Mercantile Bank Corp (MBWM) 2012 Q2 法說會逐字稿

Good morning and welcome to the Mercantile Bank second-quarter 2012 earnings results conference call.

All participants will be in a listen-only mode. (Operator Instructions) After today's presentation there will be an opportunity to ask questions. (Operator Instructions) Please also note that today's event is being recorded.

I would now like to turn the conference call over to Ms. Karen Keller. Ms. Keller, please go ahead.

Thank you, Jamie. Good morning, everyone, and thank you for joining Mercantile Bank Corporation's conference call and webcast to discuss the Company's financial results for the second quarter 2012.

I am Karen Keller with Lambert Edwards, Mercantile's investor relations firm. Joining me are members of their management team including Michael Price, Chairman, President, and Chief Executive Officer; Robert Kaminski, Executive Vice President and Chief Operating Officer; and Chuck Christmas, Senior Vice President and Chief Financial Officer.

As Jamie indicated, we will begin the call with management's prepared remarks and then open the call up to questions. However, before we begin today's call it is my responsibility to inform you 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's business. The Company's actual results could differ materially from the forward-looking statements made today due to the important factors described in the Company's latest Securities and Exchange Commission filing.

The Company assumes no obligation to update any forward-looking statements made during the 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 at www.MercBank.com.

At this time I would like to turn the call over to Mercantile's CEO, Mike Price. Mike?

Thank you, Karen. Good morning, everyone, and thank you for joining us to discuss our second-quarter 2012 results and other recent developments for Mercantile Bank Corporation.

On the call today our Chief Financial Officer, Chuck Christmas, will provide details on our financial results followed by Chief Operating Officer, Bob Kaminski, commenting on asset quality and other operational successes for the quarter. Hopefully, you have all had the chance to review the announcement of our quarterly results which highlighted several key accomplishments.

During the second quarter our net profit continued to increase, net interest margin remained strong, non-performing assets showed further decline, and we had a net increase in our total loans. In fact, as part of our diligent efforts to improve asset quality, for the first time in the Company's history we had a net recovery of previously charged-off loans and recorded a negative provision for loan losses for the quarter.

Also of significant importance during the quarter, we announced our exit from the TARP program with a repurchase of all of our outstanding preferred stock. We take great pride in this and we are pleased to have accomplished it without the need to access the capital markets or issue additional debt. At the same time, we have been able to maintain our strong regulatory capital position and continue our commitment to protect shareholder value.

Our bank grows stronger each quarter. As we move forward, we are well positioned to continue our success as a strong competitor in our markets. As a community bank we are partnered with our customers in growing their businesses, and they know they can rely on us to be a resource in the local market. These efforts have started to show results with the modest growth in total loans we achieved in the quarter.

We are pleased with our accomplishments; however, we recognize there is still work to do. Our plan is to continue our work to reduce non-performing assets, protect our net interest margin, and reduce costs -- all while maintaining our well-capitalized position. As we execute on these fundamentals we expect to continue to grow our business for the long term.

At this time I am going to turn it over to Chuck.

Thanks, Mike. As you have seen, this morning we announced net income of $3.3 million for the second quarter of this year, a 38% increase over the $2.4 million earned during the second quarter of last year. Our second-quarter 2012 income before federal income tax expense was $5.8 million, a 115% increase over the $2.7 million recorded during the second quarter of 2011.

Our net income during the first six months of 2012 was $5.8 million, a 68% increase over the $3.5 million earned during the first six months of last year while our income before federal income tax expense during the first six months of this year was $10 million, a 142% increase over the $4.1 million recorded during the same time period in 2011. As a result of the elimination of the valuation allowance against our net deferred tax asset at year-end 2011, starting with the first quarter of 2012 we are now recording federal income tax expense.

Our 2012 operating results reflect continued improvement in many key areas of our financial condition and operating performance, and are a direct result of the numerous strategies developed and implemented over the past several years, as well as modestly improved economic conditions. Our dedicated efforts to hone credit underwriting and administration practices have contributed to the significant decline in our non-performing asset levels and a prudent loan portfolio. The quality of our loan portfolio continues to improve, allowing for a negative provision expense in the first time in our history, as well as further reductions in problem asset administration costs.

Operationally we have continued to significantly enhance our profitability, strengthen our net interest margin, improve our regulatory capital ratios, and enhance our liquidity position through some substantial local deposit growth, and dramatically reduce reliance on wholesale funding. In addition, our improved financial condition and operating results have led to a significant reduction in our FDIC insurance assessments.

As we announced during the second quarter, our improved financial condition and operating performance also provided us the opportunity to repurchase all of the preferred stock that we had sold with the Department of Treasury back in 2009 under the Treasury's capital purchase program as part of TARP. In addition, in early July we repurchased a warrant sold to Treasury as part of the preferred stock sale transaction.

Repurchases were funded via cash dividends from our bank, and although the repurchases did negatively impact our regulatory capital ratios, our ratios are still higher than they were one year ago and our overall capital position remains strong. Given these fundamental improvements, and despite economic and regulatory headwinds that may continue to face our industry and the economy, we believe we are very well positioned to succeed as a strong community bank and to take advantage of lending and market opportunities.

During the second quarter of 2012 we saw the continuation of many positive trends. An improved net interest margin continued to provide support to net interest income that has been negatively impacted by a decline in earning assets. Net interest income during the second quarter of 2012 was $11.5 million, or 13% lower than the second quarter of last year.

Average total earning assets declined by about $193 million, or 13%, during the second quarter of 2012 when compared to the second quarter of 2011, which was partially mitigated by a 2 basis point increase in our net interest margin during the comparable period. Our net interest margin during the first six months of 2012 is 6 basis points higher than during the same time period in 2011.

The improvement in our net interest margin is primarily due to the decline in our cost of funds, which has more than offset the decline in our yield on assets. The lower cost of funds primarily results from the maturity of higher costing certificates of deposit and borrowed funds, and reduced rates paid on local deposits.

The lower yield on assets primarily results from a lower loan yield reflecting improved borrower financial performance and increased competition, and a lower securities yield reflecting US agency call and reinvestment activity, as well as principle paydowns on higher yielding mortgage-backed securities. The lower level of nonaccrual loans has partially offset the impact of lower yields on our loan portfolio.

We remain dedicated to maintaining a strong and steady net interest margin. For example, to the extent possible, we are match funding fixed rate commercial loans and have entered into certain derivative interest rate contracts. While these and other strategies generally have a negative impact on shorter-term net interest income, we have been able to maintain a relatively steady net interest margin that is well above our historical average while at the same time strengthening our interest rate risk position over at least the next five years, especially if interest rates were to increase.

The continued improvement in the quality of our loan portfolio, combined with the net loan recovery, significant reductions in specific reserve allocations, and the resulting positive impact that has on our loan-loss reserve migration calculation, allowed us to make a negative provision to the loan-loss reserve during the second quarter of 2012. This compares very favorably to the $1.7 million we expensed during the second quarter of last year and the average quarterly provision amount during the past several years.

Our loan-loss reserve was $29.7 million at the end of the second quarter, or 2.8% of total loans. Despite the significantly improved condition of our loan portfolio, our loan-loss reserve coverage ratio remains both strong and substantially higher than historical averages.

Local deposit and sweep accounts were up about $6 million during the second quarter of 2012 and are up about $285 million since the end of 2008. While our business deposits were up, our retail deposits were down slightly during the quarter as some customers used their funds to buy stocks, real estate, and automobiles.

With the local deposit growth combined with the reduction in our loan portfolio, we have been able to reduce our level of wholesale funds by about $1.07 billion since the end of 2008. As a percent of total funds, wholesale funds have declined from 71% at the end of 2008 to 29% at the end of the second quarter.

Non-performing asset administration and resolution costs remain elevated. Non-performing asset costs totaled $2.1 million during the second quarter of 2012, slightly higher than the $2 million expensed during the second quarter of last year. During the first six months of 2012 these costs totaled $3.4 million compared to $5 million during the same time period in 2011.

We expect reductions in non-performing asset administration and resolution costs in future periods as the level of non-performing assets continues to decline.

FDIC insurance assessments totaled $0.3 million during the second quarter of this year, a substantial reduction from the $0.7 million expensed during the second quarter of last year with a $1 million reduction during the first six months of 2012 when compared to the first six months of 2011. The decline during both time periods primarily reflects a decreased assessment rate due to our improved financial condition and operating performance and the implementation of the FDIC's revised risk-based assessment system in April of last year.

We remain a well-capitalized banking organization. At the end of the second quarter our bank's total risk-based capital ratio was 14.6% and in dollars was approximately $54 million higher than the 10% minimum required to be categorized as well capitalized. When adjusted for the warrant repurchase transaction and associated cash dividend payment to the parent company in early July, our bank's total risk-based capital ratio declines to 14.0% and the excess declines to about $47 million.

Our efforts to right-size our balance sheet and improve our operating performance over last year has enhanced our regulatory capital ratios and provided us the ability to repurchase the preferred stock and warrant without having to access the capital markets or issue debt.

Those are my prepared remarks and I will now turn the call over to Bob.

Thank you, Chuck, and good morning, everyone. As you have seen in our press release this morning, we continue to demonstrate progress on both new client acquisition and problem loan resolution efforts, reflecting the tremendous work of our staff.

As Chuck mentioned in his comments, net loans increased by nearly $10 million during the quarter from the totals at March 31. Further analysis of the numbers for the quarter reveals $16.2 million in new loans in the owner-occupied commercial real estate category, $2.6 million in non-owner-occupied real estate, $21.3 million in commercial and industrial credits. Additionally, we saw increased borrowings by existing clients of $21.5 million during the second quarter.

Mercantile's client staff continues to vigorously pursue building client relationships based on a value-added banking focus. While relationships of this nature take more time to develop than client acquisition based primarily on pricing, we believe they provide a much stronger foundation to our asset base. We continue to witness a fiercely competitive landscape, however, with numerous institutions engaging in low-cost banking efforts. We remain firmly committed, however, to providing a high-quality product and service at a fair and competitive price.

We are also committed to maintenance of the strong net interest margin and we will resist the approach taken by some other institutions to build loan totals by extremely aggressive pricing techniques. During the quarter, we continued to enhance our electronic banking suite of products, primarily through refreshing and updating the Mercantile mobile device apps for our clients who use smartphones and tablets. By providing leading technology to our clients we are able to further advance our strategy of limited physical banking locations while engaging our clients through alternative and innovative delivery channels.

Regarding asset quality, as outlined in the press release, we generated some significant downward movement in non-performing asset levels during the second quarter. Nearly every category of non-performing assets saw a decrease from the numbers posted at March 31 with the largest reduction coming in non-owner-occupied commercial real estate. Principle payments on non-performing loans of over $11 million was the largest driver behind the NPA reduction. During 2012 NPAs had been reduced by over $20 million.

Another positive result during the second quarter was the amount of loans moving to non-performing status was relatively low at $3.3 million. In recent quarters we have reported good momentum on realizing loan recoveries. That trend continued with a net recovery position of $1.7 million in the second quarter. We also saw some payments on loans that previously had loss reserves allocated towards portions of those balances creating, in some cases, significant reserve releases.

These results continue to be reflective of the excellent work by our loan staff on driving toward resolution on non-performing assets. We believe this is also reflective of a conservative approach to loan grading and loss exposure analysis. The allowance for loan losses was $29.7 million at June 30, or 2.8% of all loans.

Finally, one of the measurements of upcoming loan challenges, loans 30 to 89 days past due, has been at very low levels in recent quarters and that trend continued at June 30 with only $2,000 in that category.

Those are my prepared remarks. I will be happy to answer any questions during the Q&A session. I will now turn it back over to Mike.

Thanks, Bob, and thank you also, Chuck. Jamie, at this time we would like to take any questions from callers.

(Operator Instructions) Stephen Geyen, Stifel Nicolaus.

Good morning, guys. Maybe a question, I guess, either for Mike or for Bob. But you had talked about the loan growth in the quarter and, Bob, you gave some color on where that growth came from. Maybe -- you went through it fairly quickly, but if you could provide a little bit more color about what was the gross amount and where it came from. And maybe some thoughts on what the pipeline looks like today versus, say, three to six months ago.

That is a good question. If you look at the previous quarters, we talked about what the pipeline was looking like and we saw some nice things coming down the pike. Those loan relationships started to come to fruition during the second quarter and reflected in some of the totals I gave.

As I mentioned, we had $21.3 million in C&I credits coming on board. That has been a big focus of our efforts, as we have talked about. Also we had some good push in the owner-occupied commercial real estate; $16.2 million in those two categories. As I also mentioned, $21.5 million in existing client borrowings during the quarter.

It is really, as I talked about, the process. It is a process of the calling efforts by our staff and building the relationships. As those clients have situations where they have new borrowing needs or they have an opportunity to move from their present bank that is when we are seeing these new clients coming on board.

It takes some time. Look at the pipeline now; obviously we funded a lot of the loans in the pipeline from earlier in the year and now the process continues to rebuild that pipeline.

Obviously, a little bit of help from the economy would be wonderful at this point. But, even with the sluggishness we are seeing right now, we are seeing some good opportunities for our lending staff out there based upon their calling efforts and some of the opportunities to build loan totals from both existing clients engaging in new projects, as well as potential new clients coming on board with various types of lending needs.

Okay, great. Chuck, you had provided some color on the net interest margin kind of on a year-to-date basis. I was wondering if you could kind of maybe take it from a quarter-to-quarter basis and give us some thoughts about the margin jumping around a little bit. I guess you had provided some thoughts that the margin or the goal is to maintain a fairly steady or stable margin.

What were the changes this quarter? And I guess if you have some additional color as far as what the inputs might look like next quarter that would be helpful as well.

I think one of the things that I think all banks are certainly struggling with is the investment portfolio as we all continue to get paydowns on the mortgage-backs as well as getting various calls, whether they are agency bonds or municipal bonds. And to the degree that you have to for collateral purposes, pledging purposes, or certainly just your own funds management guidelines have to put at least some of that money back to work. Certainly you are putting that money back to work at lower levels than what is leaving you so there is going to be pressure.

We probably, on average, don't have as much pressure on the overall yield on asset as other banks do, only because our portfolio tends to be a little bit smaller at about 11% where the most banks have that a little bit higher. The loan yield did come down, and it is one of those things where as we grow the loan portfolio on average those credits that we are bringing on are at rates or at yields that are lower than our average yield currently in the portfolio.

So I think part of the question as far as the future of our margin -- while we think we are doing the right things in the structure of our balance sheet and doing some derivative stuff that for the most part should provide for relatively steady margin, I think part of that margin question, again for the future, is going to be how much loan growth we get. Because the more loan growth we get it's probably going to put a little bit more pressure on that margin.

Obviously, what we would expect is that the growth in net interest income resulting from that increased loan will offset that negative pressure compression, if you will, on the margin.

On the cost of funds side, we continue to see a reduction of cost of funds. It is certainly not as grand as it was over the last several years and probably won't be going forward. We continue to take a very close look at the rates that we pay on our local deposits and try to take advantage of any pricing opportunities that come our way from there.

Continue to look at the product mix; are we offering the right deposit products, sweep accounts for our customers given the changes in regulations and those types of things. As we create certain products we may eliminate some other products and there might be some pricing opportunities there as well.

We get some benefit from FHLB advances maturing and whether we replace them at lower cost or just let those higher costs runoff. That has a benefit. We don't have any more advances maturing until the end of 2013, so we will just let that play out.

But on the broker deposit side this year we are replacing some of the maturities, a majority of them we are letting go, but we are replacing some. What we are doing there is almost exclusively four- to five-year fixed-rate bullets, trying to match fund the activity that we see on the fixed rate commercial loan side. So doing a five-year versus a one-year, for example, there is about 100 basis points in increased cost but we are very satisfied with the spread we are getting in doing that match funding. And, obviously, that benefits us from an interest rate risk position as we go forward, especially if interest rates were to increase.

Just to give you a little bit more granularity as you asked our yield on earning assets; we are down 8 basis points for the month and our cost of funds we are down about 6 it looks like when we compare quarter over quarter. So, again, obviously not a big movement in the margin.

One of the things that benefited our first-quarter margin was some of the call activity we had in the government securities portfolio. Had some pretty relatively robust discounts when we had bought the bonds and so when those got called we were able to bring some of that money immediately into the income statement. So that provided probably 2 or 3 basis points there.

We didn't have that in the second quarter, but for the most part the change from the first quarter to the second quarter was really reflective of the loan growth that we got. But, again, that supports net interest income.

And again more importantly, we are comfortable with the spreads and the match funding that we are doing in conjunction with the derivative stuff and everything else, and feel pretty comfortable about that.

That is very helpful, thank you. Maybe two quick questions on credit. Problem asset resolution costs was a little bit higher on $2.1 billion. How much of this was from write-downs on credits?

I had that in front of me and I don't think I brought it with me, Stephen. But one of the things that we continue to do, and you see it in our numbers, is be very aggressive in administering our non-performing assets, whether that be non-accrual loans or certainly foreclosed properties.

One of the things that we are doing in managing that ORE is getting it out of the Bank as fast as we can. As part of that whether you want to have reduced listing prices to get more activity, maybe throw some stuff over at the auction and trying to get an estimate as to what those auction results, we are going to continue to do that.

It is going to cause elevated increases in non-performing asset costs, at least in the short term, but certainly it reduces our non-performing assets, gets us the cash, puts it back to work. And, of course, we don't have the holding costs and other legal type costs associated with that property.

I think the write-downs in total were about $1 million of that number. Again, that is a very hard number to try to project going forward because we try to take advantage of particular situations that may come up in regards to moving the properties. But one thing, we are very dedicated to moving that property out as fast as we can.

If additional write-downs -- while we think we have got the properties valued properly with appraisals or internal evaluations, we update those things. We look at the offering prices that come in, legitimate ones, and sales of comparable properties -- all those things we take into account. If we do see the opportunity to be a little more aggressive by writing it down so we can get a lower list price for bringing it to auction, we are certainly going to take advantage of that. But that is going to cause some lumpiness on a quarterly basis as we go forward.

One of the things to remember, too, is that the sizable recovery position that we had that was -- helping that was some pretty hefty legal bills that we had to expedite some matters through the legal process. And with that came some attorney costs and everything. That helped boost that bad debt cost, but the benefit of that was some sizable loan recoveries.

Finally, Stephen; this is Mike. Chuck is right estimating the costs over the next couple quarters is sometimes difficult to do, but we are managing the bank so that estimating it over the long term is real easy to do. If you just watch what has happened to the NPAs at this bank over the last 18 months, you can draw a pretty good line. It is going down at a really, really nice rate.

Again, that is where our theory is just beat them off the sheet as fast as we can. If we can be aggressive and we can go after them and we can collect them and we write them down a little bit, auction them off, that is what we are going to do because we are not going to prolong this process.

As we said a long time ago in 2008, we are going to look pretty ugly for a while but when we got this thing turned around it is going to come back really, really quickly. And that is what we are happy to see.

This is Chuck. I just want to go back to the margin. I was trying to do the math in my head on the margin question. The yield on assets was down about 18 basis points for the quarter, second versus the first, and about a 7 basis point reduction in the cost of funds.

Okay, that makes sense. And, Bob, I think you might have mostly answered my last question, the NPA principle payments increased significantly. Any change -- it doesn't sound like there is really a significant change in the policy. It is just you guys being aggressive and maybe a couple of favorable developments came together during the quarter that kind of boosted that number.

Yes, it was loans that were paid down, paid off. Loans that primarily has some real estate involvement in it, had not been in ORE but had been still in the loan categories, those are the ones we saw some nice reductions on and boosted that total to the $11 million figure that I quoted.

Okay. Thanks for your time today.

John Barber, KBW.

Good morning, guys. Now that TARP is fully repaid how are you guys thinking about capital deployment? I guess where do you rank the dividend and what are your thoughts on non-bank acquisitions?

This is Mike. It is a good question; obviously you know following our bank that getting TARP redeemed was top of the list. Now that that is off and we are seeing a nice rebound to our stock price certainly our eyes are looking even more intently for potential acquisition targets. We actually have a currency now that can start to make some sense to start talking to people.

Clearly, other capital issues such as a common dividend and things like that are also on our radar. And we continue to fully vet all the options.

Okay, thanks. This is just an accounting question. Was there an accelerated discount on the preferred stock this quarter associated with TARP repayment?

Yes, there was. During the second quarter I think there was about $600,000 in accelerated discount and obviously somewhat mitigating that was reduction in the dividend costs when we paid off half of it in early April and half of it in June. But kind of gross basis the accelerated discount was about $600,000, maybe about $590,000 to be exact.

All right, thank you. The last one I had was do you have the yield on the securities portfolio as of the second quarter?

If you give me like two seconds I will get it for you.

I had it at 4.43% in the first quarter.

These Qs get longer and longer and it's harder to find stuff. The securities yield in the second quarter was 4.2%.

Great. Thank you very much.

(Operator Instructions) Daniel Cardenas, Raymond James.

Couple questions on the loan growth side. As you are looking at new customers coming into the portfolio, maybe if you could just tell me geographically what portion of the footprint are they coming from? Then second, what steps are you guys taking to make sure that you are not getting somebody else's watch list credits?

That is a good question indeed. The geographic footprint are really our market areas. We are seeing a lot of nice opportunities in Kent and Ottawa counties, in our West Michigan region, and then in our Central Michigan region in the Lansing area are also seeing some opportunities there. We are seeing a proportionate amount of nice opportunities in both of those locations.

As far as your question about taking on someone else's problems, I think some of the lessons we learned during the Great Recession, as we talked about in past calls, enhancement of some of our policies and procedures. But, most importantly, getting to know your customer so that you are not making a loan to someone that you met last week.

These are relationships that have been developed over time and you get to know the customer very thoroughly, not only the calling officer but loan manager as well as, in our larger credits, our loan committee and, of course, our Board. You get to thoroughly vet with all the tools at our disposal to make sure that we thoroughly understand the credit and the risks that are involved and proceeding on the proper course.

Dan, this is Mike. To add to what Bob said, he is exactly right. I think what we really saw during the Great Recession is that those loan relationships that we had a strong bond with a customer, strong relationship, they were not just transactional in nature tended to perform much, much better than especially a piece of non-owner-occupied real estate where it was really transaction based.

And so we have been very careful. Clearly this quarter we could have put on even more loan volume if we were a little looser in the credit underwriting, which we are not going to do, and also if we had been looser in credit pricing, which we absolutely aren't going to do.

And that is probably the bigger issue out there as to looking at loan growth in the future is we have got some players out in the market right now that they must have a different way of making money than most of us in this business because the pricing is absolutely insane. We are just not going to play in that game. We played in it a little bit in 2005, 2006, and 2007. We paid for it in 2008, 2009, and 2010.

So really what we are looking for are customers, and they are out there and we really appreciate them, who understand what a strong relationship with a good, strong community bank can do for their organization, their business. And we are bringing those on board.

Okay. So then the new customers you saw, were any of those returning customers, folks that had left and realized the error of their ways?

There actually were some that at one time left us for various reasons, most of them price oriented, and we got them back because of service issues.

Okay. Then as loan growth starts to -- as the demand starts to firm up a little bit what are your thoughts on hiring additional lenders?

We are always looking at that opportunity of hiring additional experienced lenders, and we balance that out with the fact that we have a really strong group of lenders already. We also have a very strong credit department of people that we want to give opportunities as well.

So it is a great question, Dan, and it is a real art to find the right mix. It is always nice to bring people over with an existing book of business, but we are also very -- part of being a good, strong community bank is we are also very dedicated and loyal to the people that we have and the people that we are developing.

So, yes, we would certainly look at bringing people on board. We probably will do that, but we also will make sure we are blending in opportunities for people that have worked really hard with us through the last few years.

Okay. Then just a quick question on the economy. I mean the economy seems to be getting a little bit better each quarter, not a whole lot. But healthcare seems to have been doing fairly well; is that still the case in your markets?

Yes. As a matter of fact, healthcare was a big part of some of the volume we put on in the second quarter and that continues to perform pretty well.

You are right; the economy is a lot better than it was two years ago, three years ago. We would like to see it get even better, but we know, as I think Bob used the word or Chuck did, headwinds out there. We know there are some of those out there, but for us in our market getting our portfolio so much more healthy so that our focus can be even more outward and building new business has been a real huge benefit for us.

Okay. Then changing subjects, you touched on M&A as being something that is on the table, something under consideration. What type of organizations would you be looking for in terms of size and geographic region? Do you want to stay pretty much in the western part of the state?

Yes, we would prefer to. I think assimilation and due diligence and things like that you prefer to look for partners that are geographically contiguous or in-market. But if it is a well-run organization or there is other opportunities out there, we are not going to just kick them out of the window as well.

A lot of it just has to do with the dynamics and the granularity, all the little things that go into making an acquisition and so we try to be pretty open-minded about it. As far as size goes, certainly we want it to be large enough to have an impact but not so large that it is something that wouldn't make sense from an assimilation situation.

All right, great. I will step back for right now.

(Operator Instructions) At this time I am showing no additional questions. I would like to turn the conference call back over to management for any closing remarks.

Thank you, Jamie. Our goals have not changed. Our priorities remain focused on continuing the profitable growth of our local portfolio with a focus on C&I business, growing our local deposits, reducing non-performing assets and their related costs, playing a key role in the economic development of the communities we serve, and maintaining our well-capitalized position.

Our dedicated team is motivated to build on our success and we remain committed to our long-standing relationships and proven excellence in community banking will serve us well as we continue on a path of achieving efficient and profitable growth.

We also want to let you know that we will be participating in two investor conferences in the near future. On July 31 and August 1 we will be in New York at the Keefe Bruyette Woods banking conference and on August 14 we will be in Chicago participating at the Raymond James conference. If you are planning to attend either conference, or if you are in the area, we would be happy to schedule a meeting.

Thank you to all of you for joining us this morning and for your interest in our company. We look forward to talking with you again. At this time we will end the call.

Ladies and gentlemen, thank you for attending today's conference call. It has now concluded. You may now disconnect your telephone lines.