Independent Bank Corp (Michigan) (IBCP) 2004 Q3 法說會逐字稿

Good morning, ladies and gentlemen. And welcome to the Independent Bank Corporation's third quarter earnings release conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star on our telephone keypad. As a reminder this conference is being recorded. This webcast may contain forward-looking statements as defined in section 27A of the Securities Act of 1933 as amended. Including statements regarding among other things the company's business strategy and growth strategy. Expressions which identify forward-looking statements speak only as of the date the statement is made.

These forward-looking statements are based largely on this company's expectations and are subject to a number of risks and uncertainties, some of which cannot be predicted and quantified and are beyond their control. Future developments and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. In light of these risks and uncertainties and there can be no assurance in a the forward-lookings information will prove to be accurate. This webcast does not constitute an offer to purchase any securities, nor solicitation of a proxy, consent, authorization or agent designation with respect to a meet of company shareholders. It is now my pleasure to introduce your host, Mr. Charles Van Loan, President and CEO of Independent Bank Corporation. Thank you, Mr. Van Loan, you may begin.

Thank you, good morning we are pleased you could join us on our conference call to discuss third quarter 2004 results. Our third quarter 2004 net income of $10.3 million was nearly identical to the third quarter of 2003, which represented a record level. Our per share earnings of $0.48 this quarter were below the year-ago comparative quarterly earnings per share of $0.51 due primarily to the shares issueds a result of our acquisition of Midwest Guaranty in North Bank Corp. this year. Our results were also slightly lower than the consensus market expectations of $0.49 per share. There were a few unusualing items that impacted the results for the quarter and Rob Shuster, our CFO, will discuss those in greater detail. On balance when adjusting for these unusual items we believe we had a very solid quarter. The strong growth in our level of interest-earning assets, our net interest income, and fee income on deposits. Our other measures of profitability remain strong, with our return on average asset at 1.39% and our return on average equity at 19%. One item impacting our third quarter results was an increased provision for loan losses.

As you can see from our earnings release, our non-performing loans increased to 16.1 million that represented .73% of our total loan portfolio. This ratio is down slightly from the start of the year, but up a bit on a linked-quarter basis. Just over our 1/2 of the increase in the dollar level of non-performing loans since year-end has been due to the midwest and north acquisitions with the majority being in mortgage real estate loans. We have historicaly had a low level of net chargeoffs in the real estate mortgage loan portfolio. Most increase in the provision for loan losses during the quarter was due to changes in loan rating on seven commercial credit relationships. The increased provision coupled with the north acquisition, resulted in a rise in the ratio of our allowance for loan losses to total portfolio loans to 1.17% at September 30, 2004 compared to 1.01% at year-end 2003.

In summary we believe our allowance is adequate and that credit quality remains sound. During the quarter we were able to successfully sell 11.2 million in non-performing loans and other loans of concern acquired in the north transaction. As a result, this acquisition did not have any significant adverse impact on our credit quality measures. The integration process from a data processing standpoint on our two recent bank acquisitions is complete and we believe we are well on our way to putting the pieces in place to build on these franchises and grow revenue in these markets. Finally I would like to take a few -- make a few comments about Metco. As also described in our press release, Metco achieved record earnings in the third quarter 2004 of 1.5 million.

We have confidence in the management team at Metco and their able to continue to build on these results. As previously announced in a form 8-K that we filed in early October, we have entered into escrow agreement with the former owners of Metco, which is expected to eliminate any need for the company to accrue for any additional liabilities as we conclude this investigation. We also believe this escrow agreement is reflective of the positive spirit of cooperation among the various parties, Rob will now provide additional details on third quarters results. Rob?

Thank you, Chuck and good morning. Third quarter 2004 tax equivalent net interest income was up 6.3 million or 24% on a comparable quarterly basis and was up 3.8 million or 13% on a linked-quarter basis. Part of comparable quarterly increase was due to growth in average interest-earnings assets resulting from midwest and north acquisitions, as well growth in commercial loans and finance receiveables. This was partially offset be a decline of 7 basis points in our net yield. The north acquisition, which closed on July 1, had approximately a 10 basis point downward impact on our net yield during the quarter. Assuming average interest-earning assets of 135 million at an average net yield of about 3.2%. These figures are based on north's balance sheet just prior to our acquisition.

The growth in linked-quarter net interest income is due to $385 million increase in average interest-earning assets, resulting once again from the midwest and north acquisitions, as well as growth in commercial loans, real estate mortgage loans, and finance receivables. In particular, if you factor out the loans added as part of the north acquisition, on a linked-quarter basis, we had about a -- we had about 100 million in organic loan growth, which represents a 20% annualized growth rate in the loan portfolio. Our net yield on a linked-quarter basis was down 15 basis points, with 10 basis points of that drop due to the north acquisition as just stated earlier. Service charges on the deposits were up 800,000 or 20% on a comparative quarterly basis up about 400,000 or 8.5% on a link-quarter base. This increase reflects the addition of the midwest and north deposits, as well as continued emphasis on promoting our checking account products and growing this business line. As expected, we had a significant drop in gains on the sale of real estate mortgage loans.

The third quarter of 2003 was a record period for mortgage sales volumes due for the heavy refinance activity. In addition, we saw some erosion in our loans sales profit margins in 2004 due to increased price competition as mortgage lenders are all now chasing a much smaller origination market. Our purchase refi mix in 2004 was been about 50-50, compared to about an 80% refi mix for 2003. At September 30, 2004, we had $37.9 million of loans held for sale in and another 30 million of approved loan commitments. Thus, we would expect fourth quarter 2004 loan sales gains to be comparable to or slightly better than our third quarter level. We recorded securities gains of $1.6 million in the third quarter of 2004, compared to securities losses of $1.3 million in the third quarter of 2003. The ,04 third quarter gains were taken generally to offset unusual items, adversely impacting our quarterly results. Based on prior historical patterns, we would not expect to take securities gains in future periods.

We did sell our north country trust preferred security, which we had previously written off through impairment charges and recognized a gain on this sale of $450,000. Real estate mortgage loans servicing income in the third quarter of 2004 did include an impairment charge of just over $400,000, as a result of our evaluation of originated mortgage loan servings rights at quarter end. Non-interest expenses totaled 25.5 million in the third quarter of '04, which was up 3.2 million on a comparative quarterly basis and down 700,000 on a linked-quarter basis. I want to cover some of the unusual items in the third quarter of '04 to hopefully provide some clarification of an expected future run rate for expenses.

Included in third quarter 2004 expenses was 300,000 in merger costs, 600,000 in professional fees related to the Metco investigation and roughly a couple hundred thousand in increased advertising costs, due particularly to the acquisitions and some special advertising in these new markets. Factoring out these unusualing items which suggest a run rate more in the area of about 24.5 million for quarterly non-interest expenses. Chuck covered some information on credit quality and I want to provide some additional details. Our provision for loan losses increased to 2.5 million in the third quarter of '04, up 1.9 million from the third quarter of '03 and up 1.7 million on a linked-quarter basis. The increase in the provision was due primarily to the addition of approximately 1.3 million in specific reserves on seven different commercial credit relationships, comprising 11 individual loans.

With total principal balances of approximately $10 million. Six of these loans were non-performing at September 30, 2004 compromising a total balance of about $900,000. The additional specific reserves were determined as a part of our normal loan review process. All of the loans are in Michigan and there is no industry or other concentration. Although the single largest credit is a $4.2 million loan secured by an apartment complex for low to moderate-income tenants. Although future credit quality trends are extremely difficult to predict, we would be surprised and disappointed if the provision for loan losses remained at the third quarter 2004 level in ensuing quarters. Our effective income tax rate was 27.9% in the third quarter of '04, which was comparable to the third quarter of '03, but up on a linked quarter basis.

This is primarily due to our level of tax empt income and relative sources of taxable earning. For example, Metco has a higher effective tax rate than our banks. Looking ahead an effective income tax rate of approximately 28% would seem reasonable. In summary, if you factor out the security gains, recurring expenses and assume a provision for loan losses more in line with historical levels, a quarterly earnings per share run rate of approximately $0.51 is not unreasonable, which would suggest full year 2004 EPS just slightly below our 2003 level of $1.87. I would now like to turn the call back over to Chuck.

Thanks Rob. I'd like to now open the call for questions.

Thank you. Ladies and gentlemen, we will now be conducting the Q&A session. If you would like to ask a question, please press star 1 own our telephone keypad. A confirmation tone will indicate your line is in the question queue, you may press star 2.if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from Kevin Reevy of Ryan Beck. Please state your question.

Good morning. I have a couple of questions related -- one related to your credit quality. Ccan you give us a sense as to what your watch list is looking like?

You know, I think the main answer I would have for you is that as we've entered a new market, particularly the Oakland County market we had to make sure our credit monitoring processes are fully effective and appear to be working well. The watch list, I don't have a number for you in terms of dollars that are in our watch list, and we would define those as probably certain ratings that wouldn't mean necessarily anything to you anyhow because everybody uses different ratings for watch credits. Would you care to follow-up that question and I'm not sure I answered it for you?

We noticed there was an increase in NPAs and I know that was more related to your acquisitions, is there any credit quality going remain the same, improve or is it the sign that the deterioration is starting to unfold?

I think Rob answered that question earlier, but I will try to expound on that. We don't see a trend, actually our non-performing assets are down as a percentage of our portfolio from year-end and we don't see an industry trend. We don't see geographic trend going on at this point. Assuming the economy continues to improve, though we appear to be some some of the a sluggish spot at moment, we wouldn't anticipate any continuing, any -- any future significant deterioration, but as he said, that's awfully hard to predict, if we could do perfectly we would be unusual.

Kevin, just a few other specific comments. In terms of the change in the level of non-performing, it was up about roughly 3 million and as we stated about 60% of that increase was due to the north and midwest acquisitions and the balance was in the real estate largely in the real estate mortgage loan portfolio, which historically we have had very, very low levels of net chargeoffs coming out of that portfolio. So I don't, as Chuck mentions, see any significant trend with respect to non-performing are watch list credits are up a little bit, but nothing significant and basically I covered the detail on the changes when I went through some of the information on those seven commercial credit relationships, compromising eleven loans.

There were other loans that came off that net the impact on our provision going through our normal loan rating system and we are doing that every quarter was that addition to that net addition to the provision. Again, we would be surprised if we remained at that the kind of level on a going-forward basis, and, in fact, I think the banks are all working very hard to try and on those particular seven commercial lending relationships to hopefully get those in a condition where we gave opportunity to maybe recover some of what we provided. But that -- that's going to take some ongoing effort.

There are workout plans in place for all of those credits involved and none of them at this point include liquidation of the company. So we are not at that stage with them, but we feel it's appropriate to build that reserve for them anyhow.

And then as far as your local economy that you are operate in, have there been any significant changes for the positive?

I could say generally speaking, we're seeing and I think this is reflective of national trends, some declines in unemployment rates, pretty much across the board and most of our markets and I think you are still seeing somewhat of a mix in terms of specific businesses, you know, I think it just depends on the industry and the specific business. But I don't think there's anything significant going on here that would be other than what you generally see on a national trend basis with sort of the a recovery, but not what you say is a real robust recovery, but in addition to that generally declining unemployment rates.

Thank you.

Our next question comes from Eric Roth with Hove Capital Advisors. Please state your question.

Hi guys, how are you.

Hi, Eric.

Couple of questions and first of all, can you tell us a little bit more about the Metco investigation and can we expect to see anymore charges, professional expenses in the fourth quarter and beyond, and is there any update as far as the timeline on the investigation? The other question is can you talk a little bit about your net interest margin for the fourth quarter and beyond and what are you looking for, and also the affects on what we are seeing with the flattening yield curve and how you see that affecting your business, thank you?

With respect to the professional fees on Metco, the vast majority of the work related to that matter was completed in the third quarter. That's why you saw that elevated level of professional fee. So while there may be some additional professional fees, we would anticipate that would be significantly reduced and, in fact, has been because the bulk of the work that needed to be done by outside third parties as been completed. We would expect also to hopefully have something wrapped up within the next few months, you know, it does take some time because we are going through a rather lengthy timeframe that we're covering on the pre-acquisition period. But again, the substantive work has been completed.

The escrow agreement puts us in a position where we don't believe there will be any additional liabilities that the company will have to incur, and again, I think it's also reflective of the very positive level of cooperation that we have with all of the parties involved. And finally would reiterate Chuck's point that Metco had a terrific third quarter and we are very supportive of the management team and their ability to continue to grow that business. With respect to the outlook on the margin, a couple of things. We were down if you factor out the north acquisition we were do about 5 basis points for the quarter.

I do think the flatter curve over time will exert a little bit of downward pressure on our net yield. I think most of you are aware that banks typically enjoy steep yield curve environments and we have seen some flattening of the curve, which is just a tougher environment and so over time, I think we'd expect to see a little bit of downward pressure on the net yield because of that flattening curve. I think that was the environment we mentioned in the second quarter conference call that would represent the greatest challenge.

Having said that though, we think on a dollar-basis, we believe we can achieve good growth and net interest income, largely because we feel we are in very good position continue to enjoy strong organic loan growth. As a said if you factor out the numbers on the north acquisition and look at loans from June 30 to September 30, we had about a 20% annualized growth rate. May be difficult to continue to achieve that level of growth. I think we have a lot of things in place, both in terms of the acquisitions, the addition and the addition of loan officers that should allow us to continue to see strong growth in the loan portfolio, which we think would more than offset any downward pressure on the net yield.

Okay. Just a couple other questions. When you mentioned the increased provision and the seven different commercial credits on eleven different loans, just to make sure I am following this right, and said the total balance is about 10 million dollars right.

That's correct.

Six of them are about $9,000 and then I guess there's another that's 4.2 million?

No, six them totaling $900,000 are in non-accruals so they're nonperforming. The balance of the loans would be about $9.1 million, which would be five other loans, which are not in the non-performing category and they're still performing loans, but they're effectively what you might term "watch credits" just because of the loan ratings. And of those five loans, the single largest is the $4.2 million loan that I mentioned.

Right. That big one that you mentioned can you tell us where in the state that is. What region or what city or a little clarity there? ?

Well, it's a multi-family -- I don't have the specific city, it's a, it's a multifamily credit that is related to a large apartment complex and it's a substan -- there's a substantial amount of tax credits that have been sold relating to that particular product or loan. And historically those loans, even if we've had a rating change on them because of, for example, here we have a lower somewhat lower occupancy level than was originally forecast, so the debt service coverage is lower than what was originally forecast.

But historically on those loans the limited partners will ante-up on cash shortfalls because they want to preserve the tax credits, which are very, very substantial. So while we've had a rating change on that loan, we've historically not had delinquency problems on that types of credit. So this is one I would categorize as being more defensive related to the debt service coverage level and the occupancy rates, but we still feel very comfortable with that credit.

The loan by the way is current.

Right, okay good. That's good to know. And lastly, can you talk a little bit about competition, on both loan and deposit side, what are you seeing? Are you seeing irrational pricing and if you care to mention any particular companies who are either doing a good job or you think are being irrational? That would be interesting as well. If you care to do that.

Well I'd have to say I think the term "Irrational banker" is an oxymoron. We're all rational, we may just not understand each other's perspective at times. I would say that the competition is fairly tough across our markets right now. There is excess capacity I would say in the lending area and a lot of people are looking for loans, that has pushed yields down in some areas. But we're still able to get consistently good levels of yield on our loans.

The Mortage business as Rob pointed out is going through a typical spasm after a boom cycle and that there are a lot of players fighting for pay much smaller piece of pool of business and there's a bit of irrationality in some of the mortgage players out there. There's a lot of non-bankers in that group as you're well aware. Overall and given our 20% run rate on loan growth, we think organically, we think it's still a pretty vibrant market for to us grow our loans.

On the deposit side, I think the competition has been from pricing perspective has been more acute on the loan side than the deposit side. You really, I mean, there may be a few exceptions, but on the deposit side I don't think we've seen a lot of people really reaching -- haven't seen a lot of upward pressure on core deposit rates because of the changes in short-term rates, although I think money market rates have drifted up some, but not nearly what we've seen on the lending side. I think as Chuck mentioned that excess capacity has -- has made competition keener on that side.

Interesting, the last question would just be just trying to set up my model and figure out based on some of these helpful run rate figures you have provided, we appreciate that. You mentioned your EPS at $0.51 would not be unreasonable, would that mean that the consensus, you're calling -- it would be a little high it, that would be about 2.04 for the year then, would be a fair run rate.

Well that is our current run rate and doesn't reflect activities that will occur in '05.

I think that would be a run rate if you assume no growth in earnings aspects and so on and so fort. So I think that's kind of a starting, our feeling is that would be a starting point and then you would have to model what type of growth assumptions would be appropriate and also what type of margin or net yield assumptions might be appropriate and I think we talked a little bit about that in terms of some downward pressure on net yield because of the flat curve, but more than offsetting that through loan growth in earning asset growth. So we would view that as kind of a starting point.

Okay great. Thank you very much for your answers guys.

Our next question comes from Joe Stieven with Stifel Nicolaus. Good morning guys, John Roades

Hi John.

Hi John.

Hey, Rob, I apologize if I missed this, but I think you talked a little bit about securities gain going forward or not taking securities gains going forward. Can you clarify that please?

Yeah I just said if you look at our historical pattern and I don't think anyone would do this anyways from an analyst's perspective, but I said it would -- you know, our historical pattern would suggest that you would not expect us to have security gains in the future.

I'm not saying that it's impossible, I mean we would look and see if there was some anomaly for example, we owned a corporate debt security and credit spreads tightened down so far we're at absolute historical lows and our sense was that, that that trend may significantly change, we might look at some type of opportunistic transaction in that vein but as a general rule, if you looked historically we've not generally taken securities gains except in that kind of instances.

Okay, no that makes sense. Other question was just related to loan growth, I guess -- you talked a little bit about it, but can you talk about the markets, I guess, throughout the state that you maybe primarily have seen the growth and then also talk a little bit about, I guess pay downs, have they slowed down? I guess that is about it.

Certainly the two large markets we are in, Grand Rapids and Oakland County have shown the most opportunity for growth for us and we've captured a good bit of business there. Though really, the the rest are rest of our markets are doing well.

I would say the big dollars of growth, John that we're seeing would be largely concentrated in the Grand Rapids region and Oakland County region. I mean, obviously Oakland County is a new market for us, although we had done some lending over the years in that market so we certainly were familiar with it, but now have the Midwest footprint in a large cawdry of commercial lenders -- that provided opportunities and then in the Grand Rapids market, that's been a market that we've been continuing to build in.

We're just opening a new branch right in downtown Grand Rapids in a renovated historical building. We've added some lender there's, we've add some lenders in some other markets as well. So we think we are going to have opportunities for growth across, across our markets, but probably the bigger dollars coming from the Kent County and Oakland County markets in particular.

Okay. Thank you, guys.

Our next question comes from John Bergquist with Sandler O'Neill. Please state your question.

Yes, good morning guys. One addition question on asset quality. Do the higher specific reserve relate to season loans or newer loans book in the past year or two?

Well the large one that we talked about we've had for four or five years at least, so it's been around a while. The other six specific ones -- .

Yeah, I think some of them are -- the majority of them are seasoned loans. We have one credit that did come over from the Midwest acquisition, so it's a newer credit for us, but I think it's a relationship that they had for at least a period of some years. So in general, these are more seasoned loans and not newer loans and again, I would reiterate that the bulk of the dollars in that group of 10 million are performing loan. So these are loans that may have some deterioration of underlaying credit characteristics, but they're still by and large performing.

Okay and one follow-up. I may have missed it, but could you indicate the current pipeline or outlook for commercial loan growth going forward?

Well, in particular, commercial loans if you looked at the third quarter and factored out what was added as a result of the north acquisition we had about 34 million of what I call "Organic growth" for lack of a better term which was about 16.5% annualized growth rate.

We do feel we've got a strong pipeline there, I don't have an exact figure for you, John, but I know I know just from anecdoteally talking to a number of our banks they have a lot of loans not only in the pipeline that have been approved, but they also have a number of loans that have been booked in the sense that we, we have closed them, but they hadn't yet funded as of quarter-end. So we would still expect to see pretty strong growth in that commercial lending portfolio based on what the bank's feedback has been in terms of their pipe lines.

Okay. Thank you.

Our next question comes from John Arfstrom with RBC Capital Markets. Please state your question.

Thanks. Good morning guys.

Good morning.

Hi, John.

Question for you Chuck, just preferences on capital use and can you, you know, buy back acquisition retention and then also can you touch a bit on how you view the pricing environment and your footprint?

Well, you'll probably have to help we with the questions as we go forward. But capital usage. Certainly we continue to have the ability with the returns on equity that we're generating to amass capital. We do like stock buy backs, but given our recent acquisitions we are in a bit of a hiatus in that area at the moment, but we would anticipate that having been some opportunity going forward. What was the next piece of that question?

Acquisition appetite and how the pricing looks in your footprint?

We're very eactive to acquisition rather than proactive I'd say. We, we're are always looking and we can look for in some cases several years before we find something that fits us, as well as the seller. And pricing is one of those givens within our culture that we do not buy something that we don't believe we can very quickly turn into a big positive for our current shareholders not our future shareholders.

John, I would say in not as much with Michigan, because there hasn't been kind of a volume of transactions here, but in general, it seems some deals that the M&A pricing has, has moved up and you know, that, that would make it a more challenging environment for us. You know, we think Midwest was what we would consider a full-price deal. It did give us some unique opportunities and a growth market that we felts with a great addition to our Michigan footprint in the North Bank Corp. acquisition was what I would consider more opportunistic and where that kind of relative basis was priced fairly low.

Certainly if you look at it as a multiple of their deposit base or multiple of their assets and they had earnings and asset quality challenges, but in terms of asset quality we were able to sell the vast majority of their non-performing and also some other loans of concern to get their credit quality numbers back in line. It was also a kind of unique opportunity for us, because of it's fit in our existing northern region of Independent Banks, so we were able to achieve very significant cost-saves. So the combination of these two things will allow us to turn their profitability around or have turned their profitability around quite quickly.

And then the real opportunity there is bumping that margin from where it was when we acquired them just north of 3% to more in line with what our margins are and I think we have a track record of being able to do that. Certainly the Mutual Savings Bank acquisition is a good example of that. So I think those are two sort of illustrations where Midwest was fully priced, but not overpriced in our mind, but had great opportunities in terms of market and future growth potential and North Bank Corp. was more in our sort of historical pattern of purchasing something maybe at -- that has a few dings or bruises that had a little bit lower priced characteristics, but something we feel we could quickly and rapidly turn around. So those would be the kind of opportunities I think we'd be looking for going forward.

Okay.

I'd add on the pricing side of things, certainly if you look around the country, there have been some extraordinarily high prices paid for banks. We don't necessarily see that as a factor in the smaller baskers that would typically be acquisition commands for us, 500 million and down. There is a lot of different dynamic at work there, compared to opportunities in Florida that some banks have recently purchased.

Yep, that's fair. Just one more question, if if we assume $0.51 is the run rate it looks like and grow that modestly it looks like '04 could be a pretty good year. Is there anything lingering in your mind or out there that you think puts the ability to grow modestly at risk or does it feel like it's pretty solid when you look out to '05?

I wasn't sure I understood and were you saying that '05 looks like a fairly solid year or '04.

'05.

Okay.

Anything that concerns you about '05 because when I look at it and pencil it out, it looks like your EPS growth should come backs particularly compared to the year you had this year and I'm wondering if there's anything, when you look to '05, that concerns you or does the outlook look pretty solid?

We're professional bankers so we're also professional worriers. You know, we are anticipating '05 to be more on track with our historical EPS growth rates. We do not have our, our financialing modeling completed yet for '50 so I, and if I did I probably couldn't tell you what it was saying certainly. But you know, we're anticipating getting back on track with certainly a better EPS growth rate.

John, just some, I got some more details, I mean obviously '04 we had a lot of kind of moving parts to and we expect '05 not to have as many unusual items. So if if you kind of look ahead certainly, we're not going to have to overcome the huge drop in gains on loan sales like we did when you compare '04 to '03. So we'd expect the mortgage banking environment in '05 to be, you know, somewhat comparable to, to, to '04. And then you look at all the other components obviously the biggest single item is your net interest income and I think we feel pretty good about loan growth and earning asset growth and so the other, the other component then is the margin and you know, I think the only item I point out there is a significantly flatter curve.

I mean much flatter from where we are today. I would put maybe a little bit more downward pressure on our margins. So that environment would be one, I guess, thing that if it did happen, that might not necessarily be a surprise, but might be a bit of a challenge. And then the other piece, which I think all bankers, as Chuck said we're worriers, is the one most difficult to project and that, and that's the credit quality. And I think we mentioned several times that we still feel that our credit quality is sound and don't forecast any real significant problems or issues there, but that's the one, the one component that's just extremely difficult to predict.

Okay. Fair enough. Thank you.

Thank you, John.

Just a reminder if you would like to ask a question at this time, please press star 1 on your telephone keypad? We will pause for a few moments while we poll for questions. Gentlemen, there are no further questions that the time. .

Well, thank you all for attending our third quarter earnings conference call and thank you again. Goodbye.

This concludes today's conference. Thank you all for your participation.