Seacoast Banking Corporation of Florida (SBCF) 2006 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the fourth quarter earnings release conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Dennis Hudson. Mr. Hudson, you may begin.

Thank you very much, and welcome to our Seacoast fourth quarter 2006 earnings conference call. Before we begin I would like to direct your attention once again to the statement contained at the end of our press release regarding forward statements. During the call we are going to be discussing certain issues that constitute forward-looking statements within the meaning of the Securities Exchange Act and accordingly our comments are intended to be covered within the meaning of section 27A of the Act. We also posted a few slides on our website, that we are all going to be referring to in our comments. Feel free to visit Seacoast banking.net and click on presentations at the bottom of the Investor Relations listing to view these slides as we continue with our comments.

With me today is Bill Hahl, our Chief Financial Officer as well as Doug Gilbert, our Vice Chairman and chief credit officer and Jean Strickland, our Chief Operating Officer. All of us will be available to answer questions following our prepared remarks. CICA's reported earnings of $23.9 million or $1.28 diluted earnings per share for 2006. This represents a modest 3% growth in earnings over the record 30% growth posted in the prior year. For the quarter earnings totaled $5.7 million or $0.30 per share. Earnings for the quarter after adjusting for a significant increase in the provision for loan losses this quarter and a gain associated with the sale of one of our branch properties, was $0.33, up over the $0.30 earned in the prior quarter.

During the quarter we completed a review of all large credits with any exposure to the slowing housing market. This review was undertaken as part of our credit monitoring process in response to what we believe is a change in market conditions. Timely monitoring of credit exposure in response to changing market conditions is an important element of our credit processes. While we did not identify any specific loss exposure, we did increase our provision for loan losses this quarter in response to the change in market conditions. During the quarter we also increased an impairment reserve related to the nonperforming loan added in the prior quarter, the previous quarter. Each of these factors, the provision related to market conditions and the provision related to the nonperforming loan contributed approximately half of the total provision of $2.2 million for the quarter. Going forward we expect our provisioning to be more closely aligned with loan growth.

While earnings growth was quite strong through the first half of 2006 a persistently inverted yield curve together with deposit balance declines resulting from the slowing residential real estate market, and from an intensely competitive marketplace, took its toll in the second half of the year. These factors will likely continue to persist, although at a slowing rate into early 2007. Loan growth remains strong throughout 2007 with loan balances up 18.6% annualized for the fourth quarter on a sequential basis. This growth rate mirrored our organic growth rate for the year. Loan growth actually helped improve our net interest margin for the full-year which increased 18 basis points to 4.14%. We expect loan growth rates to moderate as we move into 2007 due to an expected higher level of loan payoffs. We will continue to target strong production, particularly in nonresidential commercial lending during the year, and we believe this will result in loan growth going forward in the high single digits.

During the quarter the sale of two of our largest local Treasure Coast competitors was completed. This will mark the initial entry into Florida by the buyer, National City Corp., headquartered in Cleveland, Ohio. Rebranding and systems conversions will be accomplished late in the first quarter for one of the companies and early in the second quarter for the other. Announcements regarding personnel issues have already begun to occur, and we've had a few early successes in our efforts to attract lending personnel.

We have created both an external marketing campaign and an internal sales campaign that is designed to help us take advantage of any potential customer disruption. I would like you now to turn to slide number three in our presentation, and that can be found on our website, Seacoast Banking.net. In slide number three, which is entitled "capitalizing on market disruption" you can see that here in our core Treasure Coast market over $1.5 billion in deposits that were held by two local community banks will now be transferred to National City. This represents a major change here in the Treasure Coast region where we have the most offices of any region that we operate in. We think the opportunities for us are outstanding and will begin to materialize probably late in the first quarter and into the second quarter and throughout the year.

If you turn to slide number four, page number four, you can see the complete list of remaining community banks located here in this Treasure Coast market area. And there can be no doubt that Seacoast at the top of the list represents the most competitive offering in terms of remaining community banks on the Treasure Coast both in terms of offices and the scale of our size throughout the market in terms of our deposits. So we are excited about the prospects for continued solid loan growth and the National City opportunity that is now upon us.

As you know other factors however are testing the growth of our net interest margin and these factors are likely to be a challenge for us. Our projection suggests a continuation of these factors will make it difficult to accomplish meaningful improvements in overall earnings growth until later in the year.

Now I would like to turn the call over to Bill who is going to add a few other comments about the quarter.

Thanks, Dennis. There are some areas where I believe we can provide a bit more detail about the quarter, and where we are headed in 2007. The areas I am going to cover are the margin, noninterest income, non-interest expense and the tax provision. The net interest margin compression for the quarter totaled 27 basis points as a result of a difficult environment and a continuing deposit competition, as well as we had some change in funding as a result of deposit declines which were partially offset by deposits and repurchase agreements from public fund customers.

Because of the projected paydowns that we have for our real estate projects which we forecasted in the first quarter of 2007, we elected to borrow funds overnight rather than paying up for time deposits this quarter. Therefore we allowed the sequential net deposit declines to occur. The seasonal deposits and repurchase balances from public fund customers accounted for approximately 5 basis points of the fourth quarter's margin decline due to very narrow spreads earned on those funds. Deposit pricing increases accounted for another 13 basis points of margin compression. Overnight borrowing, which replaced declines in non-interest bearing and savings deposit accounted for 11 basis points of the reduced margin.

On a positive side earning asset yields improved two basis points during the quarter, and we expect further improvement in 2007 in those yields as a result of very good loan growth with average loans as a percent of earning assets and increasing to 77% from 75% in the third quarter. Loan growth totaled 4.6% linked quarter on annualized. As discussed in last quarter's conference call we expected this margin compression as a result of the inverted yield curve and from maturing CDs pricing to higher rates due to a very competitive deposit environment. It appears we can again expect the pressure on the margin going into 2007 through the first quarter; however we believe that about half that which we experienced here in the fourth quarter. And we believe modest improvement in the margin will begin as early as the second quarter assuming loan goals are achieved and there is no significant change in interest rates or the current economic environment. We believe loan growth, as Dennis mentioned, will flow from our 2006 organic growth rate of 19% for 2006 to an 8% to 10% range for 2007.

Now a few comments on non-interest income. We expected and talked last quarter about non-interest items improving in the fourth quarter and indeed marine fees and mortgage banking fees did increase from the third quarter. On a year-over-year basis fees from wealth management line of business improved by 14%, and we expect similar increases consistent with our long-term goals for a solid 10% growth in this line of business in the future. Overall we expect further improvement in fee generation will occur in 2007 as a result of our past acquisitions in the last two years. And as we are successful in acquiring customers from the National City opportunity. But as Dennis mentioned, probably that growth won't emerge until later in the year.

Turning to non-interest expenses, the current quarter and the last six months have been a challenge for our company and industry as a whole. Our earnings results have not met our expectations, and therefore in the fourth quarter we adjusted our salary incentives and profit-sharing contributions for the year 2006 all occurring in the fourth quarter. These adjustments resulted in lowering non-interest expenses in the fourth quarter by $1,341,000 or said a different way, they added $0.03 per share to fourth quarter results.

We indicated last quarter we were assessing our overall cost structure and would have guidance on expected overhead for 2007. We will begin implementing identified cost savings starting in the first quarter and throughout the remainder of the year with the goal of achieving no meaningful overhead growth for the full-year 2007 compared to 2006 after adjusting for the added expenses of a full-year impact of the Big Lake acquisition. I believe the reference point for the quarterly run rate with Big Lake for expenses in 2007 is the third quarter results of 2006. This overhead was after the impact of the integration and the elimination of duplicate backroom costs. Our goal is to achieve quarterly expense results in 2007 similar to that of third quarter 2006 with increases each quarter for cost adds resulting from the addition of three branches and a loan production office which will occur as the year progresses. This will achieve an overhead rate that will range in the mid '60s for the first half of 2007 to the low 60s in the last half provided revenue growth occurs as expected in the last half of 2007.

Finally, I will mention on the tax provision for the quarter was at a lower rate as a result of tax benefits from cash flow stock option exercises, which occurred in the quarter, and some normal annual true up of our tax accruals at year end.

Thank you, Bill. We will now open the call for questions.

(OPERATOR INSTRUCTIONS) Barry McCarver, Stephens, Inc.

Good morning, guys. I am curious to I guess a little more color on the margin in your assumptions about the stability later in the year. Is that primarily a function of what is happening on the funding side, or are you expecting any changes in terms of pricing on the loan side?

I think it is partly on the funding side as we sort of -- with the Fed being on hold and the CDs being relatively short, that we will see less and less impact coming from CD repricing opportunities there. And then the loan growth, the pickup in the margin there kind of begins to offset. It is a somewhat of an optimistic forecast for earnings or margin expansion of any major amount. But we do see, once we get through the first quarter, that there is that opportunity for more of a flat to slightly improving.

Okay.

Said another way, we pretty well worked through all of our adjustments in the first quarter.

And secondly, in regards to the opportunities from the recent mergers of a couple of your competitors, have you kind of baked into these expense numbers the potential for possibly picking up some good people? And is that -- should we consider that baked into your comments regarding expenses in '07?

I guess the answer is some of that is there, and it depends on how successful we are in picking up some of the people. I would say that also, though, that any people we pick up would be with the intention of having it help improve our revenue growth. So they are going to largely pay for themselves. And if we couldn't see that I am not sure that we would want to move in that direction. We've done a fair amount of work on the cost side, and that will become effective and work its way in as those opportunities present themselves. So we have baked a certain amount of that in, yes.

And just lastly we've seen a lot -- it seems like this earnings period we've heard from a lot of Florida banks about asset quality particularly on the residential construction side. I am just wondering if you can give us a little color on what you might be seeing out there and if there is anything that you are seeing from your competitors that might be worth talking about.

I am sure Doug will want to comment on that. Just generally to clarify and reiterate we this quarter for our own portfolio undertook a very rigorous review of all large loans related, that were in any way related to that market. And we got through that and feel pretty comfortable with our current position. And the results of that review did not reveal, as I said earlier, any areas of significant concern. But we did, were able to help allow us to really focus on credit that might in the future begin to experience some concerns. And so now is the time to be talking about that with borrowers and making sure that they are taking the appropriate action in their own businesses to respond to what is very clear, and that is a slowing of residential transactions. Doubt, any further comments on overall view?

I don't think there is any question that the fact there has been market conditions have changed very significantly over a period of time, a fairly short period of time. We are of course not totally insulated from that, although our markets tend to be the last affected because of the growth rates in our markets. But as Denny said, we have gone over every single significant loan in the portfolio and have not identified any true problems. We have identified projects that may be a little slower in getting out of the ground and selling out, but as far as identifying any real true problems we haven't done that. And just quickly the commercial real estate side seems to be still amazingly relatively strong at this juncture and it has not had the effect that it has had on the residential markets to date.

And you also asked about what we see at our competitors. And you know, we read the same things you do, I guess, and there have been kind of spotty results in terms of unusual problems here and there. But again, I just want to characterize what we did this quarter is something that is just part of our normal ongoing credit monitoring that is a very important part of our whole credit process. And that is to stay on top of these and understand exactly where the borrowers are at any given point in time. And I think it would be an absolute appropriate thing to do given what we see in the marketplace, and that is a significant slowing in transaction volumes that will probably be with us for quite some time.

Very good, guys. I know it is a very difficult environment right now in market, and I appreciate the additional transparency and hard work. Thanks a lot.

David Bishop, Stifel Nicolaus.

Good morning, gentlemen. A question for you, I think in your preamble you talked about the breakdown in terms of the distribution of the loan loss provision. You said half of it is due to the renewed exposure on the boat loans. How about the other half there in terms of what that was related to?

Half was related to an increase, as you said earlier, in an impairment reserve on the nonaccrual loan that we put on nonaccrual last quarter, roughly half of the $2.2 million. And the other half, what I was attempting to say was related to just a change in market conditions that is affecting parts of the portfolio related to residential construction. And again, just to be clear, we did not identify any losses or other impairments in that portfolio. We just think it was a prudent time to increase the size of the reserve due to what we saw as a change in market condition.

In terms of just internal risk rating loan grades any sort of degradation there or immaterial sub loss (indiscernible) trends that aren't showing up in the NPAs or early watch list delinquencies?

That is not something that we publish, but suffice it to say that we look very carefully as we completed that review and made sure that we felt comfortable with the risk rates on all of the credits in the portfolio as part of our overall ongoing monitoring of credits through time. And we certainly took I think what all of us would agree is a conservative, very conservative review of the portfolio given the conditions that currently exist. And so but again, that is not something we typically published.

A question from a sort of [alco] perspective. I did note the increase I guess in rate sensitive assets there. Is that a function of that short-term liquidity coming on the books? I seem to recall, you guys were extending durations I thought on the asset side there. Maybe better position if the Fed does go neutral here. Any sort of shift in terms of your interest rate sensitivity on a significant basis quarter-to-quarter?

No, David, no real change.

And then finally I guess -- I lost my train of thought here. I will jump back on with a question.

Jennifer Thompson, Oppenheimer.

Good morning, everyone. A couple of questions on your guidance, as well. You mentioned you are expecting loan growth to run 8 to 10%. Is there anything we should be adjusting in our earning asset outlook regarding securities, or would you expect earning asset growth to approximate loan growth?

I guess, it should be a continuation on the securities portfolio, the runoff that we've been seeing; so I would not think that our earning asset growth rate would be the loan growth.

I think the answer is there will be some earning asset growth with that kind of loan growth. When you look at our liquidity levels right now that is clearly something that you will see as earning asset growth but it is likely not necessarily to be at the same rate as loan growth.

Okay, and I'm sorry again for.

I would say that is probably a change from this past quarter where you did not see earning asset growth.

That's helpful. And just apologize for asking this again I sort of missed the question earlier regarding the provision outlook; now that the 2.3 million the outlook going forward you said would expect to see that provision grow in line with loan growth with a core number being what the net charge-off ratio was this quarter? Or would you say it is half of what you provisioned for in the fourth quarter?

No our provisioning going forward what we were trying to say will be more of a function of growth in the portfolio, and so we would anticipate the provisioning going forward to be substantially less than it was this quarter and more in line with perhaps what we have seen prior to this quarter in terms of overall provisioning. And that very simply said -- the drivers to the provision going forward are more likely to be loan growth, not other factors. So I think that is pretty clear.

Great. Thanks very much.

Christopher Marinac, FIG Partners.

Can you talk to us about the change of real estate values I guess across various portions of commercial and residential real estate, both in recent quarters as well as what you would expect might be a downside risk during the course of this year?

Yes, that is a good question, and first of all as Doug said earlier on the nonresidential side, on the commercial side of the real estate market, I don't know that we've seen any if there has been weakness.

Little if any weakness in the commercial side. I would say to you that on the residential side the decline that we have seen in values have been dependent on what part of our marketshare we look at. There are pockets of our market where there has been no decline; but if you look at it from an overall standpoint you would say a 5 to 10% basic decline in values. And it is our feeling and I thought that is probably as far as it is going to go considering the limited supply and the number of people moving in there, we don't think it will go much further than what we've seen to date.

But it is going to probably be spotty, and I think that's what Doug was trying to say was there could be certain areas or projects that would experience more difficulty than others. Interestingly if you just look at transactions generally throughout the market and compare it with the past year or so you really haven't seen much in the way of decline. There is certainly evidence as Doug just said, it's some modest decline in values but we've not seen except in spotty, unusual sort of situations any substantial decline in value at this point, and I am talking residential product.

Would the same hold true for straight raw land as an AND loan?

That's going to be far more difficult to project. There is no doubt about it that you would expect that raw land values would decline a the greater rate. But there haven't been a lot of transactions yet. You are just starting to read about some of that, and again, if we have proper underwriting on the front end of that stuff we are not likely to see any substantial problems.

And the follow-up was just any color short-term that may be on your big new green competitor in town.

Kind of interesting. It is beginning to happen just now. You know both transactions closed. One late last year and one very early this year. They have now established very firm conversion dates for one of our competitors here. That will be mid-March, and the other one will occur three weeks later, we think. We've confirmed that on those dates they will simultaneously reblock the place, lay off several hundred folks and change all of the systems. So it's going to be a very significant change internal those organizations; they have already begun making very clear decisions on personnel. And that has caused us to talk with a number of folks, which has been positive. And so the signs are encouraging thus far.

Thank you very much, guys.

John Pandtle, Raymond James.

Thank you, and good morning. I wanted to go back to the securities portfolio issue, which really seems to have been meaningful hindrance on net interest income growth over the past year. As I look at your securities portfolio it is about 22.5% of average earning assets and the fourth quarter was roughly 30%. Second quarter, 37% year ago. I am just kind of wondering where do you see that number stabilizing as a percent of earning assets as you look into '07.

I think it is probably -- we're going to be comfortable at a level of around 20% or so of earning assets. We do have quite a bit of runoff occurring this year. Could be higher. We have some bullet agencies that come off this year, fairly large sized, about split between each halves of the year. So we will be assessing as the interest rate environment unfolds throughout the year on what we will be doing with the investments and the investment portfolio; whether we will be adding duration would be the key question. So at this point we haven't wanted -- didn't want to go out any further on the curve because it wasn't beneficial. And so I think to answer your question (indiscernible) say over the long-term we're looking at around probably 20%. But this year it could be different than that just because on the fact that we may want to stay short, may want to stay in overnight funds as these other additional funds become available. If there are excess above the loan growth.

So different means what were they in, 20%?

I don't think it will go lower than 20%.

I think we're about there, but it really depends on how successful we are on the deposit side.

That seems to be the linchpin in this whole equation.

No doubt about it, and it has been the negative factor that has worked its way in in the second half. You know a factor that is affecting us I think more than one might have expected has been the slowing transactions in real estate. Those drove some of the deposit growth we had over the past year probably and a lot of that is already unwound. And that is why we say some of those factors are going to moderate now because we think we are pretty well through that when we looked in our studies at the account level and seeing what has really happened to us. And so that has been a big drag for us. And yet the marketplace has been competitive and the yield curve has been inverted and so it has been very difficult for us to make any sense out of going back into the market and boosting that growth rate back at ever smaller margins. So we've just kind of hung tight as that has occurred. The other factor that has affected us in the last two quarters has been some deposit decline related to the Big Lake acquisition that occurred I think in April of this year. We are now kind of through what was a fairly modest decline in deposits but some of it driven by competition for -- they had a fairly large exposure of public funds funding in many of the markets they are operating in which we understood from the beginning. And the environment turned very negative and became kind of nonsensical for us to compete at the levels that we saw out there. And so we sort of intentionally saw some deposit outflow occur out of that and that kind of hit us at the same time these other factors materialized. So the question is are we kind of pretty well through that? We think we are, although we think there will be some additional effect in the first quarter, and that is why I said at the outset we are going to be challenged to show any kind of meaningful earnings growth until later in the year. We've got to get through those factors and through those factors that are affecting us.

If I could on a follow-up on a separate topic, when you went through your review of the credits that are related to residential construction or our residential construction, when you calculated the provision or reserve build you would need, what were some of the factors that you considered? Issues such as home sales, home prices, absorption rates, how does that all factor in? What are the key metrics that you look at when you come up with that kind of reserve, and specifically what is your outlook on some of those metrics?

That is a great question and that would take about an hour to answer it and at the end of the hour we probably still wouldn't understand it. But I guess only thing I would say is that there are a number of subjective factors that need to be considered in making that decision. And what we do is go out and read the marketplace and come up with rationale for either increasing or decreasing those subjective factors. And we were able to develop what we felt was pretty solid support, objective support in the marketplace for increasing some of the more subjective factors behind the allowance. And that is what we did. And some of the objective data we looked at was declining numbers of transaction occurring. We looked at inventory build throughout the markets, which has been evident the past couple of quarters and other such things and came to the conclusion that it was appropriate for us to book a higher provision.

Okay. Thanks for your thoughts.

Gary Tenner, Suntrust Robinson.

Just a question for you with '07 laying out as probably a pretty modest balance sheet growth year and your build up in your capital ratio and your stock where it is, how are you viewing the use of capital in terms of a buyback potentially over the next year?

First of all, I just want to kind of make clear that we are not -- we kind of agree with you in terms of modest earning asset growth and modest balance sheet growth. I think we've been pretty clear on where we see loan growth, have been pretty clear on some of the challenges on the deposit side which would cause you to make the statement that you just made. But also I want to say that we have not baked in to our assumptions and our guidance much in the way of any upside related to market disruption here locally in the markets here. And so that could be something that could be helpful for us later in the year. But we tried not to bake that assumption in to anything we've told you and talked about, tried to be very realistic about where we see us heading. And we're going to work really hard to take advantage of what could be a short-term opportunity for us here over the next year or two with the potential for market disruption. There can be no doubt that the pressure on capital has lessened beginning middle of this past year. And that will probably continue to be the situation short-term here over the next twelve months. So we certainly have the opportunity from a capital standpoint to consider redeploying that with buybacks. It is not something we're talking about. It's not something we're announcing or anything but it is something that we'd certainly keep our eye on particularly over the next few months.

So it sounds like your preference is to keep that excess capital as dry powder for some maybe better than expected balance sheet growth.

Yes, but I think we are also mindful of other opportunities out there and one of those could be buyback. So we are not saying one way or the other, Gary. It is on the table, and it is something for us to look at, but nothing to say at this point.

All right. Thank you.

David Johnston, Hovde Financial.

Just a couple of quick questions on the asset side of your balance sheet. First of all I think you said high single digits for loan growth in '07. Is that correct?

Yes.

Would you expect that to come, be distributed evenly over your different loan categories or do you expect one to be the driver of that growth or a drag on it?

I think Doug, do you want to answer that?

Well, the coastal market is real estate, real estate, real estate, most (indiscernible) will come from the commercial side of what we see today.

That's fair.

Commercial and probably very little from the residential.

Sounds fair. And just one more quick question regarding the construction bucket in your loan portfolio, have you seen any kind of movement in the ratio of loans outstanding i.e. money you've already distributed to commitments or is that just sort of remained stable over the last quarter or so?

We actually had some surprising growth I guess in that area a little bit this last quarter but again as we said at the outset, we see substantial payoffs beginning to materialize throughout this year. And it should be no surprise to anybody that those payoffs are going to come largely in that construction portfolio. So we expect that the mix to come down pretty substantially throughout the year on the construction side. And again, the press is on for us to make sure that we focus our growth going forward on the commercial end. And we will do that. So we will see some growth, some add-on volume on the commercial end of construction but we're going to see substantial payoffs offset that with residential related construction.

Thanks very much.

(OPERATOR INSTRUCTIONS) Al Savastano, Janney Montgomery Scott.

I think we all have. A little clarity on your tax rate going forward. Do you still expect it to return to this 36% or will it drop?

Yes, I would say sort of the lower level of earnings that we have. Our REIT is sheltering a bit more on the state tax. So it is going to between 35 and 36. It's going to be a little bit lower than it has been.

Great, and then Denny I was wondering if you can go over how the board assesses whether to remain independent or not.

We are constantly looking at our forward momentum and our forward prospects. We operate in some of the highest growth markets in the United States. We have a significant franchise within those markets, the long-term prospects are unchanged. They are extremely positive. We are currently in a challenging environment. I view that environment to be short-term. It would be easy for us to sit here and down the straight line kind of what we've produced over the last couple of quarters and conclude something very negative. But we see very positive prospects for us out into the future. The key is for the board to consider is our ability to execute, which is a function of people and having the right folks able to execute. We have very optimistic outlook with regard to that, and we will continue to look at that. But to the extent that we are unable to execute properly, that is always on the table. And we earn our right to stay independent as every day goes by. So it is something that we are constantly looking at. But again, I think would be a mistake for us all to view two quarters or so of disappointment as something other than a very difficult environment that we now find ourselves in. And I think it would be -- so I guess that probably answers the question.

Thank you very much. Appreciate it.

David Bishop, Stifel Nicolaus.

A couple follow-ups there. In terms of the inflows that public fund money, I think you stated that was about a five basis points drag on the margin. What is the timing of the I guess the disbursement of this fund, does this (indiscernible) first half of the year, first quarter?

Generally, David, they hang around through March. Then we begin to see those dispersed out.

Secondly, I don't think I saw this disclosed. I don't know if there is any comment there on the commercial loan pipeline side of it. I think you exited third quarter about 370 million. I don't know if you have that number if that is something you disclose for fourth quarter.

No. We don't have -- I am not aware of the pipeline numbers for the fourth quarter.

In general the pipeline remains strong. It hasn't improved. It has not improved over the numbers that we talked about in the third quarter, but it is generally unchanged. We've had strong pipelines and continue to see things kind of unchanged. Obviously greater pieces of it are coming from more on the commercial side. And as Doug said earlier we've had kind of a remarkably strong, steady environment on the commercial side and that continues to be with us today.

But from the Big Lake point of view, I think you had talked about some of the deposit factors there -- in terms of the loan side of Big Lake, what are you seeing from that geographic region that side of the business?

Loan growth in Big Lake?

Yes.

We're seeing basically the same thing that they've had for the last two or three quarters, not a big pipeline but a steady pipeline.

Kind of at expectations and again we feel comfortable with the, as Bill said earlier, high single digit, overall loan growth this year.

Great. Thank you.

Edward Barr, Barr & Company.

I had two questions. Since the National City acquisition has been known for quite some time, have you had any tangible success in the interim, or is this still all projected? And the second question deals with credit quality which was described as spotty by market; since you have significantly different dollars in each market, could you give us a sense of the asset quality or the decline by market?

With regard to the first question yes, we've had some tangible results. Just in the last month or so as a result of intensified calling efforts by our folks to the customer base. We've had some early successes but it is far too soon to say that that is a trend. And they are a great organization, and I'm sure they are going to do the best job they can and we are just trying to indicate that we think it's an opportunity for us going forward. But again, we have not baked that into any of our overall guidance that we've talked about. It is just a fact, that yes, we've had some good success on an individual customer basis and then some of the personnel side of things.

Your second question on credit quality I don't think, when we said that it was spotty by market, I don't know that that was intended to suggest that we have markets where we have particular concern. I think it is more spotty by project in down the kind of granular level. Doug, I couldn't say any significant difference around market. It is just kind of a general slowing.

Correct, and the comment about the spottiness had to do with the depreciation and questions as opposed to the credit quality that I have said. There were spots within our market where there has been no depreciation and things that didn't have anything to do with the asset quality. And then he answered that correctly about you can't identify one market where there is any significant downturn in quality.

Thank you.

And just in general the residential real estate market is a very diverse market. As you can well imagine, it is supported by thousands and thousands of decisions every day as opposed to the commercial side of things that can be very different between industrial and retail, for example, that could have a more dramatic effect. So the overall effect of a slowing and transaction kind of hits all aspects of the residential market more evenly than one might think. There are some differences in price points where you have better demand at different price points and the like. But generally speaking it has been fairly consistent throughout markets and throughout products.

At this time I am showing no further questions.

Great. Well, thank you very much for your attendance today, and we look forward to our next call and hopefully we will have some better, clearer information to share with you. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference; thank you for participating. You may now disconnect.