M/I Homes Inc (MHO) 2002 Q1 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the first quarter M/I Schottenstein Homes conference call.

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Mr. Phil Creek of M/I Schottenstein Homes. Mr. Creek, you may begin.

Thank you, and thank you for joining us today. Joining me on the call is Bob Schottenstein, our President.

First, to address regulations for a disclosure, we provide our earnings guidance in our press release. We encourage you to ask any questions regarding issues that you consider to be materially during this call, because as you know, we are prohibited from discussing non-public items with you directly.

As for forward-looking statements, please note the section in our press release regarding forward-looking statements and in our publicly filed reports. Please be advised that certain statements in this call may be considered forward-looking, and that actual results could differ materially from those described in such forward-looking statements.

Unit data as released on April 11th and restated today, we had 846 closings in the first quarter of 2002, the highest ever for this period in our history, and a nine percent increase over 2001's first quarter.

New contracts were 1,083 for the first quarter, which was down 21 percent from last year's record first quarter. Our traffic was down in the first quarter and our community account was slightly lower at 140 versus 145 a year ago.

We also, as we previously had discussed, are . Bob will further address this area in his discussion. Our cancellation percentage was 22 percent in the first quarter of this year, compared to 19 percent in last year's first quarter. The majority of these cancellations were due to financing. However, some customers are changing their minds.

The majority of these cancellations occurred before we began construction. And as you probably know, we are not a spec builder. We build primarily to contract. And the increase in cancellations have not significantly increased our spec inventory. Today, we have 100 specs - 106 specs total in various stages of construction.

The backlog at March 31, 2002 consisted of 2,568 units with a sales value of $610 million, down from 2,710 units and $625 million a year ago. Our backlog average sales price was 238,000 compared to 230,000 a year ago.

I'll now review of our financial results. We had the best first quarter in our history. Revenue increased 21 percent, net income increased 30 percent. Diluted earnings per share increased 30 percent to 205 for the quarter compared to $1.58 a year ago. Book value exceeded $39 per share at quarter end. Gross margin increased over 200 basis points to 25 percent for the quarter. And our operating margins increased to almost 14 percent of revenue for the quarter. Obviously, we are very pleased with these record results.

Now Bob will review our markets.

Thanks, Phil. Before I get into a specific discussion of each of our markets and talk about our business within them, I think it's important to talk a little bit about sales.

As Phil mentioned, our sales for the first quarter were down 21 percent from last year. And we did want to spend just a moment or two talking about them. And of course, if there's any questions, we'll be happy to address them during the Q&A.

The first thing to note is that we knew that last year's first quarter was going to be very difficult from a comp standpoint. Last year's first quarter was extraordinarily strong, certainly for the entire industry as well. And if you look at last year's first quarter for H/I Homes, it actually surpassed our previous four-year quarterly average by more than 20 percent. So it was a tough comp by any measure.

The other thing is, is that even though our sales were off, our business is still strong. And while we would've preferred our sales to be higher, and that goes without saying, the fact is our sales were still - were still quite good and allow us to be very profitable at those levels.

There's a couple of things, I think, need to be mentioned because I think these relate so much specifically to the numbers. You know, we're - we have a dominant position in the Midwest. We do a significant amount of our business in the Midwest. It's not the only place we do business, but it is a big part of our business.

And the Midwest economy has slowed somewhat. Unemployment has crept up, and frankly, consumer confidence is not as strong as it was a year ago. Our traffic in the Midwest was down more than in some of the other areas. Certainly contrasted with Tampa, with the Washington market and so forth, our Columbus, Cincinnati, and Indianapolis traffic appear to be off in comparison to those areas.

Phil mentioned the cancellation rate, cancellation rates have skyrocketed within our industry during the last six to eight months, not just at M/I, but certainly amongst all large builders. And while our cancellation rate for the quarter was 22 percent and that's lower than the rate that existed during the second half of '01, it's still a little bit too high. And frankly, it's higher than it was last year's first quarter. So every percentage point and cancellation has a meaningful impact on sales.

The other thing is the exiting from the Phoenix market. And while Phoenix was always, by design, our smallest market, the fact is we virtually seized all selling in Phoenix during the very later part of last year. And certainly have had no sales activity in Phoenix other than from a liquidation standpoint in the first quarter this year. A combination of those things, I think, contributed significantly to the decline in sales.

Having said that, it was an excellent first quarter for M/I and our business is very strong. And we are expecting a very strong year. And that's because, in large part, the - our business within the markets is at or about where we want it to be.

Specifically, as we walk through the various divisions, our Columbus operation continues to be very strong. Our backlog is actually four percent higher than a year ago. Our average sale price is around $240,000 a house. We have a very strong land position. Our margins are very strong in Columbus both in terms of results reported and also margins and backlog.

We have a number - we have one very potentially significant new product initiative that we will be launching later this year, which we think will help us capture incremental business - and I want to underscore "incremental" business in Columbus at the entry level price point.

The Cincinnati market had very strong results. We're on our way to having a very good year in Cincinnati. We should deliver well over 300 homes in that market, and we're experiencing the best margins there that we've ever had as well.

Indianapolis should be a very good year for M/I. Over 400 closings are planned. That market is solid. appear to be up from a year ago although it has been spotty in - at times as I noted in my earlier comments concerning our traffic mid-West and our sales in the mid-West.

Tampa had a very strong first quarter. Sales are very good, though slightly down from last year's record first quarter. But nonetheless, had a very exceptional and very profitable pace. We continue to achieve very strong margins in Tampa. We hope to close over 500 homes there this year, which would make a very strong year. And that market continues to be very healthy.

Orlando, we had very decent sales. Our backlog is approximately the same as it was a year ago, although our margins in backlog are improved, and Orlando should have a very good year. And as we look ahead, in particular Orlando should have a very strong .

Palm Beach, which is our West Palm Beach, which is Palm Beach County, our smallest operation, we will only deliver around 100 homes there this year. We've continued to be challenged there primarily in terms of our land position. We simply don't have enough locations. And while we will be opening a new community or possibly two this year, we have - we have pared down the operation so that even closing at 100 homes, it happens to be from a - from a percentage and margin standpoint very profitable for us. The market is pretty good. It's just difficult to get land.

North Carolina. First off, I'll talk about Raleigh. We'll have a very good year in Raleigh. Our average sales price is where it needs to be. We're working hard to improve to land position there. We'll close somewhere just shy of 200 homes there. We'd like our business in Raleigh to be up around 250 or so homes a year. So we're about one or two communities short of where we really would like to be from an ideal standpoint.

Charlotte - the Charlotte market is very good. It's the market that we are the most challenged with right now. We are in the process of making some management changes, which are never easy, but very necessary. And in the midst of that, our business is just not where it should be. Both our sales and our delivery were down - deliveries were down from last year's first quarter. And while we have a strong land position there, it's people - it's people that are our biggest challenge now, and we're taking steps as we speak to rectify those.

We will have a decent but not great year there this year. We expect 2003 to be a very strong year for us as we sharp our operation there.

Our Washington D.C., we've achieved very strong results there so far this year. Our margins are up significantly. Our profits are up significantly. Our land position is improving and is almost exactly where it needs to be. We're maybe one or two deals shy of having it positioned ideally. We continue to see the market there remaining quite strong, particularly at our price point. And we expect to have an excellent year in the Washington market.

Finally, Phoenix, as mentioned in our last quarterly call, late last year, we made a decision to exit the Phoenix market. That process has gone extraordinarily - has been an extraordinarily smooth process. We have only about 15 or so homes left that are under construction that yet need to close. They will be closing between now and the end of June. Possibly one or two houses may bleed into July.

But basically, we've gone from a situation where at our investment deals there were well over 30 million. They're down around 20 million now. We are in the process of liquidating our land on a - on a plan and what has been thus far a very effective basis. And by years-end, our investment should be reduced well below $10 million, if not, it is possible it could be reduced all the way down to zero.

With that, I will turn it back over to Phil who will discuss our financial results in more detail.

Thanks, Bob.

Revenue increased 21 percent for the first quarter compared to the same period a year ago. Homes delivered were 846 compared to 777. Average sales price was $241,000, up from $217,000 a year ago. Gross profit dollars increased $13.2 million for the first quarter. And as I mentioned, margin percentage increased over 200 basis points to 25 percent, the highest we've ever produced for this period. And we continue to be very pleased with our strong margins. Land, profit dollars, and outside land sales increase by 600,000 for the first quarter. This increase is primarily a result of lots sold in our Phoenix market.

G&A expenses increased to $1.1 million and decreased to .5 percent as a percentage of revenue for the first quarter compared to last year. This increase resulted primarily from the increase in real estate taxes and homeowner's association expenses to support our growth, and income, and operations.

Selling expenses increased $1.6 million and decreased .5 percent as a percent of revenue compared to last year. This increase related primarily to increased commissions as a result of higher closings and higher over selling prices. Overall, we were pleased that our SG&A expenses improved to 11.5 percent of revenue compared to 12.4 of last year.

Operating income increased to 13.6 percent of revenue for the first quarter over last year. And as you know, we've had an internal 10 percent operating income target, and we are happy to continue to be ahead of that. Interest expense dollars increased $400,000 and decreased one-tenth percent as a percent of revenue compared to last year. I want to note that included in the first quarter interest expense were costs of redoing our home building bank lines which I will discuss later.

For the quarter, our average borrowings were $174 million with an overall rate of 8.6 percent compared to $208 million with a rate of 8.8 in the first quarter of last year. And as a percent of revenue, interest expense decreased to 1.6 compared to 1.8 a year ago. Our bank borrowings are based primarily on LIBOR. And LIBOR rates have increased slightly with current six-month LIBOR being slightly over two percent.

We have $12.4 million in capital interest on our balance sheet, which is about two percent. We continue to be very conservative in our capitalization policy, expensing interest when land is raw and when lots are finished.

Our effective income tax rate for the quarter was 38 percent compared to 38.6 for last year as a result of tax savings strategies. Net income increased 30 percent to $15.9 million for the first quarter, and this was the highest first quarter of profit in our history. Diluted EPS increased 30 percent to $2.05 for the first quarter.

M/I Financial, our mortgage company, which also includes our title operations, loans originated were 686 in the first quarter, which was an 11 percent increase over the 620 last year. Our operating income increased 38 percent, and this increase was primarily the result of increased revenue from sales of servicing marketing gains.

Our mortgage operation continues to capture about 90 percent of our business. And overall, our mortgage and title business had produced 18 percent of operating income verses 20 percent for the prior year. And we are also very pleased with the results of the increased competition in the mortgage market.

From a balance sheet summary, at quarter-end our home building inventories increased one percent, backlog units were down five percent, and backlog dollars were down two percent.

We are focused constantly on our land investment. We purchased about $82 million of land last year and our current plans are purchase slightly more this year - probably around $100 million. With our increased volume, especially in our Midwest and Tampa markets, we have land somewhat faster than we originally thought.

We anticipate our community count being similar this year as it was last although currently, we are slightly behind. We have 9,700 lots on our books at March 31, '02 of which about 4,000 are either under development or finished. We have an additional 5,900 lots under control off the books. In total today, we own a 2.2-year supply of lots and control a total of 3.6 years supply of lots. This is about 1,000 lots in total less than a year ago. And as Bob stated, we feel very good about the quality and quantity of our land position.

We have purchased 1.5 million shares of stock to date at an average price of 18. We did not buy back any shares in the first quarter of this year. Equity was $298 million at quarter-end with a book value per share over $39.

From a financing standpoint, we redid our home building bank lines in March. We continue to have $315 million available of which today we are borrowing $100 million. And our new line is available until 2006. Bank One continues to be our lead bank with 12 banks in our line. Long-term debt totaled $183 million, compared to $226 a year ago. This includes $50 million of sub-debt, which was also extended recently to mature in 2006's third quarter. As projected of these borrowing levels this year, we anticipate having at least $100 million available from our bank lines. Home building debt to equity was .54 at quarter end, down from .88 March a year ago. And home building debt to cap was 35 percent at March 31, '02 verses 47 percent a year ago. Our interest coverage for the quarter remain very strong at 6.5 times. EBITDA for the quarter was 29.2 million, which is a record for us. Interest incurred for the quarter was 3.7 million.

In summary, we are very pleased with our financial performance, and our financial position has never been stronger. Based on our results thus far, and a strong quarter-end backlog, we anticipate that this year will be another year of very strong results. We currently believe that we will reach diluted EPS of 750 per year, an increase to our previously forecasted amount of 725, and a five percent increase over last year's record 712. Our stock price is performing better. I saw a little while ago it was at $61. However, our PE continues to be one of the slowest in the industry about seven times. We do have about 400,000 shares left under our board approval to buy back stock.

This completes our formal presentation. We'll now open the call for any questions or comments.

Thank you. If you have a question at this time, please press the one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. One moment for questions.

Our first question is from .

Thank you, and another excellent quarter with a superb balance sheet. Thank you, guys, for achieving that.

I wondered, I - two comments that you made that I wondered if you could amplify. One was that you were seeing an interest in cancellations, you said, due to financing. I assume that means that people couldn't qualify and I wondered what the change was happening there.

And the second was related to that, you said in your mortgage business, you were seeing an increased competition. Could you give us a little more insight into those two areas, please?

Sure, let me - thanks, . Let me take the cancellation question, and Phil will talk about the mortgage business.

OK.

Our cancellation rate is higher than it was a year ago, though it has trended down from where it was during the last part of last year.

Right.

Last year, we - and frankly, virtually every other major builder that I'm aware of, suffered almost record high cancellation rates. At least builders that like us, have a, you know, fairly a meaningful portion of their business catered to first-time home buyers, and about 30 or 35 percent of our business is catered to first-time home buyers. So if that's a part of your business and, you know, a lot of those people were, you know, qualified on the bare edge and for a variety of reasons, layoffs and so forth, I think, you know, we saw - we saw a rise in cancellation rates.

But they have trended down recently. But when you look at our first quarter sales and compared them to last year's first quarter, the percentages are not the same. It's a little higher right now than it was last year at this time.

And you're saying they couldn't qualify for financing even though rates have not really...

Right.

... changed.

Exactly - yeah, we - believe me, we go to great lengths to qualify everyone we possibly can. Most of these cancellations, if not virtually all, certainly over 90 percent of them occur prior to construction commencing.

Right - OK.

As far as the mortgage business, , we noticed a couple of things. We have noticed that realtors today are bringing more and more financing to the table with them when they bring customers in, wanting those customers to go with their mortgage lender. We also are seeing more mortgage brokers calling on our customers and our models. Also with rates staying somewhat steady or going up this year as opposed to last year's falling rates. There's not as many profit opportunities between selling our mortgages as there was.

So we've noticed a couple of things that made our mortgage side a little more difficult. But we are pleased to have them more profitable in that area.

So it implies that the spreads - is they - they're competing more - there's more people out there and so, the spreads that you get or the returns you get when you sell loans are not as high.

Spreads are tight.

OK - thank you.

And there's also less people out there bidding on mortgages.

Oh - really?

Yeah, they are and the spreads have tightened.

Why would people not be bidding on the mortgages? What do you see going on there?

I don't know if it's their view on what's going to happen to rates. I can't really answer that from their perspective. But, you know, we have not had as many people bidding on product as there have been in the past.

OK. Thank you very much.

Thank you.

.

Our next question is from Timothy .

Oh - yes, good afternoon.

Hey, Tim. jones: How you doing? A couple of questions. First of all, you're saying you have $20 million invested in Phoenix this year. What was that number a year ago?

At peak, it was over $40 million, Tim.

OK, so ...

So year-end last year was just around 30 million.

Right.

Right now it's just about 20 million, and in another three or four months, it'll be down considerably from that. I really think by year-end, it'll be single-digits whether it's four, or five, or six million. It's tied largely to how rapidly we're able to liquidate land.

What I'm trying to do is hone in on this flat inventory number and that. So basically, what you're saying that the inventory's 20 million differential is a differential of the investment in Phoenix from 40 to 20 million on a first-quarter basis.

Yeah, and that's also offset because the backlog average sale price is up, but units are down, and then also with the Phoenix difference, that makes it basically a pretty close to flat.

You said something after then you got cut off to me. I don't know if you got cut off to the rest of the listeners, but you talked about your lot position being 9,700 to 4,000 under construction. And then you said 5,900 - I assume it was - and then you said, you got cut off and you said it was 1,000 less than a year ago.

Yeah, what it is, Tim, is we have 9,700 lots on our books now, of which about 4,000 are either under development or...

Right.

... finished.

I got that.

additional 5,900 lots under control off the books.

Right.

And in total, that's about a 1,000 less than a year ago.

OK - so you just - is it less on the owned, or less on the option, or is the percentage roughly the same?

From a year ago?

Yeah.

If you look at a year ago, the option number is almost the same.

So it was on the owned - OK.

It's on the owned. And of course, part of that also - a little bit of that also is Phoenix.

And how many lots did you say the difference is there in Phoenix? Well, you said you only 15 or something houses left now. I mean, did you have 100 or...

Yeah, at least - I'd say close to 70 to 100 of them are probably ...

OK, so that's...

Yeah, I mean, one time we had 200.

OK.

And today it's about half that.

And lastly, what was - just so - what were the orders in Phoenix a year ago just so I can pull that number out again?

Well, Phoenix - the run rate on Phoenix was somewhere around eight to 10 a month, depending upon what time of the year you looked at it. I think first quarter last year we had some 20 some sales?

Yes.

And didn't you tell me the price - what was the average price there again in Phoenix?

Seven-hundred...

I just don't...

... thousand.

... understand why you guys would've, you know, that it's so different than any other market that I can think of. Maybe not Virginia, but that you do - how did you get in such, you know, to such a high price range?

By design.

You what?

We decided after it doing for three-in-a-half, four years, even though we made money that it was - we'd rather just take that money and deploy it other ways where we get, frankly, better returns in a more predictable operation.

There's nothing wrong in doing that. Thank you. creek: Thank you, Tim.

Our next question is from Carlos .

Congratulations on a great quarter.

Thanks, Carlos.

Thank you.

actually asked most of my questions, but following-up on question, can you comment at all whether or not the credit quality of your buyers or prospective buyers have deteriorated at all in the last six to nine months or is still the same?

I think when you look at the entry-level side of it, which is Indianapolis and also our Encore Horizon line in Columbus...

And Cincinnati.

... and Cincinnati, I think their credit quality, Carlos, has a little bit worse.

Yeah - I think it's, you know, it's very hard to quantify exactly. But my sense is that it has deteriorated. I don't think - I don't think we're selling - I don't think our sales efforts have diminished. I don't think that, you know, I mean certainly some of the cancellations have to do with, you know, the events of the last six months and, you know, the economy in general is beginning to sputter in some places. But I think credit quality has eroded.

And one of the things we try to do and since we do build a contract, we have five to six months from the time they sign up to when they close. And during that period of time, we try to get their credit cleaned up, encourage them to save money to get them ready to close on a house. But, as Bob said, it definitely a little more difficult.

OK.

Phil, can you give us a little bit more color on the gross margin improvement there? What was the main driver or was it just the higher average price?

You know, Carlos, the good thing about it, it was pretty much across the board in almost all of our markets. Columbus had the best margins they've ever had. We definitely benefited the first quarter from some warmer weather, and we didn't have some of the winter expenses that we've had in the past. But it was across the board.

We have been able to selectively raise prices and get higher margins because all this land we're going through is very, very hard to reproduce.

Yeah, and I got to say this, it's - you know, I think we've said this in two or three calls over the past year or two, the sustainability of these margin levels is a challenge. We have pushed, and pushed, and pushed, and pushed our pricing, you know, where we've had tremendous demand and very high levels of sales. And, you know, at some point, you know, you can't keep pushing.

And, you know, we're going to have a very profitable year if our business continues to be very strong. But the fact is, there may be certain areas where, you know, we may have to back off a little bit, too, just as a matter of good business practice. herrera: Right.

I mean, there's no industry in the world that doesn't see, you know, margins that go up at some point come - start to come down a little bit.

Right.

Can you guys comment at all in terms of a trend of orders throughout the quarter? I - if I remember correctly, you guys seem to be having a pretty good January the last time you guys had a conference call. Did that trend down throughout the rest of the quarter?

Yeah, and Phil is pulling the specific's on it. The month I think was the one that surprised us - I don't know if surprise is the right word - that maybe was not as strong as we would hope was March.

March is typically one of our stronger months. Usually, it's a lot stronger than April. This maybe one of those years where April takes a little bit from March. I mean, some - one of the reasons we got away from monthly reporting was because we began to - I mean, sometimes these things can drive you crazy and fool you. You know, month-to-month, and, you know, things that happen. But March was the month that was off a little bit.

Yeah, and when you look at it, Carlos, what happened is in round figures, you know, in January we sold 300, in February we sold 375, in March we sold 400. So the good news is we did have increase. The issue last March, last March, we sold almost 600 houses. That was just a real time comparable for us.

And as Bobby said, if you take the first quarter average for the last five years, except for last year, we were right at 1,100. So the house may be three weeks ago was pretty much right in tune. It was just last year, especially March that was so strong.

OK. Guys, great work - continue - keep up the good work.

Thanks a lot.

Thanks, Carlos.

Our next question is from Steve .

Thanks very much.

Guys, I was wondering if you could comment a little bit on what's you're seeing in the marketplace with respect to inventories, not just new home inventories and not just specifically your new home inventories, which I know you always keep control of? But rather, what you're saying on - in the total market with respect to existing home inventories and new home inventories? Is the - is the pull off in demand a little bit that you saw on March in any way reflected in a broader marketplace in higher inventory levels?

Well, Steve, my sense is that I, you know, I can't - I don't know if this applies to every market we're in. But my sense here in the Midwest and perhaps, you know, in Tampa and maybe in some of the other cities that we're in, I think that they're up. I think the spec inventory is up. And, you know, we're beginning to see that a little bit and, you know, I know they've been very lower as you yourself have pointed out. But I think they're creeping up a little. I mean, I don't - I don't have a lot of specifics this support what I'm saying, but it's just a sense that, you know, things that I'm hearing from the field and so forth.

How much of that do you think might be a function of the extremely warm winter weather we had which allowed builders to sort of get a jump on starts?

That might be some of it, but the others may be cancellations. You know, I mean, I look at the cancellation reports issued by the, you know, the 10 or 15 largest builders in the country. There's a report produced that shows cancellation rates. And all these builders have reported significantly higher cancellation rates. I think they've begun to trend down here in the last 60 to 90 days. But that may be - some of it may be due to that, because I know that some of the cancellations occur after construction. Some builders are more aggressive in starting their houses before financing.

Right.

With respect to what we saw following September 11th, some of the builders have indicated that you're going to see - that they're going to see perhaps some, you know, the weakest quarter of the year being, you know, the second quarter. Is that the case very much out in ?

From a selling standpoint?

No, from a - well, from a revenue standpoint.

Well, from a revenue standpoint, you know, our closings should get better as the year goes on. The concern we have right now, of course, is what we're selling now as fourth quarter deliveries. And so, you know, for us to have a really, really strong year, we really, you know, maybe good April and May from a sales standpoint.

You know, Steve, the other thing, too, is we're a little different. I mean, we're glad we are that 60, 70 percent of our business is the Midwest. And, you know, in terms of the other public builders that are out there reporting, not many of them can, you know, have that - have that sort of mix - geographic mix.

You know, we're largely reliant on the Midwest and that's by design. And we're - I don't see that changing any time soon. But the fact is, is that, you know, the - when you look at our operation verses some of the other builders, I think the Midwest is a little different. It tends, you know, in a lot of ways in terms of the peaks and valleys are much, you know, much more shallow. And right now, we've seen a weakening of traffic in the Midwest much more strongly than, for example, in Tampa, and Washington, and Charlotte, and so forth.

Great - well, thanks very much.

Thanks, Steve.

Thanks, Steve.

Our final question is from .

Thanks.

I was wondering, I couldn't figure it out from what you provided, could you give us what your average selling price was this quarter and a year ago?

Yeah, if you look at the average sales price...

I think it's in the release.

Yeah ...

Because I didn't - I didn't write down your ...

No problem.

... so I'm sorry.

The average sale price was 241 in the first quarter...

OK.

... compared to 217 a year ago.

OK.

And we're still looking at backlog of a 238 verses 230.

Right.

And the second question was on the competition that you're seeing in the mortgage business. Is there a regional differential? Are you seeing the similar things in Virginia and Florida as you're seeing in the mid-West?

We sell a little more in the Midwest. Of course, that's where the bulk of our business is.

OK - thanks very much.

Thanks.

There is another question from Timothy .

Yes - I'm intrigued on the - talking about the tougher environment for people buying mortgages and I don't know if you listened to Greenspan's testimony. But he must have mentioned that, the fact at least three times in his testimony that the cancellation or the delinquency rates have risen substantially. Do you think that might be spooking some of these buyers?

It would not surprise me.

Buyers of mortgages you mean, Tim?

Yeah.

Oh.

Yeah - I think people are concerned, Tim, about there's been a number of articles. There was a big article in Barron's about when you look at the down payment requirements now, when you look at the delinquency rates going up, when you look at the cancellation rates, I mean, there's no doubt in my mind that's spooking some people.

I have not heard what Greenspan said today, but that's been a pretty much a theme for the last couple of weeks.

And how much is the slowdown - I mean, the problems with Ford, whether they had four quarters of losses and so forth and closed five plants. I mean, how much of this, I mean, you have - you have so many of your markets in Iowa you know, that service the auto industry. That has to be hurting the job markets of every well-paying jobs.

Well, I don't - I don't think that Ford - I mean, in particular, the Ford situation has no impact on Columbus, very nominal impact on Cincinnati. There is a plant there.

I'm not just - I'm not just talking about the plants. I'm talking about all the plants that service those companies - the auto supply companies and all kinds of secondary and companies.

But it - I mean, do you have any update in what the unemployment rate in Cincinnati and Columbus are right now versus a year ago?

Yeah, if you look today in Columbus, it's about 4.2 percent...

Versus...

... and a year ago, it was about two-in-a-half.

Really, that much higher?

Yeah.

And how about - yeah, Cincinnati or just Columbus?

That's just Columbus.

We could get you Cincinnati, but I don't - I couldn't tell you...

Cincinnati is not quite up that much. But it is up quite a bit , but you know, still 4.2 percent is...

Historically it was very low, I mean...

Well, Columbus was running the lowest in the state for a long time.

Oh - it was.

OK - thank you.

At this time, there are no further questions. I'd now like to turn the program back to you, Mr. Creek.

Thank you very much for joining us, and we look forward to talking to you next quarter. Thanks.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may disconnect at this time. Good day.

END