority of the growth in our investment portfolio in the second quarter came from taxable municipal's and corporate bonds, as we strive to further diversify this portfolio and reduce our exposure in the amount of amortization we have to contend with, such as we've had to the past three quarters. Both of these security types, like our CMO's were purchased with short maturities. In this interest rate environment, we just cannot get comfortable with extending maturities and durations. We don't believe the risk reward of owning longer dated assets at these interest rate levels is justified. Although we did see an increase in loan totals during the quarter, it is still a difficult market as loan demand remains marginal at best and replicating this performance in the second half of the year will be a real challenge.

Nevertheless, I am especially pleased with our loan production considering we have passed on a number of larger credits that we could have made, but it would have required us to fix the interest rate for an extended period of time, so we chose to pass. Although there's only been two short months since we completed the reorganization of our bank charters, we are already seeing the positive impact it's having in allowing our bank staff to focus more on customers and generating new loans and deposits, and less time on duplicative tasks and regulatory issues. The second quarter was another good one for deposit growth, especially non-interest bearing deposits, which for the second quarter in a row grew at a 12% annualized rate.

We had a very good quarter, increasing the both the number of personal and business checking customers. Historically, this time of year brings more opportunities to grow our account base and each of our banks work hard to attract every checking account they can. We committed significant amount of resources at each of the banks, with a single purposes of growing our checking account base. Our interest bearing deposits excluding wholesale deposits also grew during the quarter, but at a slower 4% annualized rate. The continued shift in the mix of our deposits to more non-interest bearing, once again has helped to us reduce the overall cost of our funding.

For the quarter, our deposits had a cost of 0.38% basis points, down 0.03% basis points from the prior quarter. Total funding for the quarter had a cost of 0.57% basis points, that was down 0.04% basis points for the past prior quarter. I credit the hard work our banks have put in to not only generating increasing volumes of deposits, but also managing the costs of those deposits. Unfortunately, all this good work has not been enough to offset the pressure from lower yields on our earning assets, especially from the increase in premium amortization we've experienced the past year.

Capital ratios for the quarter remain very strong. This capital strength has allowed us for 109 consecutive quarters to pay an attractive dividend, while providing the foundation to continue to grow the Company. Our tangible common equity ratio ended the quarter at 10.42% a slight increase over last year's 10.39%. We continue to maintain capital levels that are at or near historic highs and believe we are in a great position to further grow the balance sheet and still maintain solid capital levels. However, if neither of these strategic alternatives materialize, we are prepared to entertain other options which could include a stock repurchase, an increase in our cash dividend, or a combination of both. Credit quality continued to improve on a number of fronts during the quarter, and hopefully we will see a continuation of these trends in the second half of the year.

Our non-performing assets at the end of the second quarter dropped below $200 million, a reduction of $16 million or 7% during the quarter. We saw reductions in all three categories of NPA's during the quarter. We continue to see strong demand from Canadian buyers, especially for recreational property in Northwest Montana, primarily due to the close proximity of the large population base centered in Calgary. It was also encouraging to note that of the $9.4 million in OREO sales in the quarter, we only booked a net loss of $89,000 or less than 1%. This reconfirm two things to us. One, that our resistance to a block sale disposition strategy is creating better value in sale of these assets. And two, the marks we applied to these assets are close to the appropriate market price.

Nevertheless, it's still a challenge and hard work to move these OREO assets all the way through to their final sale, but we think we still have momentum that should create additional sales in the second half of the year. Net charge offs was another area that saw improvement in the recent quarter. Halfway through the year we're tracking slightly better than our goal of 1% net charge offs as a percentage of loans. This would also be a marked improvement compared to the 1.85% in net charge offs last year. For the quarter, we had net charge offs at $7.1 million which was a decrease of $2.5 million on a linked quarter basis and down $13.1 million from last year's second quarter. At the same time, our loan loss provision this quarter was $7.9 million or a coverage ratio of 1.1 time.

We mentioned last quarter going forward that the provision might not necessarily cover charge offs, although that didn't occur this quarter, we still don't preclude that from happen in future quarters. As a result of the reorganization this quarter, the allowance for loan and lease loss analysis now consolidates eleven separate analysis into one. The appropriate provision amount that was deemed necessary was slightly in excess of charge offs. We believe the loan loss reserve is fully adequate to meet our credit issues based on analysis we've conducted during this past quarter.

As has been the case the past three years, the majority of our problem loans are still in land lock and other construction category, however, the good news is that this category continues to shrink. In the past 12 months we've had a decrease or we have decreased the size of this loan category by 21%. The other loan class that caused significant charge offs the past couple of years was residential spec construction. Here again, this category is down 19% in the last 12 months. Early stage delinquency for one category of credit quality that posted a higher number during the quarter. However, one large credit due for renewal went 30 days past due at quarter end. This loan has subsequently been renewed. Early stage delinquencies ended the quarter at $48.7 million, that's up $42.6 million the previous quarter. Excluding the one credit that has now been renewed, our 30-89 delinquencies would have been approximately $34 million. Hopefully we can keep our delinquencies at our around this level.

This past quarter our net interest margin was down significantly as the premium amortization on our investment portfolio increased $2.6 million. In addition, interest income on loans decreased $1.1 million, which was $500,000 greater than the reduction we recorded on our funding costs. Our net interest margin for the quarterly decreased 0.24% basis points from 3.73% to 3.49%. For the quarter, premium amortization accounted for the 0.15% of 0.24% point basis point reduction. Once refinance activity slows down, we should see a benefit to our net interest margin.

Unfortunately, predicting the timing of when that will occur has become increasingly difficult as government programs such as Harp 2.0 and Operation Twist have opened up more opportunities for consumers to refinance their mortgages. Net interest income was down on a link quarter basis by $3.1 million and $5.1 million from the prior year quarter, of which $8.3 million of the decrease, again, was due to the additional premium amortization.

As I have stated previously, we are more focused on and continue to work to protect our net interest income and have done so by adding to the investment portfolio. Plus, the reduction in interest expense was also an offset that enabled us to compensate for the decrease in loan yields and the additional premium expense. That was not the case this quarter. Non-interest income increased $1.5 million from the prior quarter due to improved fee income on deposit accounts and greater mortgage origination income.

With the great job the banks have done in generating new accounts, we saw an increase of $800,000 in fee income from deposit accounts. Compared to the prior year's quarter, the results are even more dramatic as we increased non-interest income by $3.9 million or 22%. The bulk of which was a $3.2 million increase in mortgage origination and SBA fee income. We continue to be one of the leading SBA lenders in many of the markets that we serve. Our non-interest expense on a link quarter basis decreased by $2.9 million due to the $4.6 million decrease in OREO expense. Compared to the year ago quarter, our non-interest expense increased $30,000, as we benefited from a $2.9 million reduction in OREO expense and a $900,000 decrease in FDIC insurance premiums that offset higher compensation expense.

We continually challenge each of our 11 bank divisions to control their operating expenses and through the first half of the year they have definitely stepped up to the challenge and have done a great job in this area. On May 1st, we completed reorganization of the Company by converting our subsidiary banks to bank divisions. I'm happy to report that the conversion has gone smoothly and as I stated earlier, we are all ready beginning to recognize improved productivity and a renewed ability to engage both new and existing customers. There will be some hard dollar cost saves, but they were not the reason for the restructure.

We felt in this current operating environment it was becoming increasingly important to free up time for our banks so they could focus on generating new business, and not be saddled with the costs and burdens that go with a separate charter. In addition, we have removed much of the redundancy within the organization and simplified our operations, which we believe will make us more nimble and focused on growing the Company and improving our performance. In closing, it was a good quarter on most fronts. We are at or ahead of target on most of the performance measures we laid out for ourselves at the beginning of the year. Obviously, our net interest income was disappointing, but we have no intentions of extending assets or taking additional credit risks to increase interest income.

We still had over $10 million in credit costs this last quarter, so that's an area where we need and expect to continue to improve upon. Loan growth, I still believe is going to be a difficult to generate, but our new model appears to be making a difference, and freeing up our staff to produce more loan volume. And finally, M&A activity appears to be improving. The low rate environment, the uncertainty over capital requirements, and ever increasing regulatory costs has numerous banks searching or at least willing to discuss strategic alliances. We expect to participate as these opportunities present themselves, knowing that we have the background and experience over the past 20 acquisitions to get them done efficiently and most importantly, profitably. That concludes my formal remarks. We'll now open the lines and take questions.

Thank you. (Operator Instructions). Our first question comes from the line of Joe Morford with RBC Capital Markets. Your line is open.

Good morning, Mick.

Hi, Joe.

You showed good improvement in the quarter on charge offs and NPA's have been down for several quarters now, and yet the reserves remain elevated to 3.9% of loans. At what point do you start to draw those down? What credit indicators do you need to see improve before you start to take those down?

The one thing was I touched on briefly Joe, but this quarter was some what of an enigma because we did have the reorganization that took place May 1st. We did consolidate the eleven separate analysis that had taken place for years and years into one. Just based on what we saw based on where some of the banks and the analysis that they were doing, we came up with our own analysis looking at historical loss, all of the environmental factors, all the things that Barry and Dawn look at when they're in the path when they were reviewing all of the a Triple Analysis.

This time it was under their charge to get that done, and as we did the analysis, we did the calculations, that's what we came up with, but you're absolutely right, Joe. At 4%, at some point in time we're going to probably see that start to move down. Don't know what right number is. Clearly, I think part of the reason that we've kept it up because we're still not sure where this economy is going. God forbid if we were to have another turn around and in a negative away, and this economy heads South. I mean, we're probably not going to be seeing the amount of reserve releases that maybe otherwise we would. So, it's like I said before. It's more of an art than a science.

There's probably no exact right number, but at the end of the day and at the end of the quarter we felt that was the provision that was needed, and we feel comfortable with where the A Triple L is. Clearly, I think no one would ever argue, Joe, that it's definitely on the high side.

Makes sense. The other question was with the increased refi activity the surge in margin, it's helped your mortgage banking business. How do you feel about the pipeline in that area and do you see the bank retaining more of the originations in the portfolio?

No, not in this rate environment we really don't. I've been there before. I started my career as the thrift back in the late '70's, early '80's. I saw what interest rate risks can do. We just don't believe this is the time to be holding those long-dated assets on the books. With that said, though, I think we will and it's almost baked into the cake right now where we really believe we're going see some more refinance activity, and it's the negative there is that it's going to create more premium amortization, at least in the near-term.

We do benefit as we did this last quarter, I mean our mortgage origination fee income was up $700,000 on a link quarter basis over the first quarter, but I would -- if somebody would ask me what my preference was, I would absolutely wish for a much, much slower refinance wave because the additional $700,000 we generated in additional refinance income, that was just in total mortgage origination income, which only half of that was refinances. So let's just say we would have given some of that up because of the refi's. I would take that to see premium amortization which costs us $2.6 million in the quarter head back down.

When I look at the numbers and see that $8.3 million of additional premium amortization hit our income statement this quarter versus the year ago quarter, that is one heck of a nut to crack, and at some point in time it's going to go back down. I just don't know when. I just almost wish right now we'd see a little bit slower refinance volume and I accept the lower mortgage origination banking fees in order to see that get done.

Okay, thanks so much.

You bet, Joe.

Thank you. Our next question comes from the line of Jeff Rulis from D.A. Davidson. Your line is now open.

Good morning, it's actually Matt filling in for Jeff. How are you guys doing?

Hi, Matt.

Actually going back to the NIM, I was wondering if we could get the monthly averages for Q2?

We could get those to you, Matt. I'll just have Angela send those to you after we break the margin down, obviously, every month.

Great. Any sense of the trend?

Yes. I mean it was, of course the net interest margin is on a monthly basis is greatly impacted by the number of days in the month, so that has an impact. Angela do you have those numbers, for Matt readily available?

I have the monthly ones for June. Is that what you're looking for?

No, for April, May, and June, all three months.

I have May and June, but can I get April if you want.

We can wait on that, that's fine. I know you touched upon the consolidation and how that's going. Any tangible cost saves that you could supply us with or any expectations on that?

There has been. They've been small. A couple of consulting engagements or consulting fees have gone down with the reduction in the number of charters, but it's just so difficult to put a price on how much time is being saved on regulatory and accounting, and some of those required duties and tasks that are now being reallocated into marketing going out and generating both checking and loan volume. So we just haven't really wasted or spent much time trying to track it. I'm sure that it's part of the reason why our non-interest expense has been trending in the right direction, but I'm not here to be able to quote that we reduced headcount by twelve people or twenty people. I don't believe that to be the case because that was really never our intent.

Great. And then looking at the tax rate this quarter, it was pretty low. I was wondering why it was so low this quarter and if you had expectations going forward?

Ron, you want to answer that?

Hi, Matt. We have the investments that produce new market tax credits, and those are claimed on the anniversary date so when you look at the first quarter, very little. But second quarter which is the peak quarter which will claim those credits occurred and it will level out in the third and fourth quarter. So just for the difference in the quarter was about $1.4 millions in benefit to the bottom line, and then that will go down a little bit in the third, but level out with the fourth quarter.

Ron, you might want to explain a little bit on the expense side, on other expenses. You have the offset to that, too.

Right. So in addition to that, the credit, obviously the positive that comes through the tax expense line, we have some write-off of those investments, and so that will come down as well as we claim the credits in the third and fourth quarter.

Okay. And I guess that was following up to my last question with the other expenses. So the sequential increase of 24%, that was just one-times in there?

Well, yes. Big part of that was the new market tax credit expense. That was looking up just about $1 million over the prior quarter, so that was a big part of it, Matt.

Okay, great. I'll step back. Thanks for taking my questions.

Thank you.

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

Thanks, Good Morning,

Hi, Brian

Question on OREO sales, would you think about bulk sales at this point? As it seems like what your selling is now at market value.

No, because I don't believe if we took a block, and maybe we could test the waters, but it's been my experience that if we brought a block to anyone of those people that work on that kind of OREO disposition that they would find a way to get a haircut of another 10%,15% and that their going to do it to make some money. Here again if their going to buy it for exactly what we own it for, you know that they are not going to turn around and sell it at that so if they feel it is worth more than what their buying it from us for why shouldn't we just be holding it and trying to sell it ourselves? I think we've been pretty successful last couple of quarters by doing that and we're patient in that regard and I think it's been paying off for us. Maybe the optics don't look so good because you're carrying a higher level of NPAs, but unless it's a property were we just don't feel like there's any real market attraction or that the level of interest is just not there, then we're willing to hold on to some of these properties, and some of these properties are beautiful.

I mean, I think at some point in time they will sell and we actually had a few properties sell. I was just giving you net numbers because we had a few of properties sell out of OREO last quarter that we sold at gains, so that $89,000 was a net number obviously, that included some of the gains. It's working both ways right now, Brian, but the bottom line is that was less than a 1% loss. In this market with the lack of opportunity, what's our opportunity costs, 1%, 0.80% basis points whatever we're investing at these days? We're willing to hold on and as I've said the last couple of quarters, definitely willing to hold on in the hopes that maybe this real estate market continues to stabilize and in some of these properties become more attractive, and we think that's just a better way to dispose of them.

Makes sense. A question on the securities book, going forward, is it still predominantly going to be CMOs as far as where you're investing cash flows or do you anticipate a higher percentage of muni's or corporates?

No, I think we've all ready seen a shift over the last two quarters in the investment portfolio and what percentage the CMOs constitute. Obviously, we are buying more short, very short municipals and short corporate bonds, and my expectation is that we would continue do that, lighten up a little bit on the CMOs, but we don't expect that the CMOs are going to take any major, drastic reduction. I think when I was looking at the numbers last week, we've moved from approximately, I think it was about a year ago, either the beginning of the year or a year ago, we had about 66% of our investments in CMOs. It's down to about 58% today, so we are starting to move down the ladder on the percentage of CMOs as total of the investment portfolio, but I wouldn't expect and I'm not saying that you can expect that to be 40% or 30% at the end of this quarter. That's not going to happen.

Thanks for taking my questions.

You bet, Brian.

Thank you. Our next question comes from the line of Joe Gladue with B Riley & Co. Your line is open.

Good morning.

Hi, Joe.

First off, I guess I'd like to ask a couple of asset quality questions. I'm not sure if I missed them or you mentioned them, but could you tell me what I guess both accruing TDR's and inflows to non-accruals were?

Yes, accruing TDR's were just a little under $89 millions, they were about $88.6 million or so for the quarter, that's only down about $1.5 million from the prior quarter, but they did go down, but they didn't go down measurably, and those are accruing TDRs Joe. The second part of the question was?

Inflows to non accrual. The last quarter inflows were somewhere around $26 million or so.

You know, inflows to non-accrual, we had -- where's the number at?

Those aren't strictly non-accrual, this is non-conforming loans, according to the year-to-date.

Okay. So from -- we have approximately it looks like $2 million in inflows during the quarter.

Okay, great.

And that would be right because $28 million year-to-date, it was $26 million in the first quarter.

Okay.

That inflow's has slowed down dramatically.

I would just like to ask you to maybe give us a broad overview, just sort of economic-wise through your markets, wondering if the widespread drought in the country is having any particular impact on some of your markets? Anything like that?

Yes, I mean it's having a very positive impact because a good portion of Idaho, especially the Northern part of Idaho, Eastern Washington, Northern Montana, we have not seen that drought at all, so those farmers, ranchers, they're take place from the drought taking place in the Midwest, and down South. Again, AG lending is not a major, major part of our loan balance sheet anyway. We do benefit and in some of those communities that are more impacted by agriculture overall, it does make a difference because is lifts the entire communities in some of those areas, but from our direct prospective it's not a huge, huge number for us.

But the three or four banks that do have some position in agriculture lending, it's been good for them and it's been good for there customers. Tourism, it's been a good summer. I think the hospitality industry is doing very well. Our two largest banks that are bank divisions, that being Glacier and being Mountain West, I think they're both benefiting from continuous Canadian traffic that keeps coming down, especially probably Montana because simply as I've said before, there's no sales tax here, we're in much closer proximity to almost 2 million people who live in Calgary and Edmonton, and those individuals love coming down here and they really have made a significant impact to retailers, to the hospitality industry, to restaurants. It's been a very, very good thing.

The Energy Complex, clearly we benefit to some degree. We're not in Eastern Montana. Although, as I think I've said last quarter, somewhat to a second derivative to what's go on over there, we are making loans to some of our very good customer who's are determining or deciding to either work over there as a service provider or building hotels/motels. As I mentioned, I think that last quarter in some of the investment conferences I attended, we've got a couple of builders who are over there building homes in the Bakken, so we do in a rounded about way benefit there from the Energy Complex.

Clearly our Billings Bank Division, Western Security Bank, it's probably a very, very nice benefit because they've got multiple refineries down there in that area, and it just seems like that's where the heart of the energy complex for this region of the country is located is out of billings, so there's definitely been a benefit there. Overall, the economy's been good, Joe. The unemployment in most of these states is down, Idaho still probably remains the weakest of the states that we have in our asset, but even there Idaho's showing some incremental signs of improvement. Overall, I think the economy is not bad at all.

All right, thanks, that's helpful. That's all I had.

Thanks, Joe.

Thank you. Our next question comes from the line of Jennifer Dembra with SunTrust Robinson. Your line is open.

Thank you, good morning. I jumped on the call late so I apologies if this has been addressed. Mick, I know you said earlier in the call there are no specific cost savings from the charter collapse. A lot of banks this quarter have been talking more aggressively about reducing costs. What's your stance on that at this point in the game?

You know, that's a good question, Jen. We do have an initiative out there right now among the eleven bank divisions, and we've challenged them from an efficiency prospective. Obviously, efficiency entails non-interest income, net interest income, and non-interest expense. While we've had enough discussion this morning about what's happening with net interest income and the impact of some things that are outside of their control, but I really do believe that the eleven bank Presidents have really targeted operating expenses, especially those operating expenses that come under their direct control, and we've seen some good things happening out there in the banks as a result of this focus.

I just think though it's going to be one of those areas where if we continue to stay down in this interest rate environment, we're going probably have to even make more substantial moves on the operating side. I know some of the banks are looking at their delivery channels. I think some of them are looking at various branch locations, making sure that branches are profitable. If they're not, either how can we get them profitable or what do we have to do to maybe even shut them down. Those discussions are constantly going on at all of the eleven bank divisions, then they're going have to continue to go on because I don't see this rate environment changing, so I think the pressure is going to continue to be on that net interest income line, so in order to hold our efficiency ratios at the level that we have historically held them at, a lot of it is going to have to come from the operating side. Hello?

Thank you. Our next question comes from the line of Fred Cannon of KBW.

Thanks and good morning. I was just curious you talked a lot about the interest rate risks on a securities portfolio. I want to follow-up on the loan portfolio. One of the things you said you were losing out to some folks who were terming out loans more than you were willing to. I was wondering kind of what kind of terms in terms of duration you are willing to offer your clients, number one? And number two, is if you're looking to offer your clients a variable rate loan, perhaps partnering with somebody that was offering them a swap so they can get the longer term they're looking for?

Fred, we've looked at obviously doing just that, looking at swapping on a lone-by-loan basis, looking out for swapping out fix for floating on some of these longer deals. First of all, let me answer your first question and that is, our preference has always been and where we have tried to steer most of our customers has been in that 3-5 years. We're willing to go out 3-5 years. We've a couple of examples where on very good customers, the pressure was there and we went out 7. The ones, and correct me if I'm wrong, Barry, but the ones we have passed on were those that required us to lock rates for 10 and 15 years, and we just haven't been willing to do that. Yes, you're right, we could go out and do and we have done some interest rate swaps, but not on a loan-by-loan basis. In fact, I don't think we mentioned that, but we did complete another rate swap during this past quarter, and yet we haven't -- we've looked at the product, we've looked at the possibility of doing loan-by-loan interest rate swaps and just haven't moved in that directions yet. I know, Barry, you've got some thoughts on the trouble that we have in selling that type of loan-by-loan or interest rate swaps.

Usually you have to understand the size of the customer we're dealing with. We probably don't have the volume or size of the transactions that really lend themselves to do a loan-by-loan swap. For the most part, our customers are not at that level where they would really understand the restrictive transactions of the respective risk of doing that, and frankly swaps are a great instrument, but they're difficult to unload if things go bad, so we've opted not do it on a loan-by-loan but rather on the balance sheet side basis.

Makes a lot of sense. Thanks so much for the color.

You bet, Fred.

Thank you. (Operator Instructions). I'm showing our next -- I'm not showing any further questions at this time. I would like to turn the call back over to management for closing remarks.

Thank you very much, and thank all of you today for listening in. Again, for the most part we were happy with the quarter. We thought we made progress on a number of fronts, as I said in my opening. Clearly we've got some work to do on the margin. Some of that is clearly outside of our control, but there are still some things that we could probably do internally that would soften any further reduction to the net interest margin, and believe me that will be a focus of all of our -- that will be a focus of all of our management team and our bank Presidents as we move forward. With that, I'd like to again thank you all for joining us this morning and each and every one of you have a great weekend. Bye now.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.