Mercantile Bank Corp (MBWM) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Mercantile Bank Corporation first-quarter 2011 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions following at that time. (Operator Instructions). As a reminder, this conference is being recorded and now I'll turn the call over to Michael Price, Chairman and CEO. Please begin, sir.

Thank you, Tyrone. Good morning, everyone and welcome. We are very happy to report Mercantile Bank's return to profitability. While there is still much work to do to bring asset quality back to our desired levels, much has been accomplished during the past four quarters. The hard work of our team, the improving economy and the success of our strategic initiatives melded together to produce our first profitable quarter in some time.

Looking forward, we see a very bright future for the bank and we are very grateful that we survived this deep recession with a strong capital position and a great team of bankers ready to provide West and Central Michigan with superior service and products.

As usual, Chuck Christmas will cover the financials and then we will have Bob Kaminski cover the dynamics of our loan portfolio. We will remain available for questions at the end of the presentation. At this time, I will turn it over to Chuck.

Thanks, Mike. Good morning, everybody. This morning, we announced that we recorded net income of $1.1 million during the first quarter of 2011 compared to a net loss of $3 million during the first quarter of last year. This $4.1 million improvement, which expands to $5.2 million if we exclude a federal income tax benefit and one-time investment and loan sales gains recorded during the first quarter of last year, results from improvements in many key areas of our financial condition and operating performance, but especially reflects a significantly lower provision expense and a record high net interest margin.

We are, of course, pleased to be able to report net profit for the first quarter of 2011, our first profitable quarter after two years of quarterly losses reflecting improved economic conditions, combined with the positive impact of numerous strategies developed and implemented over the past several years.

Declining nonperforming asset levels, a prudent loan portfolio, along with honed credit underwriting and administration practices, a record high net interest margin, lower controllable overhead costs, an improved liquidity position through substantial local deposit growth and dramatically reduced reliance on wholesale funding, and strong and improving regulatory capital ratios provide us with cautious optimism as we look to our future earnings performance and overall financial condition.

Yes, much more work lies ahead and many headwinds continue to face Mercantile, the banking industry and the economy at all levels. However, we believe we are well-positioned to succeed as a strong community bank and continue to play a pivotal role within the markets that we serve.

During the first quarter of 2011, we saw the continuation of the very positive trends we reported during all of 2010 and throughout most of 2009 as well and I would like to touch on some of them with you this morning.

An improved net interest margin has provided substantial support to net interest income that has been negatively impacted by the decline in earning assets. Net interest income during the first quarter of this year was $13.4 million or about 6% lower than the first quarter of last year. Average total earning assets declined by about $305 million between the first quarter of this year and the first quarter of last year. However, our net interest margin increased from 3.25% to 3.64% or about 12% during the same time period. The improvement is primarily due to a decline in our cost of funds, but also reflects a relatively stable yield on assets resulting from the many strategic initiatives we have successfully implemented within the commercial loan function.

Provisions to the reserve totaled $2.2 million during the first quarter of 2011, a substantial decline from the $8.4 million we expensed during the first quarter of last year and well below the average quarterly provision amount during the past three years. Our loan-loss reserve was $42.1 million at the end of the first quarter or almost 3.5% of total loans. A year ago, the loan-loss reserve equaled 3.35% of total loans.

Local deposits and sweep accounts were up $55 million during the past 12 months and are up almost $275 million since the end of 2008. Combined with the reduction in our loan portfolio, we have been able to reduce our level of wholesale funds by about $840 million since the end of 2008. As a percent of total funds, wholesale funds have declined from 71% at the end of 2008 to 40% at the end of the first quarter.

Overhead cost reduction strategies have been realized. Salaries and benefits, occupancy and furniture and equipment costs declined $0.5 million or about 8% during the first quarter of 2011 compared with the first quarter of last year and are down $1.6 million or almost 23% when compared to the first quarter of 2009. Nonperforming asset and administration of resolution costs remain elevated. These costs totaled $3.1 million during the first quarter of this year, similar to that of the third and fourth quarters of last year, but $600,000 higher than the first quarter of 2010.

As with provision expense, we do expect a reduction in nonperforming asset administration and resolution costs in the future periods if the level of nonperforming assets continue to decline.

We remain a well-capitalized banking organization. As of March 31, our bank's total risk-based capital ratio was 13% and in dollars was about $41 million higher than the 10% minimum required to be categorized as well-capitalized. A year ago, our bank's total risk-based capital ratio was 11.2% and the surplus was about $20 million. Those are my prepared remarks. I will now turn the call over to Bob.

Thank you, Chuck. As usual, my comments this morning will focus on the details of the Company's asset quality. The favorable trend of declining nonperforming asset totals that started in the second quarter of 2010 continued in the first quarter of 2011. Nonperforming assets at March 31 were $76.1 million consisting of $60.2 million in nonperforming loans and $15.9 million in ORE and repossessed assets. This compares favorably to NPA totals of $86.1 million at December 31, 2010 and $117.6 million at March 31, 2010. This is the lowest that the NPAs have been since the first quarter of 2009 when the level was 83.7 million and the reserve was at $31.9 million.

The breakdown of March 31 NPAs is as follows -- $14.3 million residential land development; $2.3 million residential construction; $8.9 million residential owner-occupied and rental; $2.4 million commercial land development; $13.4 million commercial owner-occupied; $30.1 million in commercial non-owner-occupied; $4.7 million in commercial non-real estate; and a small portion of consumer non-real estate.

Reconciliation of nonperforming assets for the first quarter shows that we had $5.5 million in payments, $2.2 million in sale proceeds, $4.8 million in charge-offs, $600,000 in valuation write-downs and $700,000 in loans returning to performing status, which offset $3.8 million in new additions to nonperforming status. The net result of that activity was $10 million in reductions in NPAs during the first quarter.

Net charge-offs for the quarter totaled $5.5 million. Of these losses, 59.6% was previously allocated in the allowance for loan losses prior to the first quarter. The allowance was $42.1 million, or 3.49% of total loans, compared to 3.59% at December 31 and 3.35% a year ago. Charge-offs in the first quarter were allocated as follows. $2.8 million was commercial nonreal estate; $1.4 million was commercial owner-occupied real estate; $1.2 million residential owner-occupied and rental; $126,000 consumer non-real estate; plus some small net recoveries in the commercial real estate non-owner-occupied and commercial land development and residential construction buckets.

Provision expense for the first quarter was $2.2 million. While this provision is significant, it represents a sizable reduction in the quarterly provision compared to recent quarters. The provision total is closely related to the relatively low amount and number of new nonperforming loans added in the first quarter, as well as the demonstration of some portfolio stabilization as determined by the various asset quality metrics and the bank's ALLL methodology. The majority of the first-quarter provision was taken to adjust for some updated valuations of collateral on existing impaired loans.

Loans delinquent 30 to 89 days were $59,000 as of March 31, down from $1.1 million at December 31 and $1.3 million at September 30. $12.8 million at March 31, 2010, so you can see there has been a sizable reduction in that loan delinquency category as well. Mercantile continues to make good progress in the reduction of higher risk commercial real estate loans in the portfolio. Reductions of over $30 million in loan totals from these categories were demonstrated during the first quarter. Those are my prepared remarks and I will now turn it back over to Mike.

Thanks, Bob and also thanks to you, Chuck, for your presentation as well. We would like to open the lines now for any questions at this time.

(Operator Instructions). Stephen Geyen, Stifel Nicolaus.

Good morning, guys. Nice to see the improvement in credit.

Great, thank you.

A couple questions. The OREO expense of $3.1 million, could you give us a breakdown of the various categories?

This is Chuck. I don't have the specific breakdowns in front of me, Stephen, but it was pretty much a combination of property taxes, some write-downs and legal bills and those types of things. There is nothing abnormal in there. I can get you that breakdown later if you want.

Great, okay. And other income was down from fourth quarter. You know that OREO ex -- or OREO income excuse me. Were there significant sales or shifts in the type of OREO?

Yes, we've done quite a bit because, if you remember, during the fourth quarter, we saw a pretty sizable reduction in our net ORE balances and a lot of the stuff that we sold, which happened to be towards the end of that quarter, was some of those properties that had some pretty good rental income with them. Albeit that is why we are able to sell them like we did. So it's pretty much just a reflection of lower balances and therefore having less rental income off those properties.

So there wasn't anything else driving that really? It was mostly OREO?

Pretty much it, yes.

Okay. And a question on the net interest margin. Well, I am just curious -- you talked a bit about what drove the increase in fourth quarter. If you could give us a little bit more color. Was it broker deposits, FHLB advances?

It was a combination of things. I will walk you through it a little bit. The first thing and the biggest thing was, if you remember, in the fourth quarter, we had a lot of Fed funds sold and that really added 25 basis points that really dampened the asset yield, specifically just for that quarter alone. And the reason why the Fed funds was so high is we had quite a bit of local deposit growth throughout the quarter and if you remember, we did prepay some FHLB advances to try to get that balance down a little bit.

So now, during the first quarter, we got the Fed funds down to where we wanted to be, closer to the $50 million mark and so that had a positive impact on the margin quarter-over-quarter. We also did, as I mentioned, the FHLB advances, the ones that we did pre-pay in the fourth quarter, obviously, we didn't have any of those interest costs in the first quarter and certainly going forward. And then we also did revisit during the fourth quarter, a little bit in our first quarter, revisited our deposit rates here locally.

Really what we saw was, throughout 2010, we didn't do a lot of changes to our local deposit rates and when we were doing -- competitive shops to those in our marketplace, we found that they had actually been periodically but systematically reducing their rates pretty much throughout 2010. So we elected to reduce our rates. We're still in the top three with virtually every deposit we have got, but we definitely, as part of that rate shop, were able to see that we were quite a bit higher than the market. And so we did reduce those rates towards the end of the fourth quarter, a little bit in the first quarter. Again, we are still incredibly competitive, but that lowering certainly had a positive impact on our cost of funds.

On the brokered side, there is a little bit of improvement as some of those products mature and we replace some of those. But one of the things that we are doing with that portfolio is we are starting to push off the maturity dates on those a little bit. So the rate that is coming onto the books isn't significantly lower than what is leaving the books because we are pushing out those maturities. So as far as going forward, we don't really see any major change to our margin up or down, especially as long as the prime rate stays unchanged.

Okay, that is helpful. Thank you. And then I guess just last question, just curious if you guys have a target for the commercial real estate loans as a percent of total loans?

I don't know that we have determined necessarily a target percentage of saying yes that is where we want to be. I think we are looking more at individual loan risk types and saying -- also, there's obviously a lot of bad commercial real estate that has been very challenging in our portfolio and the whole market, but there is also some good commercial real estate.

I think we are trying to reposition the portfolio so that we are centered around -- C&I obviously is a big thrust, but also there is some good commercial real estate out there that will be part of our portfolio now and in the future as well. And so trying to just strike that balance between what we see as acceptable risks as opposed to saying we need to be at a certain percentage on the portfolio.

All right. Thank you.

Terry McEvoy, Oppenheimer & Co.

Thanks, good morning. Maybe just a question for each and I will start with Bob. The NPA additions, $3.8 million, was that considerably below what you had modeled? I mean that number showed a nice decline and then as you look at the 30 to 89 days past due loans, in the release somewhere I think you said it was pretty close to zero, so would you expect that number to continue to drift lower as we move forward through the year?

Well, as you mentioned, the NPA additions for the quarter was very, very low and compared to recent quarters, we are glad to see that. I think we have seen the preview of those metrics in the lowering additions to the NPA portfolio back even late last year. And that while they were a lot higher in the fourth quarter than they were now, I think all the additions we had in the fourth quarter were just a couple of loan transactions that tipped that amount higher than what we ultimately would liked it to have been.

I think in the first quarter, we got some real good traction that the additions were smaller type transactions and the volume was very, very low. And as we look at the problem loan list in its entirety, there has been definitely a downward trend as you went through the course of 2010 and those continued into 2011 as well. So I think we are kind of saying it is about time in terms of that $3.8 million in additions and that is where I see the numbers trending to.

There have been a lot of challenges out there certainly, but I think the overall dynamics of the portfolio and looking at the customers that are on the watch list, there seems to be a feel that we continue our very hard look at the portfolio to make sure we flush out any problem loans and we have been very diligent in doing that the last couple of years. But I think now we are seeing that diligence is paying off and the loans that we are seeing pop up that, boy, this has been a struggle and they need to go on the watch list, that has really dropped and we are not seeing that nearly as much as we had in the last couple of years.

Hey, Terry, before you -- this is Mike. Before you ask your next question, I need to insert something here and that is the Safe Harbor statement that we neglected to do at the beginning. All listeners should understand that this conference call may include forward-looking statements. The statements may include projections, plans, objectives, assumptions and other information are intended to be covered by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Our actual results may differ materially from the forward-looking statements. Some of the factors that could cause the actual results to differ are included in our most recent annual reports of the SEC on Form 10-K, including the risk factors section. We assume no obligation to update any forward-looking statement. Thank you for letting me insert that and keep on going with your questions.

Okay, I'll give you a break and go over to Chuck.

I need it. I have got to catch my breath.

I want to read that next time.

Chuck, what might have been overlooked over the last couple of years is the change in your funding profile and the increase in local deposits. Could you just go through two or three years ago what the funding profile looked like compared to today and then talk about your interest rate sensitivity as we look out into the first quarter of next year and potentially a rising rate environment?

Sure. Happy to do that for you, Terry. I think, historically, this Company, and I would say probably for its first eight or nine years, we started out using wholesale funds and during that first eight or nine years, our wholesale funds as a percent of our total funds was about -- stayed right within 60% to 70%, sometimes closer to 60%, sometimes closer to 70%, but very, very consistent in regards to that percentage.

Yes, the Company was growing quite rapidly and so, therefore, the wholesale funding program was growing as well. But from a percentage standpoint, our balance sheet stayed very, very consistent, which as I always tried to stress whenever anybody would listen to me is that it did show that our local deposits, while not gaining traction as far as becoming a bigger part of our funding mix, actually was keeping up with our very strong asset growth throughout that period.

I think over the last three years, as the regulators like to say, the world has changed and how they view wholesale funding. Especially broker deposits has changed and whether we agree with that or not or parts of it or not, it is what it is and obviously that is a framework that we need to be part of and to work with.

And so a little over two years ago when we really made a strong push to even increase our local deposits, not only get more local deposit growth, but actually drive down that wholesale funding reliance. We did that with a lot of new products. We did that with a lot more marketing. We really hadn't quite frankly done a lot of marketing in the past, especially in regards to more retail deposits. But we did billboards and a lot more television advertising. We actually started doing TV advertising and some of those types of things and especially with some of the new products, a high earning interest-bearing checking account, which we call the executive banking account, caught on some significant traction.

So as I mentioned in my prepared remarks, we have seen a lot of local deposit growth because of the new products, because of the increased marketing. We were always aggressive, relatively aggressive with our pricing. I think it was just a matter of making sure that Mercantile was out there and that people were made aware of us.

We also, within the commercial loan function, we put a lot more emphasis than we had on making sure that we had not only the deposits of the companies, but also the personal deposits of the officers and other people associated with those businesses. So again, we have had strong local deposit growth because of that.

At the same time, as we have reduced our loan portfolio, we pretty much have effectively used those funds coming in on the loan payoffs and loan reductions and used those funds to basically pay out broker deposits and FHLB advances as they have matured, just doing enough of that wholesale funding activity obviously to keep the balance sheet where we need it to be.

Our peak was at the end of 2008. It got up to 71%, again pretty much in line with that 60%, 70% I mentioned before, but over the last two plus years, we have been able to drive that down to about 40%. A lot of that, quite frankly -- certainly part of that was the local deposit growth. A lot of that was reduction in the loan portfolio.

So where do we go from here? We would like to continue to reduce that number to get it below 40%. There is no magic number out there. We don't have a specific number we are shooting for. The regulators haven't asked us to get down to a specific level. They just want to see continued reduction in the reliance on wholesale funding.

One of the things we're starting to see, I think it has already been mentioned, is we are starting to see less of a reduction in the loan portfolio and certainly we want to get to a point where we feel comfortable with the economy and everything else that we can start getting a little more aggressive on making additional loans. So if we are not getting that high volume of loan reductions, obviously that is going to impact the ability for us to really, really drive that wholesale funding number down. We think we can still get that down from where it is now, but we went from 71% to 40% in a little over two years. I don't think we are going to go from 40% to 10% or something like that in the next two years. So maybe more of a slow but steady decline in that number at least in the near term.

And a question for Mike. And probably have to take your breath not only after reading the Safe Harbor statement, but also what you guys have done over the last three years. I know it has been a lot of hard work. And just your commentary at the end of the press release, which was kind of looking ahead or looking forward on the changing landscape within Western and Central Michigan. Are you beginning to move people away from the credit side to the loan production side? And just specifically, what do you foresee happening as hopefully you make that shift from defense back to offense again?

That's a good question and that is exactly what we have been for some time now within our strategic planning group is talking about strategies, plans, training, whatever it is going to take to shift the focus back to, as you call it, offense. For the last three years, obviously, we did what we had to do to get through this thing in a very strong position. There wasn't a lot of loan demand out there anyway. We are very gratified to see that loan demand is starting to pick up. It is certainly not where it was before the recession, but it is going in the right direction.

So we are spending a lot of time with -- whether it is specific job descriptions, plans, that type of thing, to get people pointed towards adding loan volume again in a very conservative way and we expect to see those results start to really take effect later this year.

I appreciate it. Thanks a lot.

Daniel Cardenas, Raymond James.

Just a quick question on capital. We did see your GCE ratio improve due to a combination of profits, as well as some contraction in the balance sheet. Can you give us some comments as to how comfortable you are with the current ratio?

Yes, Dan. This is Chuck. We are certainly comfortable where the ratio is at currently. We spent obviously a lot of time and effort and certainly made some strategic decisions along the way to make sure that we were good shepherds of our capital position, not only maintaining it at least at a steady level as we were going through the significant provision expense and other costs, which is having obviously a very significant impact on our bottom line. Not only again keeping it steady, but also making sure that we are increasing it.

Obviously, we have been able to do that. Obviously, a very rapid increase in the Tier 1 leverage ratio during the first quarter. Kind of goes back to my margin discussion before when we were able to reduce our average assets, which that ratio is based on in the first quarter compared to the fourth quarter. So it is a pretty core number where it is now. It is approaching 10%.

We think -- again, we are comfortable with it, especially in regards to where it was and where it is now, but also certainly looking at the asset quality and looking at the earnings performance, obviously some big improvements there and we would expect improvements to continue.

So overall, we are pretty comfortable with where the ratio is at. I think our expectation is that we will likely see that ratio continue to improve. I think you'll see some reduction in the balance sheet, especially in the loan portfolio as we go forward over the next probably at least couple quarters. Again, that's hard to judge, but we are certainly hopeful and optimistic that we will continue to be profitable as we go forward, which obviously will have a positive impact on that ratio as well.

Is that ratio strong enough to support any balance sheet growth that could come later in the year?

This is Mike. Depending on what level of the balance sheet growth we are talking about, but to kind of add onto Chuck's comments, we feel very positive about the profitability of the organization going forward and we also don't see a tremendous increase in the balance sheet for 2011. What we are really focusing on is starting to slow the contraction, which is already happening and slowing that down to maybe a neutral position and by the end of the year, first part of next year, start to see some balance sheet growth. And even that isn't going to be -- like the old days we did when we had tremendous quarters of growth, we just don't see it in the demand out there.

Now if that should change, then I think we have shown in the last three years that we know how to manage our capital position through some very interesting times. So if that has changed, we will change our approach. But right not, to answer your question, we feel very comfortable with the capital management of this bank.

(inaudible) question. Maybe you can just give me your thoughts on TARP repayment.

Well, we have stated numerous times that our first goal is obviously using the CPP program of TARP to make sure that we had a very strong balance sheet and that has done its job and we will work very closely with all constituencies involved and with our Board to -- our plan is to pay the TARP back as soon as it makes sense to do so and that is really kind of adding on to your question before and that is looking out the window to see when is a good time, when have we brought the level of profitability up and sustainable profits up that we feel like we can pay it back either in little bits or in one big chunk.

(Operator Instructions). John Barber, KBW.

Good morning, everyone. So we talked a little bit about the NPA improvement and the improvement in 30 to 89s past due, but what other leading indicators do you look at that may be indicative of future credit performance?

As I mentioned, the volume of loans that are being downgraded has greatly improved. If you look at the reports each month and each quarter of upgrades and downgrades, the upgrades have certainly outweighed the downgrades for some time now going back into late last year. That is a very good trend. We are starting to see some customers that have been downgraded to watchlist, have shown and demonstrated some good sustained improvements. So they are being upgraded off the watchlist and that is a very positive thing. And through all levels of the loan rating matrix, there has been improvement, improvement in the more highly rated credits, as well as some of the credits that have struggled. You are starting to see some turnarounds there.

And don't get me wrong, there is still -- $76 million is still way too high of a level for NPAs, but we like the trends, we like the metrics of what we have seen in terms of downgrades and additional NPAs. They are all going in the right direction and now our job is to keep driving that down.

Okay, thanks. I guess that kind of leads into my next question. Is the plan to continue to work down nonperformers organically or would you guys entertain an accelerated strategy, maybe a bulk sale or something like that?

Well, we have consistently, since the beginning of this crisis, have always kept our ears and eyes open to other potential ways of reducing NPAs other than organically. However, the bulk sale avenue that you suggest for example has been such a discount and such a haircut that it just didn't make sense for us to go too much further down that line. We have been able to do it much better organically.

Now that being said, if that market is in continual flux, we will continue to look at those types of strategies. But I have to tell you, I have been very, very satisfied watching the last few quarters, especially the success of our internal efforts, to take it down -- I don't know where we were a year ago, $120 million some in NPAs -- to get it down to $76 million. That is pretty significant and it has been very consistent and it continues to be consistent. So I am a great person at extrapolating. If we can keep extrapolating that type of reduction, we will be in really, really good shape.

Okay and my last question was I think at the end of the year, your valuation allowance against DTA was about $30 million. Can you just walk me through the process of recapturing that asset and what events need to occur and any conversation you've had with your auditors about that?

That is kind of the big unknown right now, not only for us, but I think the entire industry. Certainly the most important aspect of getting rid of that valuation allowance or having some adjustment to it right now, it is a full valuation, is the profitability of the Company. And now we have one quarter of profitability. As everyone tells me, one quarter is not a trend. So we certainly need to demonstrate that we got the profitability not just for one quarter but consistently and consistently show improvement. So that is going to be driven by the loan portfolio and the quality and how that impacts provision expense, bad debt costs and certainly making sure that we can keep our margin up where it is and control everything else.

So I think it will likely be a year-end type discussion that we will have with our auditors. We are already having some discussions with them, but as they tell me and through our talks, when they are talking to themselves, when they are talking to other CPE firms, there is not really a lot of guidance whether it is specific accounting literature or maybe some guidance by folks such as the SEC as to how to start unwinding these valuation allowances. There is certainly a tremendous amount of information on how to put one out there, to put a valuation allowance on the books, but not really how to unwind that.

So we will continue to have discussions and figure this all out. Certainly a big part of getting rid of the valuation allowance or reducing it is going to be predicated on future profitability. So everybody needs to get comfortable with future projections and what those mean and have those discussions. Again, primarily probably at the end of the year and assuming that the profitability stays within our income statement.

That is all I had. Thank you.

Steve Covington, Steven Capital.

Good morning, guys, congratulations. Apologies if I missed this, but could you just touch on the nonperforming asset costs and that other $3.1 million in the first quarter? I mean assuming that we get back to a more normalized environment at some point, is that number more normally a couple hundred thousand or $300,000 a quarter?

Steve, this is Chuck. We did touch on it a little bit, but that is fine. As far as what was in the quarter, again, it is mostly property taxes, legal bills, some write-downs on some OREs, those types of things and we would look at that number trending the same way that our nonperforming assets will trend. Again, given the makeup of those costs, that is a really hard number to try to project in addition to provision expense. But certainly as nonperforming assets continue to improve and obviously as you heard from our comments this morning, we think that there is going to be continued improvement, we would expect that number to decline in future quarters.

As far as what is a normalized level, I think it has been so long since we have been in the current environment as to what is normalized when things get back to normal. I guess I will just leave it at we would expect that ratio to -- or excuse me -- that number to decline in future periods. I guess it is just going to be what it is. Obviously, we need to continue to use legal firms to help us work out of the situations and continue to monitor what we have got.

Collateral valuations are starting to solidify, so hopefully we will see a lot more write-downs. There will be some, there is no doubt about that, as we continue to unwind some of the ORE that we have got on our balance sheet. And certainly if we own it, we are going to have to pay the property taxes on the property. So I think a gradual but hopefully significant decline as we go forward and I think that would be somewhat similar to what we see in the overall nonperforming assets number.

All right, thanks, guys.

Thank you. I am showing no further questions or comments in the queue. I would like to turn the call over to Mr. Price for any closing remarks.

Thank you and thanks again to all of you for your interest in our Company. Again, we are very gratified to return to profitability and look forward to a really strong picture going forward for the rest of 2011. At this time, we will end the call.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect and have a wonderful day.