Independent Bank Corp (Michigan) (IBCP) 2006 Q1 法說會逐字稿

Greetings, ladies and gentlemen. Welcome to the Independent Bank Corporation first quarter 2006 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. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded.

This webcast may contain forward-looking statements as defined in section 27 AI1 of the Securities Act of 1933 as amended, including statements regarding among other things the Company's business strategy and growth strategy, the expressions which identify forward-looking statements, and 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 or quantified, and are beyond their control. Future developments and is 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 there can be no assurance that the forward-looking information will prove to be accurate. This webcast does not constitute an offer to purchase any securities, nor a solicitation of a proxy, consent authorization, or agent designation, with respect to meeting of the Company stockholders.

It is now my pleasure to introduce your host, Mr. Michael Magee, President and Chief Executive Officer of Independent Bank Corporation. Thank you, Mr. Magee, you may begin.

Good afternoon. We are pleased that you could join us on our conference call to discuss first quarter 2006 results.

Earlier today we reported first quarter 2006 net income of $12.3 million, which was up $1 million, or 9.2% from the first quarter of 2005, and up $900,000, or 7.9% on a linked quarter basis. Our diluted earnings per share of $0.56 this quarter, were up 12% from the year ago comparative quarterly earnings per share of $0.50.

As reported in our earnings release, the first quarter of 2006 included a benefit from the previously disclosed settlement of litigation with the former owners of Mepco, as well as some non reoccurring expenses which netted to an after tax benefit of about $0.07 per share. When factoring out these items in 2006, along with a $0.02 per share after tax benefit in the first quarter of 2005 related to the recovery of impairment charges on capitalized mortgage loan servicing rights, our earnings were relatively unchanged.

The first quarter reflects continued growth in our level of interest earning assets, with linked quarter annualized loan growth of approximately 9.3%. This growth is reasonably consistent with the full year expectations we discussed in our last conference call. However, as has been the case in the last few quarters, the positive impact of the growth in interest earning assets was offset by the erosion in our net interest margin, due primarily to the challenges of the flat yield curve environment. Rob Shuster, our CFO, will discuss our net interest margin in getter detail during his remarks.

Profitability measures were strong in the first quarter of 2006 with a return on average equity of 20.2%, and a return on average assets of 1.49%. Adjusting for the $0.07 per share in unusual items, the ROE was 17.7%, and ROA was 1.31%. Although non-performing loans rose a bit during the first quarter of 2005, all of this increase was due to two commercial credits as outlined in our release. Further, net loan charge-offs declined by 34%, or were at a 0.17% in the first quarter of 2006 compared to 0.30% in the first quarter of 2005. We continue to place a great deal of emphasis on managing asset quality.

Rob will now provide some additional details on first quarter results.

Thank you. Good afternoon, everyone. Mike covered the highlights for the quarter, and I will provide additional details on net interest income and our margin, certain components of non-interest income, and non-interest expense and asset quality.

Tax equivalent net interest income totaled $35.3 million in the first quarter of '06, which was up $241,000, or 0.7% on a comparative quarterly basis, but down $520,000, or 1.45% on a linked quarter basis. The increase in comparative quarterly tax equivalent net interest income was due to a $231 million increase in average interest earning assets, primarily as a result of growth in all categories of loans.

Partially offsetting this was a 33 basis point decline in our net interest margin to 4.59%, from 4.92% on a comparative quarterly basis. The decrease in linked quarter tax equivalent net interest income was primarily due to there being two less days in the first quarter of '06, compared to the fourth quarter of '05, as well as to a 6 basis point decline in our net interest margin. The impact of the two fewer days in the quarter was just over $700,000.

Offsetting these items was a rise in average interest earning assets, which increased by $39 million due to growth in all loan categories. The increase in loans was partially offset by a decline in the average balance of investment securities. The decline in investment securities reflects the difficulty in replacing the paydown or maturing of existing investments with new trades that meet our return and risk objectives given the flat yield curve.

On a comparative quarterly basis and linked quarterly basis our yield on average interest earning assets and our cost of funds both increased, due principally to the rise in short term interest rates. However, the rise in the cost of funds has eclipsed the increase in the yield on interest earning assets, reflecting both the flat yield curve, as well as competitive conditions for both lending and deposits.

Looking ahead, we continue to be relatively balanced in terms of interest rate sensitivity. We remain optimistic that loan growth, which was 9.3% annualized in the first quarter will continue despite challenging economic conditions. However, although finance receivables grew by $33 million, or about 36% annualized in the first quarter, we are concerned about a potential loss of business in the Warranty Division, due in part to price increases that we implemented late in the first quarter.

Moving on to non-interest income, service charges on deposit accounts were up $200,000, or 4.9% on a comparative quarterly basis, but were down by $477,000, or 10.1% on a linked quarter basis. The linked quarter decline is due primarily to seasonal factors, as we experienced a similar decline of 11.6% when comparing between the fourth quarter of 2004, and the first quarter of 2005.

Visa check card interchange income was up 27.2% on a comparative quarterly basis, and up 4.4% on a linked quarter basis, reflecting a rise in debit card usage. Gains on real estate mortgage loans declined on both a comparative and linked quarter basis, due to a decrease in the volume of loans sold. We expect conditions to remain competitive in the mortgage banking sector. Real estate mortgage loan servicing income was down on a comparative quarterly basis, but up on a linked quarter basis. These variances primarily reflect changes in the impairment reserve on an amortization of capitalized originated mortgage loan servicing.

During the first quarter of 2005 we had a $619,000 recovery of previously recorded impairment charges, which equates to about $0.02 per share after tax. Excluding changes in the impairment reserve, we would expect real estate mortgage loan servicing income to run at about 500,000 to $650,000 on a quarterly basis in 2006. Several categories of non-interest income including title insurance fees, investment and insurance commissions, and manufactured home loan origination fees and commissions, declined on both the comparative and linked quarter basis, due to declines in business volumes.

We do expect these revenues to rise in the second quarter of '06 compared to the first quarter. Non-interest expense totaled $28.8 million in the first quarter of '06, and includes $1.7 million of claims expense associated with the release of escrowed shares of IBC stock, as part of the settlement of the litigation with the former owners of Mepco that Mike mentioned earlier, and operating expenses also include $0.3 million of severance expense, that is primarily associated with certain staff reductions. Excluding these items, non-interest expense totaled about $26.8 million, or about 3% higher than the first quarter of 2005, which is consistent with the comments we made in our fourth quarter conference call, about the expected rise in non-interest expenses during '06.

Also included in occupancy expense in the first quarter of 2006 is an additional $240,000 of depreciation expense on the old Main Office building of First National Bank of Gaylord, which we acquired in mid-2004. We made a decision to raze the old main office building, and replace it with a more functional branch facility, and we are writing off the remaining book balance on an accelerated basis, which will continue through June 2006.

FASB 123-R really had no appreciable impact on a comparative quarterly basis, as compensation and benefits expense in both the first quarters of '06 and '05 contain a component for equity based incentive compensation. As you may recall in early 2005, we still thought stock option expensing would begin on July 1 '05, so we actually accrued for an equity based component of incentive compensation in the first quarter of '05. Overall performance based compensation is actually lower in the first quarter of '06 when compared to '05, because of lower expected payouts for '06, based on our incentive compensation targets compared to actual results for the first quarter.

Our effective income tax rate was 20.4% in the first quarter of '06, which was quite a bit lower than both the comparative and linked quarters. As we previously disclosed, the $2.8 million received in the litigation settlement is treated as a return of purchase price for tax purposes, and therefore there is no income tax expense associated with this item, which results in the lower effective income tax rate in the first quarter of '06.

We would expect second quarter effective tax rate to return to more historical levels. Our assessment of the allowance for loan losses resulted in a provision for loan losses of $1.6 million in the first quarters of '06 and the first quarter of '05, but is somewhat lower than the linked quarter.

I am now going to go into some detail on non-performing loans, net charge-offs, and the allowance for loan losses. As Mike mentioned, non-performing loans increased by 3.6 million to $21.6 million, or 0.83% of total portfolio loans at quarter end. This increase was due to the addition of two commercial credits.

The first is a $3.6 million loan secured by a low moderate income apartment complex located in Port Huron, Michigan, that we have discussed in previous conference calls. This borrower group is the same as that involved in the two loans that we sold in the fourth quarter of '05. This is our last lending relationship with this borrower group. We have initiated the foreclosure process and based on our current analysis, we do not anticipate any significant loss on this credit.

The second loan is for $1.5 million, and is secured by vacant land in the Lancing, Michigan area. A purchase offer is currently pending on this land, and we hope to resolve this credit before the end of the second quarter.

Moving on to net loan charge-offs, they totaled $1.1 million in the first quarter of '06, or 0.17% of average portfolio loans, which is down from the first quarter of '05's total of $1.7 million, or 0.3% of average portfolio loans. Our allowance for loan losses to total portfolio loans remained at 0.90% at both March 31, '06, and December 31, '05.

An analysis of the components of the allowance is as follows: the portion of the allowance allocated to specific loans, increased by about $150,000 since year end, due primarily to a reserve added for a specific commercial loan. The portion of the allowance allocated to other adversely rated loans declined by about $226,000 since year end 2005, due primarily to a slight decline in the balance of such loans.

As I mentioned in the previous conference call, we utilize a 12-point loan classification system, with 1 being the best rating, and 12 being the worst rating, and the total of loans rated 7 or higher, which some might call watch credits, declined to $76 million at March 31, 2006 from $78 million at year end 2005.

The portion of the allowance related to historical losses increased by $100,000 since year end '05, due primarily to loan growth. We utilize a 10-year rolling average in calculating this component of our allowance, with the most recent 24-month period weighted the highest. Finally, the subjective or unallocated portion of our allowance increased by $440,000 since year understand '05, due primarily to ongoing concerns about soft economic conditions in Michigan.

Although first quarter '06 earnings totaled $12.3 million, stock holder's equity at March 31, 2006, increased by only $508,000 primarily because of share repurchases. During the first quarter of 2006, we repurchased 340,000 shares at an average price of $26.99 per share. As previously announced, we are currently authorized to repurchase up to 750,000 shares during all of 2006. Despite these share repurchases, tangible net book value per share increased in the first quarter of 2006 at a 6.3% annualized rate.

This concludes my remarks, and I would now like the turn the call back over to Mike Magee.

Thank you, Rob. Before we open the call up to questions, I want to make some closing remarks regarding the balance of 2006. Although we believe the remainder of 2006 will be challenging, we continue to pursue a variety of actions to meet these challenges. As mentioned in last quarter's conference call, we are placing significant emphasis on containing non-interest expenses. We have already implemented certain cost reductions, and will continue this process over the next several months.

In addition, we are also seeking certain revenue enhancements. Combined, we have a goal to achieve 2 million in annualized increased pre-tax earnings from these efforts. We continue to actively recruit additional commercial lenders, mortgage loan officers, and investment representatives, and have had success thus far in 2006. Our recently opened branch offices have exceeded our expectations for loan and deposit growth. In certain locations we have expanded hours including being open on Sunday, in order to better serve our customers and generate additional business.

Finally, we are hopeful that the Fed is nearing the end of their tightening cycle. We are optimistic that when this occurs our net interest margin will stabilize, and continued loan growth will begin to generate linked quarter increases in our net interest income.

I would now like to open the call to any questions you may have. [Begin Q-And-A]

Thank you. [OPERATOR INSTRUCTIONS] Our first question is from Kenneth James with FTN Midwest Securities. Please proceed with your question.

Good afternoon.

Hi, Ken.

I was hoping to get a little more color on the cost reduction and revenue enhancement initiatives you have under way. You outline $2 million. Can you break that down between how much you would like it get off the expense side versus the revenue side?

Sure.

Go ahead. I am sorry.

Most of it is on the expense side, with about 1.5 million coming on the expense side, and the rest on the income enhancement side. I will give you just some examples if I can, Ken, of areas that we're cutting expenses. We're cutting expense so far we've roughly identified 20 FTE positions, with about half of those have already been eliminated with severance packaging offered. The other half have been realized, but we didn't have severance packages tied to them, because we were able to use attrition in order to reduce those FTE positions.

Another large ticket item for us was we eliminated a daily courier service to all of our locations. What I mean by that is, we were in the past we were, our courier service was delivering or picking up items twice a day at all our locations. We've gone to one time a day, and that saved us a significant amount of money by just going down to one.

Other areas we have reviewed all of our service contracts, including our facilities maintenance, and have been able to identify and reduce several expenses in that area. We are turning over every rock. I can tell you in looking every place we can cut expenses.

Some small ticket items is, cutting back on T&E expense, such as conferences, who is attending conferences, if we're even going to attend some conferences this year. Meetings that we've had in the past. We're eliminating those and holding more meetings by conference calls. We're looking at several areas, just about everything we can look at. As far as cutting expenses. But I will say this.

We are not cutting any expenses if it has a negative impact on the customer. The one thing when we look at all our expenses and look at cutting expenses, the one question we have to ask ourselves, will this have a negative impact on our customer, and if it does, then we won't cut that expense. Areas or examples of income enhancements that we're looking at, there is a couple areas we've had an opportunity to increase some fees, also review our rates.

We have implemented a fee for non-customers, non-independent bank customers using our ATM machines, and again we have taken and shopped all our fees against our competitors, and where we have been low in the fees that we've cost, we've actually been able to raise some line items. I hope that gives you some examples, Ken, but we're looking at everything.

Okay. And would it be fair to say, then, that from an expense perspective that these initiatives are going to severely restrict the rate of growth, but we would be unlikely to see a negative year-over-year expense comparisons, in other words year-over-year expense declines here over the year?

I think it would be more likely that you would see the rate of increase lower rather than absolute dollar declines, because as we mentioned, we're also continuing to recruit commercial lenders, mortgage loan representatives, investment representatives, certainly areas that we believe can generate top line revenue growth we're going to continue to pursue, so I think it would just be a deceleration of increases, and we're trying to be very judicious, as Mike said, as to where we're cutting. So we are able to still generate top line revenue growth we hope in the future, while containing the cost increases.

Okay. Thank you.

Our next question is coming from the line of Mr. Kevin Reevey with Ryan Beck. Please proceed with your question.

Good afternoon, guys.

Hi, Kevin.

Mike, can you talk about where you're adding your additional commercial lenders and mortgage lending staff from a geographic standpoint?

Sure. We have been able to add one commercial lender on the west side of the state, Grand Rapids market specifically, and we have added five mortgage originators on the west side of the state. We have added two mortgage originators in the southeast side of the state, and have added one investment and insurance representative in Gaylord, and we have added a mortgage originators in the Saginaw market.

Do you expect to continue to add lenders in these markets, or are you pretty much done in terms of hiring?

Kevin, I am sorry, we also added two commercial lenders in Lancing. No, we are not done at hiring. We will continue if we can find seasoned mortgage originators and commercial lenders, that have been in the business, that have a good reputation in their markets, we will go after them, and try to recruit them, and bring them on board with Independent Bank Corporation.

The branches that you opened last year, how far away are they from being breakeven?

That is the one branch just opened in East Lancing, and that office to this point is opening twice the accounts, that the other branches in that market is opening. It is averaging 140 accounts per month compared to the other offices are averaging about 65 to 70 per month, and has already generated about $2 million in balances, and 1.1 million in loans.

Our office in Grandville has not produced a lot in loans at this point. One of the mortgage originations that I shared with you that we added in west Michigan, just started last week originating out of that office. It has been throughout our whole Company, it has been opening March accounts on a weekly basis than any other branch within the Company. That's averaging about 160 new accounts per week.

Then we have Saginaw which has exceeded and is at a breakeven point. They have already originated $21 million of loans. We're projecting they would be at 2.5 million in deposits, and they're already at 4.6 million. That has been both positive. That's only been open for about seven months. That's been positive for both generating deposit balances, and obviously a great loan generator.

The first two branches you talked about when do you expect them to breakeven?

We would expect loan volume because I really believe that it is going to take a little longer to grow the deposits to the point you can breakeven on the deposits, but we expect the loan volume to get to enough of a contribution that they should be, I would guess sometime this summer to middle to late fall.

And then my final question is, I assume that the whole Mepco situation is behind you, we shouldn't expect to see any more charges or recoveries?

All of the litigation has been resolved. That's correct.

Great. Thank you.

Thank you, Kevin.

[OPERATOR INSTRUCTIONS] Our next question is from the line of Jason Werner with Howe Barnes. Please proceed with your question.

Good afternoon, guys.

Hi, Jason.

My question is about the low income apartment unit in Port Huron. As part of the other relationship you have sold the other ones. This one you're going through foreclosure, you don't expect to take much of a loss. What's different about this one than the other ones?

The occupancy levels are better. The condition of the property is significantly better. The location of the property is significantly better, and the demographics are better. I mean it is a different type of subset of renters, and we just feel this is a far more marketable property, than the two that were in Saginaw.

When we do go through our analysis, we go through and get an updated valuation, plus we discount that valuation, and then we take into account costs of disposal and holding costs, in terms of our analysis, so typically we've been we think fairly diligent, in terms of determining evaluation and what the expected outcome of the collection process might be, the properties in Saginaw were quite a bit different than what we're looking at with this property.

That begs two questions. One, when do you think the overall resolution would be, and if this product or this property is more marketable, why wouldn't the borrower have sold it himself?

Well, a couple of different things there is because of the nature of these projects with the tax credits, a change in ownership will strip the tax credits from the original purchaser of those items, so these properties are actually owned by a limited partnership, and that limited partnership sold the tax credits, and if there is a change in ownership, at least as I understand it, there could be a loss of those tax credits to the original purchasers, so typically you do not change ownership.

What you do and this is what has been done, you change the general partner who is managing the project. That has been done, but in actual change in ownership, for example our foreclosure process will trigger a change in ownership, and that will create a problem for the original purchasers of the tax credit.

That's why typically there is some resolution of these kind of properties prior to it going through a foreclosure, because of the adverse impact from the tax credit perspective, so that's why you're not going to see the borrower group, Jason, selling, or that limited partner selling the property, because of what the impact with the tax credits is.

Okay. The other part of the question, when do you think the ultimate resolution, how long do you think it will take?

If it is the normal foreclosure process which I expect it would be, you're looking at better than a 12-month cycle between the foreclosure process being completed, the redemption period, and then the remarketing of the property. You're going to be looking probably toward, if there is not some other form of resolution that goes all the way through that form of collection, it probably be into the middle part of next year before it would be resolved.

Okay. And another question I have is on Mepco, you mentioned in your commentary that, some concerns about losing some warranty business due to the price increases that you had, kind of a change in tone from the last conference call. I was just kind of curious to give us some color there.

Well, we are concerned about a potential loss of business there because of the pricing increases that we have instituted. Some changes in some of the funding mechanics, we are concerned about a potential loss of business.

Are you starting to see that already?

We're starting to see from a couple of counterparties some slow down in the volume of business they're delivering, yes.

And then I guess do you do anything to kind of stop that from happening? Do you go back and with the counterparties that are reducing volume, do you go back to them and negotiate rates some more, or do you let that business go?

Well, I think our view is that as we move through '05, you know, we absorb the increases and funding costs, and we push through price changes during the first quarter of '06 that we thought were reasonable based on our funding costs, and if someone is out there that is willing to accept that business at a lower margin, our view is from a risk/reward standpoint, we have it priced correctly.

Having said that, we're certainly going to make every effort to retain every single customer relationship we can within that business, but it is just like any business, Jason, at some point in time you have to evaluate whether the returns are commensurate with the risk and make a decision accordingly.

The 32 million and the increase in receivables, was that mostly premiums then as opposed to the warranty?

It was actually across the board.

Okay. Last question, status of the securitization of those receivables?

We are still planning on a closing during the second quarter. We are awaiting just feedback at this point from the rating agencies, and then we believe we can start to move toward closing, but our game plan is still to get it closed this quarter.

Thank you, guys.

Yes.

Our next question is coming from Christopher Nolan with Oppenheimer & Company. Please proceed with your question.

Good afternoon.

Hi, Chris.

The other property that's in at non-performing assets, the vacant land, any commentary in terms of your confidence level recovering that amount, because you made a reference for the other properties saying that you were confident that there won't be a charge-off. How about for this vacant land property?

We don't either. We've got a purchase offer that is, assumes the debt with a much stronger borrower group. We would not expect any loss related to that resolution.

Great. And the allowance ratio of 90 bips, do you anticipate going below that much?

Somebody asked the same question last quarter. We will continue to run the model that we've run consistently for the last six or seven years, and see, you know, what that model determines should be the appropriate allowance, which then will based on net charge offs, establish what the provision for the period should be, and I kind of went through the components.

Now, what would push the allowance up, is as I mentioned in prior calls, and it is very difficult comparing ours across the board to other banks, you know, 400 and some odd million of our portfolio is finance receivables. There is 25 basis points of allowance related to that. When we do the securitization, if we get it completed this quarter, that would push our allowance up probably about 4 or 5 basis points, so you have components within the allowance, like the finance receivables, where it is only a quarter point.

So if that either goes down through a securitization, which is accounted for as a sale, that would drive it upward, and then the balance of the components are going to be based on the various factors that I covered, which are specific allowances related to problem loans, the portion of the allowance related to classified credits which has actually been coming down. I had given you the total of what the 7 and higher rated credits was. That was about 88 million. I think at the end of the third quarter it went down to 78 million at year end, and is now 76 million, so that's actually been declining somewhat.

The third component is largely related to historical charge-offs, and as I mentioned that component was up a little bit. Net charge-offs were down in the first quarter at 17 basis points, so if those continue to be relatively low, I don't see any significant growth in that portion of the allowance however if loans grow, that's going to probably come up commensurate with loan growth.

And then the last component that I mentioned was actually up 440,000 which is the kind of subjective component, and that's really the area where judgment comes into play regarding looking at assessing overall economic conditions, trends in the loan portfolio, trends in delinquency ratios. That was up 440,000.

I don't know that we could project that it is going to be 90 basis points or higher or lower. What I can say is if we complete the Mepco securitization in the second quarter, that would tend to push it higher, because we would be getting off about 150 million of loans with the low allocation of the allowance.

Great. Thank you very much.

Yes.

Our next question is coming from the line of Kenneth James with FTN Midwest Securities. Please proceed with your question.

My question was answered. Thank you.

Our last question is coming from the line of Jon Arfstrom with RBC Capital Markets. Please proceed with your question.

Hi, Mike, hi, Rob.

Hi, John, how are you?

Good. It is amazing you guys can get anything done with the Red Wings and the Pistons. [laughter] Good post season for you guys. Rob, I wanted to ask you about the margin a little bit to make sure I understood what you said, about the impact of the days, and I am looking at it on a linked quarter basis. Can you go through that again?

The two, it is probably, you know, it is interesting, because there are certain assets where the lesser days don't have an impact. There are certain assets where the interest is calculated at 112, like mortgage loans, rather than the number of days, so those really don't get affected, but the bottom line is we had 92 days in the fourth quarter of '05, and only had 90 days in the first quarter of '06, and that number of days in the quarter actually impacts the dollar level of net interest income, and at least as I worked through the calculations, the two fewer days in the first quarter was an impact of about $700,000, compared to the linked quarter, so in other words my point would be, if we had 92 days in the first quarter, instead of the 90, that actually we would have had higher net interest income of about $700,000 in the first quarter versus what we actually had.

Okay.

I don't know if that makes it clearer.

Yes.

And that comparison is only relevant on a linked quarter. Comparative quarter, it is apples to apples. Because you have 90 day quarters for about --

What I am trying to get at is the link quarter, equal days, what would the percentage margin have been, and did you say it was 6 basis points? I can work through the model.

6 basis points is still a good number. It is down 6 basis points, because we compute that actually based on the number of days in the quarter. We go through each component and figure out each component based on the actual number of days in the quarter. The 6 basis points is the decline from the last quarter, for the fourth quarter of '05 to the first quarter of '06.

But are you saying if you had an equal number of days, the percentage margin would have been higher?

No.

Okay.

The percentage margin would have still been 459, because we would have adjusted our calculation. The way we get to that number, we would have had more days, so it would have still come out at 459. We're still down 6 basis points. Those two days does not, we take that into account in the calculation of those margins, so we're actually down 6 basis points a linked quarter.

That's what I thought you said. The 700,000, I just wanted to make sure. The other question I had is premium finance pricing, how is the pricing holding up, and have you been able to keep consistent spreads to prime as prime has risen?

I think it has been very competitive there, and I think compared to where we were a year ago to a year-and-a-half ago, margins have gotten squeezed there. And I would, this is just sort of anecdotal. I would say probably margins are off 50 to 75 basis points. It is just, it is very competitive. People, and I don't know if someone asked the guys at Wind Trust that same question, but our view is that pricing competition has been pretty competitive in that end of the business.

Okay. Great. Thank you.

Gentlemen, there are no further questions at this time. I will turn the floor back over to you for any closing comments.

Okay. On behalf of Rob and myself, we want to thank all of you for participating this afternoon in our first quarter conference call, and look forward to visiting or seeing you in the near future. Thank you very much.

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