Heritage Financial Corp (HFWA) 2011 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Heritage Financial Corporation first quarter earnings release. At this time, all phone participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. Those instructions will be given at that time. As a reminder, today's conference is being recorded. (Operator Instructions) At this time, I would like to turn the conference over to President and CEO, Brian Vance. Please go ahead, sir.

Thanks, Nick. I would like to welcome all of you that have called in to our Q1 earnings conference call and those that may call in and listen to the recorded basis later. Attending with me is Don Hinson, our CFO. Our earnings press release went out earlier this morning before market opened, and hopefully you have had an opportunity to review that particular release.

I would like to refer to forward-looking statement in that press release, as well as read a shortened version of that for the record. Statements concerning future performance, developments, or events, expectations for growth and market forecast and other guidance on future periods constitute forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties that might cause actual results to differ materially from stated expectations. Specific factors include but are not limited to the effective interest rate changes, risks associated with the acquisition of other banks and opening new branches, the ability to control costs and expenses, credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs, changes in general economic conditions either nationally or in the market areas. These factors could affect the company's financial results. You should not place undue reliance on forward-looking statements, and we undertake no obligation to update any such statements. The Company does not undertake and specifically disclaim any obligation to revise any potentially forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. Additional information on these and other factors are included in the company's filings with the Securities and Exchange Commission.

I would like to begin this morning with the highlights of our first quarter. Diluted earnings per common share increased to $0.05 for the quarter ended March 30, 2011, from $0.03 per diluted common share for the quarter ended March 31, 2010. Originated loan balance show the largest quarter-to-quarter increase since the third quarter of 2008, and the Gig Harbor, Washington branch opened, increasing the branch network to 32 branches. Definitive agreement to acquire the Kent, Washington, branch of Charter Private Bank was announced. We announced this morning that the company has resumed the payment of the cash dividend in the amount of $0.03 per share. This is the first dividend to common shareholders since Q1 of 2009.

I will speak to earnings just briefly. We posted Q1 net increase of $764,000 or $0.05 per share, which was an increase from Q1, 2010 net income applicable to common shareholders at $365,000 or $0.03 per share. Our total loan loss provision for Q1 was $4.4 million, $2.6 million for originated loans and $1.8 million for purchased loans, compared to Q4, 2010 provision of $2.9 million a Q1, 2010 provision of $3.7 million. Net charge offs for the quarter were $3.3 million compared to $6 million in Q4, 2010, and $5.1 million in Q1, 2010. Our loan loss allowance to total originated loans decreased slightly to 2.84% at March 31, 2011, from 2.97% at December 31, 2010.

At this time, I will ask Don Hinson to take a few moments and cover our balance sheet, income statement changes as well as a few comments about our acquisition accounting. Don?

Thanks, Brian. I will start with the balance sheet. We believe we continue to have a strong balance sheet. At quarter end, we held $115 million in overnight interest-bearing funds, primarily at the Federal Reserve Bank. Part of these funds are being held for anticipated continued runoff of acquired internet CDs, of which the balance was $9.5 million at quarter end.

Investments were increased by $9 million during Q1 as we seek to improve yields while maintaining a strong liquidity position. Our loan to deposit ratio at quarter end was 87.8%, which is an increase from 86.3% at the end of 2010. [Fulfill] date and total originated loans increased $10.9 million during the quarter. This is a result of loan production partially offset by charge offs. We have total originated construction exposure of 8.0% of total originated loans, with only 3.6% represented in residential one for family construction, including land development.

Our total deposits decreased $36.6 million during Q1. Of this decrease, $32.6 million was related to certificate of deposit accounts, assumed in the Cowitz Bank and Pierce Commercial Bank acquisitions, including $14.7 million of internet CDs, which were repriced at the time of acquisition. Our non-maturing deposits, which are total deposits less all CDs, as of quarter end increased $7.6 million from Q4, 2010, while total CDs decreased $44.2 million. Our non-maturity deposit ratio is a very strong 67.4% of total deposits. In addition, the percentage of non-interest demand deposits to total deposits has increased to 17.2%. The cost of all deposits for Q1, 2011 is .68%.

Total equity increased $1.1 million during Q1. The equity assets ratio increased to 15.2% at quarter end, compared to 14.8% at December 31, and the ratio of tangible [combinant] with your [detangible] assets increased to 14.3% at quarter end, from 13.8% at December 31. Our book value per common share remained the same at 12 point -- $12.99 from March 31, 2011, as well as December 31, 2010, and our tangible book value for common share increased to $12.04 at March 31 from $12.03 at December 31.

Let's spend a few minutes talking about the acquired loan portfolios. During the quarter, we recorded provision for loan losses on purchased loans in the amount of $1.8 million. This is primarily due to certain pools experiencing a decrease in estimated cash flows from the original cash flow estimations. This provision was partially offset by an increase in the FDIC identification asset in the amount of $1.2 million, which is recognized in the first quarter earnings. However, for the majority of the loan pools, cash flow estimations increased from the original cash flow estimations resulting in an aggregate increase.

As a result, this increase in estimated cash flows will perspectively increase interest increase. However, the FDIC indemnification asset will also be decreased perspectively through decreases and not interest increase. Cash flows on acquired loan portfolios will be reestimated on a quarterly basis. Regarding our net interest margin, the net interest margin for Q1 was a healthy 5.08%. This is a 50-basis point increase from 4.58% in Q1, 2010. This increase is due primarily to increased loan yields as a result of discount accretion on the acquired loan portfolios.

Sustained focus on non-maturity deposit growth and pricing strategies continue to drive costs of funds lower, which is a significant contributor to our strong net interest margin. The effect on the net interest margin of discount accretion on the acquired loan portfolios for Q1, 2011, was approximately 32 basis points. This compares to 88 basis points in the prior quarter ended December 31, 2010, which was significantly affected by loan prepayments in 2010. Interest reversals on non-accrual originated loans impacting net interest margin for Q1, 2011, were approximately 9 basis points, compared to 15 basis points for the prior year quarter ended March 31, 2010.

Net interest income was $3.5 million for Q1, 2011, compared to $2.2 million for Q1, 2010. This increase was due substantially to the FDIC loss-sharing income net of expenses in the amount of $800,000. In addition, service charges on deposits for Q1, 2011, increased 213,000 from the same period in the prior year due to increases in deposit accounts as a result of the Cowlitz and Pierce acquisitions. Regarding non-interest expense, non-interest expense was $13.7 million for Q1, 2011, compared to $8.1 million from Q1, 2010. This increase was due to a general increase of salary and benefits expanse, addition of staff relating to the acquisitions of Cowlitz Bank and Pierce Commercial Bank, increased occupancy and equipment expense of $819,000, increased other real estate owned expense including valuation adjustments of $491,000, increased debt of processing expense of $403,000, increased professional services of $347,000. These increases are due primarily to the Cowlitz and Pierce acquisitions.

Non-interest expense decreased $197,000 from the prior quarter ended December 31, 2010. Non-interest expense control has been a focus of ours, and will continue to be. However, continuing growth-related expenses and other expenses such as loan resolution costs make it likely that we'll see higher than historical efficiency ratio over the near-term. From Q1, 2011, our efficiency ratio was 71.6%, compared to 63.0% for Q1, 2010. Brian will now have an update on overall loan quality changes, as well as some closing comments.

I will speak first to the loan quality. Non-performing originated loans increased $2.5 million from the prior quarter. The increase in non-performing originated loans is due to the restructuring of a $5 million loan on a condominium construction project, partially offset by $3.3 million in net charge offs during the quarter ended March 31. However, total originated potential problem loans decreased 10.8% to $50.1 million from $56.1 million prior quarter.

Another way to look at overall credit quality is to total our originated non-performing loans plus total originated potential problem loans and they were down $3.5 million quarter-over-quarter. Our originated residential construction loans as of March 31 totaled $26.9 million or 3.6% of total loans. The total breakdowns is as follows -- residential land, $5.3 million; single family homes, $11 million; A&D residential, $10.6 million.

Our total non-performing originated loans of $29.4 million breaks down as follows -- commercial, $10.7 million; owner-occupied CRE, $700,000; investor CRE, $1.2 million; and real estate construction, $16.8 million. And that $16.8 million of residential construction further breaks down as follows -- single-family residence, $500,000; A&D lots for sale, $6.6 million, and condos, $9.7 million.

A breakout of all potential problem loans originated of $50.1 million breaks down as follows -- construction, $12.8 million; CNI, $22.2 million; owner-occupied CRE, $4.7 million; investor-owned CRE, $10 million; real estate mortgages, $400,000. A breakout by county of all originated non-performing and originated potential problem loans. Thurston county, Olympia, 18%; Pierce County, Tacoma, 65%; Mason County, Shelton, 1%; King County, Seattle, 2%; all others, including Central Washington, 14%.

Our coverage ratio ended the quarter at a still strong 83.2%, down slightly from Q4, 2010, which was 93.2% and our allowance to total originated loans at quarter end was likewise a strong 2.84%. Our coverage ratio remains 1 of the strongest in the Pacific Northwest. OREO, at the end of the quarter, our OREO balance was $3.5 million. During the quarter, we added a total of $1.3 million, disposed of $475,000, and had $361,000 in valuation adjustment.

A general review of Q1, 2011. I would again characterize Q1 as 1 continuing to focus growth initiatives. We successfully converted systems of our second FDIC-assisted acquisition, Pierce Commercial Bank, in March. We opened a De Novo branch in Gig Harbor. We added 2 new senior commercial lenders during Q1, 1 each in Portland, Oregon and Olympia, and we announced the signing of a definitive agreement of the Kent Branch of Charter Private Bank.

Just some comments on general outlook. Our overall view of 2011 is as follows. We encourage with the growth and the legacy loan portfolio quarter-to-quarter. The growth strategies of hiring new lenders are the primary cause of this new loan growth. Additionally, our legacy lenders pipelines are beginning to show signs of growth, but we're also experiencing high decline rates due to continuing difficult economic environment.

While we're seeing expected portfolio runoff in our acquired portfolios, we're also seeing nice new loan opportunities from these acquisitions as well. Our efficiency ratio is likely to remain over 70% for the balance of the year as we continue to execute our growth strategies. We continue to see stubborn pockets of economic recession in certain markets and continue to see real estate value deterioration. The most recent Case-Schiller reports reflect a January to February market valuation decline of 1.9% in the Seattle MSA. Additionally, the Seattle MSA was the fourth worst among major US markets for the year-over-year home price decline of 7.5%. However, we do believe that area home prices will bottom out and stabilize during 2011.

As we have discussed on several occasions, we intend to add 1 to 2 De Novo branches to Heritage Bank per year. We opened our second De Novo branch in the last 6 months in Gig Harbor, Washington in February, which was the Company's 32nd branch. We continue to be interested in FDIC-assisted acquisitions as well as looking at potential open bank opportunities. We are quite aware that we have a very strong capital position, and I believe we operate in a market that will present many attractive capital leveraging opportunities over the next 18 months.

Overall Q1 performance met our expectations and still had some noise which continued to mute core performance. While the future affects of purchase account will continue to add some variability, I continue to be encouraged about our overall performance and go-forward strategies. I want to, again, emphasize the growth strategies we have been consistently communicating and executing. FDIC-assisted acquisition opportunities, organic growth both in new branch sites and additional lenders and open bank acquisitions.

In closing, I fully realize our growth strategies are and will continue to mute short-term performance metrics, but we're beginning to see tangible and positive results of these growths strategies. We believe right now is the right time to initiate these growth strategies for any number of compelling reasons. Some of these reasons are ongoing and substantial market dislocations, both for perspective customers and perspective lenders. We have been building an infrastructure to accommodate a larger regional community bank. We have expanded our market footprint that needs to be filled in. We have a strong capital position that needs leveraging. And we believe our current growth strategies were gradually mature and accretive to future earnings.

That completes my prepared remarks and I would welcome any questions you may have and would once again refer you to forward-looking statements in our press release as I answer any of these questions dealing with forward-looking comments. Nick, if you would like to open the comments, or the lines for questions, I would appreciate it.

(Operator Instructions) Tim Coffey with FIG Partners.

Brian, what are you seeing on the potential -- on the front for potential acquisitions? Are you still -- you say you're still looking at FDIC stuff, but have you thought about going for something that has better franchise value?

I believe FDIC assisted opportunities continue to have good potential, long-term franchise value. Having said that, we continue to, as I'd indicated on several occasions, we continue to look at open bank opportunities as well. I think those opportunities are just beginning to emerge for any variety of reasons. Obviously, without getting too specific, I remain positive that this market area is going to see substantial consolidation over the next 18 months. Many of you that have followed our company and follow our investor conferences, will recall that as we look at those banks that are less than $300 million in size, and that are substantially troubled, but will not fail, we believe there exists substantial opportunity over the next several quarters. And we're deep in that area, and will continue to be.

Then, can you give us an idea what you're seeing on the appraisal front? As you receive current appraisals, are they coming in less than you anticipated?

Generally, yes. I think that goes along with my comments about real estate devaluation. I thank that, certainly, my comments were specifically related to single-family. We're continuing to see devaluation issues among most fronts on the single family side, but we're also seeing that devaluation on the commercial real estate side as well. I think it's probably fairly safe to assume that there are very few, if any, appraisals these days that come in with increased value from the previous appraisal. I do think on the single-family side, we will begin to bottom out as we progress through this year, but on a commercial real estate side, we may not yet have seen the bottom of that, maybe until 2012.

Do you feel your current OREO expenses capture that weakness?

Yes, and remember, we have a small level of overall OREO balances, but the marks that you saw this quarter in OREO marks certainly recognize the decreased values of those assets. And I think that is indicative of what I have been sharing in terms of just overall real estate values continuing to decline in value.

I appreciate that. Those are all of my questions.

Thanks, Jim.

Jackie Chimura with KBW.

Looking at the covered portfolio to try and get a sense for what happens once those loans start maturing, or if you have some borrowers that have good credit that are looking to refinance. How does the accounting work with that? Would it refinance back into the covered portfolio? Does it flow into originations?

Well, it's a little complicated. If it's just refinanced, because we want to it, it stays within the covered pooling accounting. If it's just refinanced because we want to continue the relationship with them. If it matures at some point, and it would fall out of the covered aspect and fall out of the acquisition accounting, but if we decide to pull some things together and just refinance it, there's some guidelines on when it comes out of purchase accounting or not. But it stays covered for the entire time.

Okay. So there could be some refinances and some -- happening within that portfolio, and that would cause the runoff to level off going forward then, but the relationship would still be progressing forward?

Correct.

Okay. Has any of that started to occur yet?

Well, we've seen some payoffs in the first quarter. We saw some of the purchased -- if you looked at the -- I think it's in the non-covered loan portfolio, I think it was, that we saw some payoffs in that portfolio.

Yes, I noticed Pierce was down. Was that in any particular loan category, or was it across the board?

Yes, and I'll speak to that, Jackie. I think that as you look, because we did disclose the differences in the balances outstanding in both in the covered and the non covered transactions. As we look at the non-covered transactions, there's probably a variety of reasons of why those loan balances dropped to the extent that they did. But I think the general philosophy or strategy is, is that's an uncovered portfolio, we bid it on an uncovered portfolio for a variety of reasons. I think we've indicated those in past discussions, but I think that we have an overall strategy to aggressively manage down, or out, some of those transactions to minimize overall loss exposure. So, I think that's probably the primary reason why you're seeing quite a difference between the decline in balances of the uncovered verses the covered.

Okay. So, if I'm thinking about it correctly, setting aside the covered portfolio that Don went over, I'd see more of an attrition from the non covered portfolio into originated as you keep the relationships that you're interested in keeping.

I guess that's probably a fair statement.

Okay. And then just one quick question on the restructured loan, just because that's not something that we've seen recently from you. Is that something where its -- guidelines aside and everything, is that something that you would consider to be likely to return to performing status in the next six months to a year?

First of all, I would comment this is not a relationship that -- let me rephrase that. This is a relationship we were well aware of and have been managing for some time. Units continue to sell in that particular project, and I think we had two units sell and close last month. But I think that it continues to show difficulties and strains of performance that are likely to continue for some time. At this point, I do not see loss in that particular relationship, but it is a relationship that I think is going be more long-term in managing to full resolution than short-term.

Okay. Thank you for the clarity on that. Thank you for all the additional breakdowns. It's much appreciated.

Tim O'Brien with Sandler O'Neill and Partners.

Brian, do you have the end-of-period balance from those internet CDs from Cowlitz, just to kind to true things up? How much of that do you have left?

$9.5 million in total internet CDs, [there about].

Making progress there.

Well, it's still surprisingly stubborn, because those CDs are basically at 10 or 15 basis points yield, so why it still sits there is still a bit of a puzzle to us.

Sounds like they're going to be gone soon.

Well, they-- just as a comment to that, Tim. My guess is that if they're sitting there this long, they probably won't leave until the maturities, and those maturities are at various states out there, so, they may hang around for a while yet.

Well, that's good money, I guess.

It's inexpensive money, that's correct.

And then, as far as the strategy for managing non-covered purchase loans that you alluded to and talked about with Jackie. How would you like to see that strategy unfold? Would you like to see the loans you targeted within that portfolio for disposition or to move out of the bank? Would you like to see that completion of that strategy and kind of be left with a core portfolio in another couple of quarters? Is that a 2011 phenomena, or is it going to take longer? Is the pace that we saw this quarter indicative of what you wanted to see in executing that strategy, this quarter and for the next couple of quarters?

Yes, there's going to be-- Maybe I'll touch on several issues there. I don't think the pace that we saw this last quarter, in terms of decline in balances, will continue at that pace; in other words, I think that was a bit unusual. However, as I said, when we first structured a bid on Pierce on a non-covered basis, we did so with a good degree of confidence, with knowing what the lost exposure on those troubled loans if they did the collection. In other words, we felt pretty strongly about knowing what the collateral values were. We have targeted the most difficult loans and with an intent to aggressively manage those to resolution, because those have direct potential loss exposure to us. Now, remembering that it was bid at a heavy discount, and while we remain comfortable overall, I think it's probably a pretty good strategy to aggressively manage the worst of those uncovered transactions out.

I think that it's also important to recognize that within that portfolio is a very strong core of performing loans, which have a concentration of medical professional loans and any variety of relationships, and we continue to solidify those relationships as we go forward. And then lastly, what was very attractive to us in that acquisition was the quality of the lending staff. As I've indicated earlier, that lending staff is bringing new opportunities, very attractive opportunities, to us that we would not necessarily see-- well, you would not see in these numbers that are broken out here as uncovered purchased assets. But you will see the production in our originated portfolio going forward. Now, that won't necessary be broken out, but there's value there, I guess is what I'm trying to get at.

That's great color, thanks, Brian. Just to follow up on that. How big is that strong core of portfolio loans that you kind of alluded to, tied to medical or whatever? Approximately what's the size of that part of the pool?

I don't have a specific breakout on that for you on that, Tim. I think the medical, professional, and related businesses is the largest portion of that portfolio, but to put a percentage on it, I knew that at one time, but I don't have that readily available for you. I'm sorry.

Are there other C&I relationships that are pretty solid in that book that you that like, and other kinds of, I don't know, CRE or some such?

Yes, there is. You may recall, as we targeted that acquisition, we were interested in several things; one, the medical professional; two, the CNI portfolio; and three, the core bank was a very nice, solid CNI bank with nice deposits. I will remind everyone out there that when you look at our June 30 deposits and our December 30 deposits, our non-maturity deposits actually increased as a result of those two acquisitions, in terms of what we knew was in the core of those two acquisitions, and certainly, that's true with the Pierce acquisition. So, we feel that we have a nice core there that we can continue to build on.

And the provision you took, the $1.8 million; in reading the press release and listening to your comments, am I right in thinking as my take-away that you said that was a little bit greater provision or mark or set aside than you were modeling for and anticipating? And what is that mean as far as-- how does that provision that you took fit with the strategy for aggressively working out less attractive loans in that book?

Let me speak to it in general and I'll ask Don to come back in and give us more detail to that. We did not and could not model purchase accounting; I'll just state that right up front. I think that when anybody that is dealing with an acquired portfolio these days, and adhering to the FASBE rules and regulations surrounding acquired portfolios, and you have to revalue those cash flows on a quarterly basis, it's hard to predict how those pools are going to perform. I think the important thing is, as Don indicated in his comments, when we did those revaluations, that the revaluations showed an overall net improvement to the cash flows to those portfolios. But, as the accounting pronouncements dictate, if any pool shows deterioration, you have to recognize that loss immediately. The overall pool showed improvement, but that's recognized over time through yield accretion.

So, it's hard to model, its hard to predict, and its hard to know quarter to quarter, and that's the variability that I referred to as we work through this purchase accounting. I do believe that as we get down the road several quarters, that's going to even out into a more predictable pattern, but I think early on, it's very difficult to predict. Don, do you have additional comments?

I think you covered it well, actually.

So, that $1.8 million-- it sounds like what you're saying also is that, that passes through directly to a fair value mark to the remarking of that loan book, kind of as a charge off I guess in a sense? Right? You know, as soon as you take the provision this quarter on the purchased loans, non covered loans, and probably for the covered loans as well. That's reflected in the fair value mark of those loans?

Well, Tim, it relates to the net present value calculation of these loans. If there are certain pools that, when the cash flows are performed, the recalculated net present value is lower than the recorded investment of those pools, then there's a provision on those pools. So, that shows that, but again, on some pools we had a provision on, but again, overall, the overall aggregate net present value actually increased.

But that provision is not recap -- that's not captured in a reserve, per se, that is reflected in a change in fair value marks of the loans, right?

Well, It is in it's own allowance. So, say next quarter, if those pools improve, we'll be able to recapture that provision. Up to the amount that we provided for.

And it's sitting-- that provision or that allowance is sitting in other assets, I'm taking it?

No, we have a-- it's in a separate allowance account. If you look on the balance sheet of the earnings release, you'll see the separate line for the allowance on --

Okay, I saw that. Thanks. I appreciate the help, guys.

Thanks, Tim.

(Operator Instructions) Ross Haberman with Haberman Management Corporation.

You talked about some de novo branching. Where do you think that's going to go and given the possibility of acquisitions, is that a realistic way of expanding? If you have the opportunity to buy stuff and can make accretive acquisitions; why would you consider de novos?

Good question. I think that we will consider de novos in markets where we do not likely see acquisition opportunities. Obviously, Gig Harbor and Puyallup were, I think, indicative of that particular strategy. Without getting too specific as to branching strategies, I think that will probably be our strategy going forward. If there are markets that we just absolutely don't see acquisition opportunities, but yet, we believe are great opportunities for future growth, we may put a de novo, For those markets that we see an opportunity to do a bolt on, we may wait a little bit on de novo branching with the assumption that maybe we can do a bolt on. So, there is two distinct strategies within that branching strategy that we're looking at today.

And just a different question. Are you more interested, at this point, in terms of growing your core deposit level, or are you actively looking for lending ability? Groups or individual lenders with books and businesses. Where's your bigger priority today?

Well, I would say both are priority, Ross. I think if you forced me to say which is my larger priority between the two, I think we need to continue to leverage the balance sheet, which means lending. However, I do believe very strongly that as the economy turns around and as banks begin to get traction on the loan growth area, as we did this quarter in our originated portfolio, I think that the deposit acquisition is going to be much more of a priority than it was in years gone by.

We never did fund with hot money, but a lot of banks did. I think as they look to loan growth and try to figure out how they're going to fund that growth with organic deposits, I think they're going to find that a bit more challenging if they don't have those systems and processes in place that are constantly focused on growing truly organic deposits, which in my mind, are the non-maturity deposits. We've demonstrated for a number of years an ability to grow non-maturity deposits and we're continuing to grow those. I just think that's going to be much more of a strategic importance going forward than most folks realize today.

Thanks, guys. Best of luck.

Thanks, Ross. Appreciate it.

Don Worthington with Freeman James.

In terms of the expenses; is there anything that was in the fourth quarter numbers that you would consider either merge-related or non-recurring.

Maybe you're referring to Q1 more specifically, or Q4?

Q1.

Q1. Yes, I think there were a little bit. Don, do you want to speak to that?

Yes, we did our conversion of the Pierce Bank in Q1, so there were some costs associated with that. I will say that some non-recurring expenses associated with our acquisitions in Q1, are probably $500,000 to $600,000.

Okay, great. And then, my last question in terms of restructured loans; do you have any TDRs that you would consider performing that are not in the non-performing numbers?

Anything that's a TDR will either be in the non-accrual bucket or listed separately as a restructured loan in our table. So, we don't have any what you would call TDRs that aren't listed as a non-performing loan.

Okay. Great. Thank you.

At this time, speakers, there are no further questions in queue.

If there are no further questions, Nick, I appreciate everyone's interest today, and thank you for your continuing support.

Thank you. Ladies and gentlemen, today's conference call is available for replay beginning today and running through May 17th at midnight. You may access to the AT&T playback service by dialing 800-475-6701 and entering the access code of 198080. That phone number again is 800-475-6701 with the access code of 198080.

That does conclude our conference for today. Thank you very much for your participation and for using AT&T Executive Teleconference. You may now disconnect.