Mercantile Bank Corp (MBWM) 2007 Q2 法說會逐字稿

Welcome to the Mercantile Bank Corp. second-quarter earnings conference call. There will be a question-and-answer period at the end of this presentation. (OPERATOR INSTRUCTIONS).

Before we begin today's call I would like to remind everyone that this call may involve certain forward-looking statements such as projections of revenue, earnings and capital structure as well as statements on the plans and objectives of the Company or its management, statements on economic performance and statements regarding the underlying assumptions of the Company's business. The Company's actual results could differ materially from any forward-looking statements made today due to important factors described in the Company's latest Securities and Exchange Commission filings. The Company assumes no obligation to update any forward-looking statement made during this call.

If anyone does not already have a copy of the press release issued by Mercantile today, you can access it at the Company's website -- www.MercBank.com. On the conference today from Mercantile Bank Corporation we have Michael H. Price, Chairman, President and Chief Executive Officer; Bob Kaminski, Executive Vice President and Chief Operating Officer; and Chuck Christmas, Senior Vice President and Chief Financial Officer. We will begin this call with management's prepared remarks and then open the call up to questions. At this point I would like to turn the call over to Mr. Price. Mr. Price, you may begin.

Thank you. Good morning, everyone, and thank you for your interest in our company. Our financial results for the second quarter reflect the strong competitive profile, the challenging interest rate scenario and the continuing difficulties of the Michigan economy and its manifestation upon our income statement and balance sheet, especially in the areas of asset quality and loan growth. While we've spent considerable time and energy on asset quality issues we did see a significant increase to our nonperformers during the quarter. Two major credits totaling about $8 million were the chief contributors to this increase.

While we do not like the nonperforming trend, we realize that we're not alone in feeling the effects of the struggling economy. Our numbers remain in line with other Midwestern and Michigan banks, but we continue to focus on this part of our operations. From a positive standpoint, other than a onetime retirement expense, expenses remain well managed and we continue to see steady increases in our non-interest income. We are also encouraged that the $27 million in loan growth that we enjoyed this quarter may be a sign that economic optimism is starting to creep back into our markets.

At this time I'll turn the meeting over to our CFO, Chuck Christmas, and then the President of the Bank, Bob Kaminski, for further details of the quarter. As always, we'll have a Q&A session to wrap things up. Chuck?

Thanks, Mike, and good morning, everybody. What I'd like to do this morning is give you an overview of Mercantile's financial condition and operating results for the second quarter of 2007 and year-to-date 2007, highlighting the major financial condition and performance balances and ratios.

Our net income for the second quarter of 2007 totaled $2.2 million, a decrease of $2.9 million or 56% from the second quarter of last year. And for the first six months of 2007 net income equaled $6.5 million, a decline of $3.5 million or 35% from what we earned in the first six months of last year. Our core net income, that excluding the onetime expense related to Jerry's retirement, our net income for the second quarter of this year was $3 million, a decline of $2.1 million or 41%. And for the first six months our net income equaled $7.3 million, a decline of $2.7 million or 27%.

On a diluted earnings per share basis we earned $0.26 in the second quarter of this year, a decline of 57%, and we earned $0.77 in the first six months, a decline of 35%. Again, on a core basis we earned $0.36 in the second quarter of this year, a decline of 40%, and $0.86 in the first six months of this year, a decline of 27%. The declines in 2007 earnings performance are primarily the result of an increase in nonperforming assets which necessitated a higher provision expense and higher operating expenses from the related collection efforts.

The increase in nonperforming assets along with a very competitive loan and deposit environment also had a negative impact on asset yields, which when combined with the increase in cost of funds and a flat to inverted yield curve over the past 12 months resulted in a lower level of net interest income which more than offset the positive impact of growth in earning assets.

Our net interest income in the second quarter this year totaled $13.9 million, a decline of $1.7 million or about 11%. And on a year-to-date basis our net interest income totaled $28.4 million, a decline of $2.3 million or 7%. Our average earning assets during the second quarter of this year totaled $1.97 billion, that's an increase of $124 million or 7% over the second-quarter average from last year. And our average loans during the second quarter of this year totaled $1.76 billion, that's an increase of $112 million or about 90% of our growth in average earning assets from the second quarter of last year.

Our net interest margin during the second quarter of this year equaled 2.91%, that's about 56 basis points or 16% lower than the 3.47% we earned in the second quarter of last year. Looking forward, assuming a steady interest rate environment and a steady level of nonperforming assets, we expect our net interest margin to remain relatively steady from the second-quarter 2007 level, perhaps declining a couple of basis points during both the third and fourth quarters.

A vast majority of our fixed-rate liabilities are now at or near the current interest rate environment. Those fixed rate liabilities that were repriced to the current interest rate environment during the remainder of 2007 will put slight pressure on our cost of funds, but certainly not to the degree that we have seen over the past few years.

Our loan loss provision expense in the second quarter this year totaled $2.3 million, an increase of $800,000 or 57% from the second quarter of last year, and on a year-to-date basis provision expense totaled $3.4 million, that's an increase of $700,000 or 24% over the last six months -- the first six months, excuse me, of 2006. The increase in provision expense during 2007 primarily results from a higher level of nonperforming loans and a slightly higher level of net loan charge-offs. The reserve coverage ratio, defined as the allowance for loan and lease losses as a percent of total loans, was 1.28% at the end of the second quarter of 2007, up from the 1.24% level just a quarter ago and the 1.23% at the beginning of 2007.

Our fee income in the second quarter this year totaled $1.4 million, up 11% from the second quarter of last year, and on a year-to-date basis totaled $2.8 million, up 12% from the first six months of last year. We recorded increases in virtually all fee income categories with the exception of mortgage banking activities.

Our total non-interest expense during the second quarter totaled $10 million, an increase of $2 million or 25% from the second quarter of last year, and on a year-to-date basis totaled $18.8 million, an increase of $2.8 million or 17% from the first six months of last year. Again adjusting it to a more core basis excluding the retirement expense, non-interest expense in the second quarter of 2007 totaled $8.8 million, up $800,000 or 10% from last year, and on a year-to-date basis totaled $17.6 million, an increase of $1.6 million or about 10% for the first six months of last year.

Of that $1.6 million increase in core -- year-over-year increase, $1.3 million or about 81% is in salaries and benefits. [FTEs] increased from 277 as of June 30th of last year to 305 as of June 30th of this year, about a 10% increase. Occupancy and equipment costs were relatively unchanged while other operating costs were up primarily due to an increased size of the Company as well as some software and system enhancements that we've done over the last couple quarters.

As of June 30, 2007 our assets totaled $2.1 billion during the second quarter of 2007, that's an increase in total assets of $14 million while loans were up, as Mike mentioned before, $27 million. In the last 12 months our assets have increased $134 million and during that time loans are up $106 million or 6%. And as has always been the case at Mercantile, there have been no major changes in our asset and balance sheet composition.

Our funding strategy has not changed; we continue to grow local deposits and bridge any funding gap with wholesale funds, namely broker CDs and Federal Home Loan Bank advances. Our average wholesale funds to total funds during the second quarter of this year totaled 61%, unchanged from the first quarter of this year, but down from the 65% level during the second quarter of last year and, as you recall, we've been as high as 69% so we continue to experience really good local deposit growth.

From a capital perspective we remain in a well capitalized position per bank regulatory definitions with a total risk-based capital ratio as of June 30, 2007 of 11.4%. That's my prepared remarks. Be happy to answer any questions in the Q&A session. I'll now turn it over to Bob.

Thank you, Chuck, and good morning, everybody. Mercantile Bankers continue to work diligently to identify good new customer relationship prospects. Loan growth did show some signs of rebounding in the second quarter with $27 million in net growth, $30 million for the first half of the year. Pipeline analysis shows some good potential for growth the rest of 2007. Mercantile regional offices continue to contribute significantly to the overall loan and deposit growth with increases of over $16 million in loans coming from outside of Kent County during the quarter.

As has historically been our strategy, Mercantile will be very competitive on rate structure but will not compromise prudent credit quality principles. While Mercantile will not necessarily be low on loan rate, we will offer a very competitive and attractive package to borrowers seeking a relationship approach to banking.

Nonperforming loans took a sharp increase in the quarter due to some loan downgrades and some struggling credits in the portfolio. More specifically, a couple of larger commercial real estate credits totaling about $8 million failed to perform according to contract and were moved to nonaccrual status. While the bank is still working with the borrowers in hopes of reaching negotiated settlements of these defaults, legal remedies will be pursued where appropriate.

As many of these nonperforming credits are commercial real estate in nature, the length of time for completing a workout is much longer than in a non real estate loan. While net nonperforming loans have gone up we've continued to see results of aggressive workout strategies with some credits winding through to completion of liquidation and workout.

Regarding charge-offs, in the year-to-date 2007 totals is approximately $700,000 in charge-offs of previously reserved loans related to the loan fraud on the East side of Michigan that Mercantile discovered and disclosed in 2006. The complex litigation process for that situation continues.

Another area of charge-off is the continued evaluation of real estate collateral values in recognition of any loss exposure as appropriate on other real estate or impaired loans. As the Michigan economy continues to present challenges liquidation of collateral in the form of various types of commercial real estate becomes increasingly difficult in some situations. Mercantile continues to work diligently to determine avenues to maximize realizable value to the Bank. The current asset quality numbers are [inacceptable] to us and we continue to aggressively identify and work toward resolution on new and previously identified problem loans. That's it for my prepared remarks. I'll now turn it back over to Mike.

Thanks, Chuck and Bob. At this time we'd like to have a Q&A session.

(OPERATOR INSTRUCTIONS). Terry McEvoy, Oppenheimer.

Good morning. Mike, you mentioned in the released that Michigan is in the midst of a difficult economic period which kind of tells me we're still -- it still exists today. And so can you just walk me through your level of comfort and why you feel comfortable that MPA levels essentially have peaked here in the second quarter and we should expect to see some improvement in the second half of this year?

Well, we certainly are thinking that we're looking at a higher end of the MPA. And one of the reasons why we get that feeling for example would be our past dues usually are a good indication, not always but a pretty good indication of where our MPAs are going. And for the first time our 30 to 90-day past dues took a significant drop from May to June, and that's a good sign for us.

Now at the same time during the quarter we, as you can tell, significantly increased the reserves and took some credits and put them into nonperformers. But I think that's the best sense we get is more what's going on internally with the dynamics of our portfolio rather than the Michigan economy.

As far as the Michigan economy goes, we get fits and starts, we get some good news, like we finally I think have a tax structure that everybody is getting comfortable with in Lansing that people can feel comfortable now in deciding what that cost is going to be to their business as they make decisions moving forward. But we still have a difficult real estate market in the state that I don't -- certainly don't think it's going to change dramatically anytime soon but we haven't seen it get any worse significantly either in the last month or so.

And we were surprised to see the loan growth in the quarter above what I was looking for. Where essentially are you funding good customers? I know you mentioned about half the growth coming outside of Kent County, but could you just be specific in terms of maybe some other markets, characteristics of some borrowers that you feel comfortable lending money to in this environment?

Sure. And I'll enhance a little bit on what Bob said and certainly let him amplify my comments in a second here. But you're right, as Bob said, we had some good net loan growth out of our Lansing office. That team there has done a really good job of getting the Mercantile story out there and we're getting some good benefit from that. We got some good growth out of Grand Rapids the last quarter as well.

One of the things that's happened even probably as significant as the new customers that have come in is that the payoffs have slowed down significantly. If you remember, Terry, previous calls, we went through about 18 months where a lot of our really good customers just decided to sell some projects that they had been working on or had some opportunities to take some gains -- or in the case of some of them were not borrowing as much as they had planned and even paid down debt a little bit and that significantly slowed during the quarter and we hope that continues to stay going forward.

But I'll turn it back over to Bob, Bob may be able to give you some color on the types of loans these were and the types of customers. Bob?

I think where some of these new loans are coming from are some of the key new calling officers that we added -- some in the new market, some in the Grand Rapids market over the last year -- some of those efforts are now really starting to bear some fruit, some avenues of some customer relationships that we previously didn't have access to necessarily are now opening some doors for us and have started to see some fruits of the labor.

So I think it's been an encouraging sign and, again, looking at the pipeline, I think there's more potential there for the same kinds of opportunities we saw in this quarter. And as Mike said, we've been hurt by some significant payoffs in the last six months to nine months to a year and while our growth hasn't been what we'd like certainly, that certainly helped us -- that's hindered us from posting better growth numbers than we would have otherwise.

And then just one last quick question for Chuck. It was mentioned that the cost of funds was leveling a bit in the second quarter. Were you talking about the local deposit pricing or the cost of the wholesale funds leveling out or both?

That's mostly a factor of the outside area stuff, and the reason for that is more coincidence than anything else. Most of our local CDs, which are also all fixed rate, are relatively short, and so those have long ago repriced. Rates have been relatively stable for the last 12 months. But on the wholesale side where we tend to go a little bit longer term it takes a little longer time for that to be fully indexed if you will. So it's mostly on the wholesale stuff that has to reprice yet.

Great. Thanks for all the help.

Mr. (inaudible), UBS.

Hello, Gentlemen. As always, very appreciative of the detailed explanation of how things are going; it's a great thing. Some of the questions were answered in the previous -- gentleman, but I'm curious. Is there an official role for Jerry now at this point in his retirement or is there a role that he still plays?

There's certainly not a role in management, but clearly he is a significant shareholder and a supporter of the Bank and a friend of the Bank. But as far as a role in management day-to-day operations, no.

Thank you.

Ben Crabtree, Stifel Nicolaus.

Good morning. A couple of questions on -- well, I guess there's a reasonably significant difference between period end loan growth and quarter average. And just wondering if that implies that there was kind of a bulge up or kind of a late surge in loans that might be positive for average loan growth in the third quarter?

The growth tended to be more later in the quarter than earlier, you are right in your assessment.

And on the margin impact from the nonperforming loans, I'm trying to get a sense of if there's a significant reversal impact in there that obviously wouldn't be there in future quarters?

Ben, this is Chuck. In know for the whole quarter -- I know it's a little difficult to do the math, but for the entire quarter the impact if you do it on an actual basis was probably about $150,000. Obviously there were some timing issues on when we actually reversed some of that stuff out, but probably about a $150,000 net impact.

Of reversals that won't be there?

Yes.

Okay. And then something went by kind of fast that Bob said that I wasn't sure that I got right. He was talking about an additional $700,000 of charge-off other than the fraud related. Was that year-to-date or was that just in the second quarter?

That was $700,000 in charge-offs that were taken partly toward the end of the first quarter, the majority was taken in the second quarter.

Okay, great. So hopefully we've seen the last of that?

Well, the litigation process continues and it's always hard to predict. But again, the amounts that we have reserved for the analysis of the collateral in those specific loans has been recognized now.

We try to be very conservative in our overview of the loan portfolio, as you can tell, by the fact that while (inaudible) remain fairly steady and fairly in line with the banks, again in the Midwest and Michigan, we have identified more loans that we're going to really move into nonperforming and put on nonaccrual just to be conservative.

Okay, thank you.

John Rowan, Sidoti.

Good morning. My first question is for Mike. Can you just kind of comment on the 15% growth rate that you guys have always provided and kind of your view on that now that you are a CEO of the bank?

I'm sorry, I couldn't quite hear that question.

My question, Mike, can you just comment on the 15% growth rate that you guys have always targeted and where your whole compensation structure is targeted around now that you are CEO of the Bank and do you see a return to that any time in the future?

Well, basically as we stated a few quarters ago, we recognized in today's environment that to try to grow 15% with the conditions of our market would be a pretty difficult thing to do if we were still to adhere to our credit quality standards. So if you remember I think about two quarters ago we stated that we may be a little less than our goal of 15% and I still see that, in response to your question of do we see the return of that anytime soon -- I don't see us being able to do that in today's market with the way the economy is out there and still be prudent to the asset quality that we're really trying to keep.

That being said, how does it relate to the compensation structure? We started to do some revamping about how we pay our folks around here and we had taken a lot of that growth component out of the compensation for our lenders and put our lenders on basically the same program that everyone else is on which really focuses on earnings and earnings per share so they don't get penalized and we don't try to incent people to do things that probably are not prudently able to do.

Obviously we didn't expect 15% growth in '07, I'm more curious about how it relates to '08.

You know, if we could see the real estate market settle down a little bit and we could see some things get back to more normal, we think are normal levels out there as far as the economy goes, certainly I think we could approach double-digit again sometime in '08. But it's really, to be honest with you, too hard to see that far into the future as far as what the economy is going to look like.

I think we have the people, the structure, the vision, the corporate culture -- has any of that changed since I became CEO? Certainly not. I think we've got great people here; I always have thought that and I think Jerry and I felt the same way and I know Chuck and Bob do the same. I think we're well poised, as anybody, to take advantage of growth opportunities when those economic opportunities exist.

And just one more question for Chuck. Can you comment on the tax rate? It seemed to dip a little bit in this quarter, where you see it next quarter?

The tax rate was down a little bit and that's just a function of tax-exempt income as a percent of our total income. And I would suspect, assuming all things stay relatively equal of course, that our tax rate for the third fourth quarter will be back close to what it was in the first quarter.

Okay, thank you. Those are all my question.

Bradley Vander Ploeg, Raymond James.

Good morning, gentlemen. It sounds like you're pretty confident at this point that you've reached an inflection point, if you will, in terms of adding new nonperforming loans. Is that an accurate characterization?

I would think that we feel pretty confident that we're being pretty conservative. Can we say with absolute certainty that we won't see this economy get worse and a couple of the credits gets dressed? Certainly can't say that, but I know that we're working extremely hard on remedying a lot of these and we've got the right people working on them, so we're pretty confident from the standpoint, yes.

Okay. And maybe you touched on this and I missed it, but in terms of the underlying collateral, the real estate that's behind some of these loans that you've got now -- obviously you've written them down to where you think they ought to be, but how solid is the real estate market and is it something where you've had to revise down significantly? Or has that collateral been pretty stable over the past say six months?

It is a very moving target, Brad. It really is taken on a case-by-case basis. I mean, we have some appraisals of some real estate collateral that we took into RE at the start of our closure process and six months later those collateral values have declined on some pieces of property. On some others you see more stable value as the process winds through. But to answer your question, the real estate market has been definitely in a state of flux and is one that has caused some of the write downs that we've taken just because of those changing collateral values and it has not changed for the better.

Now you're not the only ones that are seeing higher charge-offs and nonperformers and so forth. Does it seem like the competition is pulling in their horns at all in terms of spreads or terms or anything that might bode better for the competitive environment?

This is Mike again, Brad. I'll let Bob or Chuck add anything that they've seen too. But in talking to our folks and looking at what's going through committee, I think as far as credit I am seeing -- we are seeing things become a little more reasonable again and say, boy, we need certain enhancements and advance rates are starting to come back into what makes common sense. But as far as spreads and what people are quoting loan rates are at, that's still very competitive and very aggressive out there and hasn't changed much. Bob or Chuck, I don't know if you have anything to add to that?

I'd agree. I'd agree. I think we'll see how the next quarter winds through, but hasn't been a big change on the rate side from -- to this point.

All right, that's what I had. Thanks.

Eric Grubelich, KBW.

Good morning. Just a couple things. I was in and out of your prepared comments, but just a couple nuts and bolts. Chuck, when you talked about the margin, you said there was a $150,000 reversal. You were just talking about the -- related to the new loans in the quarter that went NPL?

That's correct, yes. We're just talking about just the reversals during the second quarter which had a negative impact on the margin that shouldn't be there -- that reversal shouldn't be there in the third and fourth quarter.

Right, but you'd still -- if those MPAs are still on there you're going to have the drag of carrying those, correct?

Yes, we were just specifically talking about the reversal.

Okay, good. And then the other thing was as far as the charge for Jerry's retirement, am I calculating that right? Was that about $0.08 or $0.09 a share in the quarter?

It was $1.2 million gross and about $800,000 after-tax.

Okay. And then -- again, Mike, you may have covered this, but I apologize if I missed it. But when you talked about those two loans that were -- totaled $8 million on nonaccrual, what was the nature of those credits?

The largest one was a commercial retail customer out in our Holland market and the second was a builder of residential real estate here in West Michigan.

So there was a builder and one was really commercial real estate and the other one was housing related?

Right, right.

And there was a comment that you had in the press release that said that you strengthened our credit underwriting and loan review processes. I always considered your approach to asset quality underwriting pretty good. What is it that's maybe changed a little bit further here since the beginning of the year that -- I know you say that you've identified most of the problems, but is there anything you can sort of mention that was a little bit more specific about what's changed in the process?

Sure. What we've tried to do is we've added some more senior commercial lending people and we have developed smaller teams, if you will, to look at the credits very, very closely before they even get to the officers loan committee or to our board loan committee. And in adding a couple more senior loan people with a lot of experience I think has helped give some of the less experienced people some advice on loan structuring and really tried to break it down into smaller groups and work with people even closer to say, hey, this is what we're looking for, this is the type of customer we want to call on and this is how we want to structure it.

And we probably look more like a regular bank now than we did a couple of years ago. If you remember when I was president of the Bank, for a long time I acted as the de facto senior lending officer. And now we have an actual person named that in Ray Reitsma. And so between he and some of these team leaders and Bob and myself, I think we've tried to put even more emphasis on credit structure -- not that we didn't before. We always had I think a really good process, but recognizing I guess that for a $2 billion bank we need to be even more diligent in today's economy and also set ourselves up for what do we need to do to get to $3 billion, we made those changes.

Okay. And the other thing was -- is that where the headcount increase was in the quarter? Was it related to those people that you mentioned?

Partially. Yes, I would say that's probably the majority of it.

Okay, good. That's all I had. Thanks very much.

[Hallum Ridley], Securities Financial Advisors.

Congratulations on all your promotions. Sorry to see a great guy leave, but I'm sure you guys will fill in adequately.

We're going to give it our best shot. Thanks, Hallum.

A couple of questions. Number one, the growth of the Bank has always been considered to be in Michigan. And it appears to me that Michigan is pretty much tapped as far as potential and that you have picked the best locations, staying away from up north, staying away from the Detroit area. And I wondered if the Bank is still -- what the thought process is of the Bank for future growth, if the Bank is considering changing its position of going out-of-state?

That's a great question and the answer is that we certainly are looking at any and all options. I think one of the things that Jerry always did a good job of was exactly that and we certainly don't want to change that mode of operation. I would agree with you to a certain extent that Michigan is tapped out in the short-term for potential, but some of us have been around, like myself, for long enough to see these cycles come and go with the state of Michigan and got to believe that we're going to see Michigan see better days. I sure as heck hope so.

But we're not just sitting back saying, boy, we're just only going to wait for Michigan or only wait for the current markets or only wait on the way we're doing business now to turn it around. We continue to evaluate whether it be de novo opportunities, acquisition opportunities, in state, out of state. We keep looking at it. But we want to make sure that we act prudently and keep the focus that we have to our core business which is really important to us because we really believe with the people and the vision that we have in the long term it will hold us in good stead.

Okay, a couple other questions. One is in your internal budgeting and planning what are your thoughts or Chuck's thoughts with regard to improvement on the interest rate spread as to when that might occur?

That's kind of a loaded question, Hallum.

I know it is.

Obviously we still continue to struggle, as all banks do, with a pretty flat yield curve. It's done some pretty significant changes over the last couple weeks. It's got a little bit of a positive slope back. And I know in reading some commentary from some of the economists out there they're starting to get off their rate cut bandwagon and actually I've seen a couple jump onto the fed will probably have to start increasing rates next year. Obviously those predictions change a lot.

Starting to see a little bit better spreads just -- I know with regards to the bond portfolio and what we can get out there. But of course we've obviously seen some increases on the liability side too with that. So I don't project any significant changes in the interest rate environment through the rest of the year probably. It's still very competitive out there, as has already been commented on, and I don't see huge changes with the yield curve, but we'll just have to see.

It also appears to me that this has been the quarter to bury all the elephants. I get that it may not be a good word to use, but companies have a tendency if they've got to take on some -- write off some things and do some things they try and clean the table thoroughly. And it appears to me that with Jerry's severance package and the rate spread and reviewing the loans, that kind of looks like that's what the Bank has done.

We always try to take a very conservative outlook on credits and we certainly did again this quarter.

Okay. And the last question is I assume the Bank also with its growth going down is trying to look at it costs and expenses, keeping the growth of that down as much as possible.

Yes, absolutely. If you take out the onetime charge for Jerry's retirement package you can see that noninterest expense has been about a 9 to 10% increase pretty consistently across the last few quarters. So we're trying to keep a very, very close eye on that. We certainly don't feel that there's a lot of baked in fat that we could cut out of this organization.

I know some of our competitors are going through restructuring and layoff and we really don't want to do anything along those lines, but again, we've always been very lean as far as number of employees per million, as far as overhead expense ratio. So we want to make sure that we're very diligent but we don't think that need to go through anything as drastic as some of our competitors have had to do because we think we've got great people well poised to take advantage of everything when it turns around again.

Short-term solutions often lead to long-term problems.

Well, that's the balancing act, as you point out, there's a lot of things you can do short-term and there could be some sometimes knee-jerk reactions that can be detrimental to a company's culture and focus long-term and we're trying to make sure that any change that we make on a short-term doesn't do just that.

The last thing that I would comment on -- and I don't know if this is something that you may have talked about or thought about is at these prices, even though you're given a stock dividend, a stock buyback program might be interesting.

Well, we've done a very good job of discussing that with our Board and within senior management something that Jerry's started even before he left to put that possibility out there. We continue to take a look at it, but again it's one of those things where on the short-term it might seem appealing, but we want to make sure long-term, especially if we continue to see loan growth picking up and the need to deploy that capital that we're doing the exact right thing. But appreciate you bringing it up and we certainly want you to know and everyone to know that it is always something we will consider.

Keep up the good work in these difficult times.

Thank you very much.

There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Thank you very much. Thank you all for participating today and, again, in your interest in the Company. And if you have any further questions, please feel free to contact Chuck or Bob or myself. Thank you very much.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.