Simmons First National Corp (SFNC) 2011 Q3 法說會逐字稿

Good afternoon.

My name is Matthew and I will be your conference Operator today.

At this time, I would like to welcome everyone to the Simmons First National third quarter earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions)

Thank you.

David Garner, you may begin your conference.

Good afternoon.

I am David Garner, Investor Relations officer of Simmons First National Corporation.

We want to welcome you to our third quarter earnings teleconference and webcast.

Joining me today are Tommy May, Chief Executive Officer, David Bartlett, Chief Operating Officer, and Bob Fehlman, Chief Financial Officer.

The purpose of this call is to discuss the information and data provided by the Company in our quarterly earnings release issued this morning.

We will begin our discussion with prepared comments and then we will entertain questions.

We have invited institutional investors and analysts from the investment firms that provide research on our Company to participate in the question and answer session.

All other guests in this conference call are in a listen-only mode.

I would remind you of the special cautionary notice regarding the forward-looking statements.

And that certain matters discussed in this presentation may constitute forward-looking statements and may involve certain known and unknown risks, uncertainties, and other factors which may cause actual results to be materially different from our current expectations, performance, or achievements.

Additional information concerning these factors can be found in the closing paragraph of our press release, and in our Form 10-K.

With that said, I'll turn the call over to Tommy May.

Thank you, David, and welcome, everyone, to our third quarter conference call.

In our press release issued earlier today, Simmons First reported third quarter earnings of $7.3 million, or $0.42 diluted earnings per share.

Compared to $7.6 million, or $0.44 diluted EPS for the same quarter last year.

The primary driver for this slight decrease is a $2 million reduction of premiums on sale of student loans, which we anticipated and actually discussed at our last conference call.

This decrease equates to a decrease of $0.07 diluted EPS.

Beginning with the 2010-2011 school year, the private sector was excluded from originating government-guaranteed student loans.

Thus, we had no sales in the first 9 months of 2011 and do not anticipate any for the remainder of the year.

On September 30, total assets were $3.3 billion and stockholders equity was $408 million.

Our equity to asset ratio was a strong 12.4% and our tangible common equity ratio was 10.7%.

The regulatory Tier 1 capital ratio was 12.1%, and the total risk-based capital ratio was 22.2%.

Both of these regulatory ratios remain significantly above the well-capitalized levels of 6% and 10%, respectively.

And ranked in the 90th percentile of our peer group based on June 30 peer versus our September 30 actual.

Simmons First has one of the strongest capital positions within our peer group.

Obviously, a portion of this capital has been allocated for our acquisition program.

And we plan to leave this portion of our capital available for this purpose.

However, based on our recent stock price, which we believe is an excellent investment, we plan to utilize a portion of our annual earnings to repurchase shares.

Thus, on September 27, the Company announced we would reinstate our existing stock repurchase program, which was temporarily suspended in 2008, with remaining authority to repurchase up to 645,672 shares.

The shares are to be purchased from time to time at prevailing market prices through our open market or unsolicited negotiated transactions, depending upon market conditions.

Net interest income for Q3 2011 was $27.3 million, an increase of $1.2 million, or 4.7% compared to Q3 2010.

The increase in net interest income was primarily due to a higher yield on covered loans acquired through acquisitions compared to the yield on loans in our legacy portfolios.

Along with an increase in earnings assets and a continued decrease in cost of funds.

Net interest margin for Q3 2011 was 3.86%, a decrease of 16 basis points from Q3 2010.

non-interest income for Q3 2011 was $13.7 million, a decrease of $1.1 million, or 7.4% compared to last year.

As I mentioned earlier, the cause for this decrease in non-interest income is the $2 million reduction of premiums on the sale of student loans.

Otherwise, normalizing, non-interest income represents an increase of $880,000, or 6.8%.

Now, let me take a moment to discuss the 2 positive items impacting non-interest income.

The first would be credit card fees, which increased $331,000, or 8.3% on a quarter over quarter basis.

This increase was due to a higher volume of credit and debit card transactions.

In July, the Federal Reserve released final rules regarding debit card fee income under the Durbin Amendment.

While the Durbin Amendment only applies to banks of $10 billion or more in size, we have consistently indicated that we believe all banks will ultimately be negatively impacted.

In fact, we have previously stated that the impact to our institution going forward is estimated to be approximately $600,000 annually.

At this point, we continue to believe that number is accurate.

The second item, other non-interest income increased, by $712,000 over the same period last year.

Approximately $465,000 of this increase was related to our Kansas FDIC assisted transaction.

Including accretion on assets acquired.

The remainder is related to credit card incentives and other miscellaneous income.

Switching gears, non-interest expense for Q3 2011 was $27.6 million, an increase of $875,000, or 3.3% compared to the same period in 2010.

The Q3 2011 non-interest expense includes $1.7 million in incremental normal operating expenses associated with our Kansas FDIC assisted acquisition.

Thus, normalizing for the Kansas acquisition, non-interest expense decreased by $788,000, or 2.9% compared to Q3 2010.

This decrease in normalized non-interest expense is the result of the implementation of our efficiency initiatives discussed in previous calls.

And a decrease in deposit insurance premiums as a result of changes in the FDIC assessment base and rates.

Concerning our combined loan portfolio, as of September 30, 2011, we reported total legacy loans and covered loans, net of discount, of $1.8 billion, an increase of $26.2 million, or 1.5% compared to the same period a year ago.

Covered loans net of discount increased $134.2 million due to our Q4 2010 FDIC assisted acquisition in Kansas.

Thus, our legacy portfolio decreased by $108 million, or 6.2% on a quarter over quarter basis.

Our consumer loan portfolio decreased by $23 million, driven by $14 million in student loan paydowns, and a $10 million reduction in our indirect loan portfolio.

Our credit card portfolio increased slightly to $183 million.

The real estate loan portfolio decreased by $74 million, including a $37 million decrease in the construction and development portfolio, which now represents only 6.9% of the total portfolio, which compares favorably to our peers.

Our agri loans increased $2 million on a quarter over quarter basis, and $19 million on a linked quarter basis due to seasonality.

Like the rest of the financial industry, Simmons First is experiencing weak loan demand as a result of the overall general economic environment.

We believe loan demand is likely to remain soft throughout the balance of 2011.

But we are committed and positioned to meet the borrowing needs of our consumer and business customers.

However, we will remain patient and continue to be the conservative lender that has enabled us to weather the economic storms of the past 3 years.

As a reminder, covered assets acquired from the FDIC are recorded at their discounted net present value.

And the resulting FDIC loss share indemnification provides significant protection against possible losses.

Thus, FDIC-covered assets are excluded from the computations of the asset quality ratios from our legacy loan portfolio.

The allowance for loan losses equals 1.79% of total loans, and approximately 157% of non-performing loans as of September 30.

Non-performing loans as a percent of total loans remained constant at 114 basis points.

Non-performing assets, as a percent of total assets, were 124 basis points, down 3 basis points from Q2 2011.

Non-performing assets including TDRs as a percent of total assets declined to 1.56% compared to 1.58% at Q2 2011.

These ratios continue to compare favorably to the industry and our peer group.

In fact, our non-performing asset ratio excluding covered loans puts us in the 82nd percentile within our peer group based on June 30 peer versus our September 30 actual.

During Q3 2011, the provision for loan losses was $2.8 million compared to Q2 2011 provision of $3.3 million, which included a $500,000 special provision.

For the first 9 months of 2011, net charge-offs were $6.1 million, down from $9.7 million in the first 9 months of 2010.

The annualized net charge-off ratio for Q3 2011 was 36 basis points compared to 79 basis points for the same period in 2010.

Excluding credit cards, the annualized net charge-off ratio was 17 basis points for Q3 2011.

We remain aggressive in the identification, quantification, and resolution of problem loans.

Our credit card portfolio continues to compare very favorably to the industry.

As our Q3 2011 annualized net credit card charge-offs to loans decreased 14 basis points to 1.94% compared to 2.08% for Q2 2011.

Even with the national credit card charge-offs declining in recent months, our loss ratio is more than 400 basis points below the most recently published credit card charge-off industry average, which is over 6%.

One of the real strengths of our credit card portfolio is this geographic diversification, with no concentrations over 7% in any state other than Arkansas, where we have approximately 40% of our portfolio.

We are very conscious of the potential problems associated with high levels of unemployment.

And we continue to reserve accordingly.

Despite our 1.94% loss ratio, we are currently maintaining our reserve of 3% for our credit card portfolio.

Bottom line, we continue to experience good asset quality compared to the industry, highlighted by our low credit card charge-offs, good non-interest expense control, and most importantly, an extremely strong capital base with a 10.7% tangible common equity ratio.

And regulatory ratios that rank in the 90th percentile of our peer group.

Simmons First is well-positioned based on the strength of our capital, our asset quality, and liquidity to deal with the challenges and opportunities that we may face.

Our conservative culture has enabled us to engage in banking for 108 years.

We consistently rank in the upper quartile of our national peer group relative to capital, asset quality, and liquidity.

While we are cautiously optimistic, and there are temptations to reduce liquidity to be more aggressive in pricing, and possibly to redefine credit risk, we believe there remains much uncertainty relative to the speed of the recovery and the corresponding challenges in the economy.

As such, we continue to believe that there has never been a greater time to have the strengths in capital, asset quality, and liquidity.

Obviously, a big part of our recent past and anticipated future, is growth through mergers and acquisitions.

With the strength of our balance sheet and the experience gained in our recent FDIC-assisted transactions, we remain committed to our M&A strategy.

As previously stated, that strategy also includes traditional acquisitions.

Likewise, we remain committed to our 325-mile radius from central Arkansas.

And while we anticipate fewer opportunities by restricting that radius, we believe this discipline allows us to complement the acquisitions already made.

And allows us to continue to operate in a market that best fits our conservative culture.

In closing, we remind our listeners that Simmons First experiences seasonality in our quarterly earnings due to our agricultural lending and credit card portfolios.

Quarterly estimates should always reflect this seasonality.

Now, this concludes our prepared comments.

And we would like to now open the phone lines for questions from our analysts and institutional investors.

Let me ask the Operator to come back on the line and once again explain how to queue in for questions.

(Operator Instructions) Michael Rose with Raymond James.

Just had a question as it relates to loan growth.

I know balances were down a little bit.

You mentioned that demand has remained weak and likely will remain weak.

But one of your in-state competitors actually showed a little loan growth in Arkansas this quarter.

And I wanted to get your sense, is the demand weak because you don't want to compete on price?

Or is the demand just weak because your customers have no interest in growing or rebuilding inventories or borrowing to finance capital investments?

I would tell you that first of all, that we look at every opportunity that we have.

And as far as the pipeline, it is probably as weak as I have seen it in the 25 years that I have been here.

The fact is, that when we have competed for an opportunity of size, the competition was at a level that we simply chose to not participate/ Either to not participate or certainly our pricing was at a level that resulted in our not getting the loan.

I think that as we look back 12 months and as we start looking at where we are now in the pipeline, and as we start looking forward, that there probably is a bit more optimism out there than there certainly has been when we're looking in the rear view mirror.

And I don't know where the optimism is really coming from.

By that, I mean that I believe when I'm -- we put in place a couple of promotions, for example, and we're getting some play on those promotions on the consumer side and possibly some on the commercial side.

So we're starting to see maybe a little bit of demand out there based on some pricing opportunities that we were willing to accept.

They may not be as competitive as we see when we get into what I would call a bidding war.

But that, I think, has been a positive.

Meaning, some of the borrowers are starting to come off the sideline.

As I talk to some individuals, I think that there are some folks that, they have been on the sideline for so long that they are just starting to now maybe look at some opportunities, whether that is building inventory or making some investments or acquiring some things that they haven't done for a period of a good 24 months.

And then just a question on the expense side.

I know a lot of banks are looking to tighten their belts here.

And I know you guys have some stated goals of ways to improve efficiency in various different areas of the bank.

Is there any update there?

And also, it looks like your deposit insurance is down pretty markedly quarter to quarter, if I'm reading this right.

Any commentary there?

Sorry if I missed it.

Thanks.

Let me talk just say a word about the expense and Bob can expound on that.

And then I'll say a word about the FDIC at the end.

As far as the expense efficiencies, we have obviously previously discussed that.

Those that we began back in 2008, which represented the centralization of loan administration, deposit ops and so forth.

And I think Bob, progressing very well?

Yes, those are in process, pretty much towards the tail end of it.

Our loan op area, that's where we're finalizing that process right now.

We started to see a lot of those expense savings, Michael, and those are starting to integrate into our system.

As we've said before, we want to give this process that we've been working through, through the last 3 years, a little bit of time to digest these savings and these new procedures.

But we do plan on continuing to look at new projects that we may have in the efficiency side and revenue enhancements going forward.

So we believe we'll continue on the efficiency initiative side on a go-forward basis.

But we believe we'll see some savings the remainder of this year.

And I would say into next year, you'll see a non interest expense overall, total savings of probably I would say from this year's base rate of anywhere from another $800,000 to $1 million.

So when I think about your efficiency ratio, is there something, is there a rate that you're targeting based on what you see on the revenue side juxtaposed the expense savings?

I would say right now,, the efficiency ratio for us and like a lot of the industry right now is being driven on the revenue side from the fee income that's gone away from regulatory reform and then also lower loan demand that we've had.

So that's been one impact and we believe when that comes back to more normal time, and with our efficiency ratio, our target has been in the low 60%s, from 62% to 65%.

While it's up at 70% right now, we believe we can take it down some through efficiency initiatives, but more importantly, when the revenue comes back in, in normalized times.

And Michael, I think that's a big issue, meaning the revenue side of that.

When you look at all the liquidity we have and you look at all the non interest income that we have lost, as Bob has mentioned, from government regulation, in fact, and you can look at our margin and our liquidity, but when rates do move, we shock our alcove model, then you're going to see a significant improvement in that overall efficiency ratio, driven by the revenue side of it.

And that shock is a fairly significant number, some $16 million in the revenue side.

So I think that, again, what Bob has said is right.

On the expense side, we're getting all of it we can out of the efficiency ratio on the expense side.

The rest will come from the revenue side and that's not going to happen until we start seeing some improvements in loan demand and movement in interest rates.

Let's hope that happens sooner than later.

Thanks a lot guys.

And Michael, on the FDIC, basically, if you took Q1 and Q2 and took about 50% of that number, that's what the new FDIC assessment would come to.

You can't hardly do it with Q3 because we did some over accrual there.

But I believe the new assessment numbers, the run rate would be about 50% of average of Q1 and Q2.

Matt Olney with Stephens.

The stock repurchase program, I was wondering if there are any data points you could give us as to how active that program was during the third quarter.

I think so.

As far as the--

Let me, real quick, third quarter, Matt, we announced it 2 days before quarter end before we really could get into it.

So for quarter end, it was only maybe 10,000 shares, 20,000 shares.

But Mr.

May has it on year to date through yesterday.

Yes, I can give you through yesterday.

And it's been 62,000 shares, or about $1.4 million, somewhere around $22.50 average.

And so again, that's just for 2 weeks into it.

That's helpful.

And as far as the strategy on deploying excess capital, is there any update you can give us as far as what you're looking for towards 2012?

I would tell you, let me just back up and give a little bit of history of 2011 before I mention 2012.

There were 5 failures in our market area that we've been looking at.

And of those 5, we have basically bid on 1, and we did not win that bid.

You might recall that we mentioned on that 1 bid, I think it's public, that the winner took on a fairly significant amount of goodwill.

It was a very aggressive price and our decision was -- well, if we had known the price, we wouldn't have bid on it.

But the fact is that our price was significantly above that dollar-wise.

I think it was even somewhere in the $35 million or so, the difference between the 2.

Yes, in our calculations, but we bid very competitively on that deal.

But it met the requirements that we set out to be in our marketplace, internal rate of return, and so forth on these failed bank deals.

It was an unusual bid.

We expect to probably not have as much competition, number 1.

Number 2 is we don't expect the bids to be as aggressive as this one was.

It's not what we've seen in the past.

We don't necessarily think we'll see it in the future.

This particular institution had a particular need, and a willingness to be that aggressive.

There were 4 others, closures, that we looked at.

We either did a due diligence or what we saw in our own first look without going into due diligence was that they were undesirable.

That they did not meet our criteria of buying a bad bank in a good market, or the structure of what we would get when it was all said and done, was not what we were looking for.

So that's what 2011 has been about outside of our acquisitions that we did in 2010, which would have been March and October, in Missouri and Kansas.

So as we look forward to 2012 and we look at the number of banks that are in the queue, and we look at the Texas ratios that are there, we're obviously very hopeful that we'll get to look at, say, 5 more.

And then if we look at 5 more, we are very hopeful that we will bid on more than 1 of those and that we will have at least a successful bid.

What we would love to at least say is that we're going to get $500 million in a purchase in 2011.

Whether that came in 1 bank or 2 banks wouldn't really matter to us.

If we get more than that, we obviously have the capacity to acquire in that $1 billion to $1.2 billion range.

And you mean 2012 on the $500 million.

Yes, 2012, be on the $500 million.

Did that hit what you were asking, Matt?

Yes, and sounds like the focus remains on sales bank M&A and it doesn't sound like a traditional M&A is even something you guys were thinking about for 2012.

Is that right?

I think realistically, again, the FDIC is our number 1 opportunity and we still see that through 2012.

And we realistically believe that the greatest traditional opportunities will come in, say, 2013 and beyond.

There's still challenges out there relative to the credit mark that we would have to deal with on the traditional side.

However, we are continuing to be very alert to an opportunity on the traditional side.

It might have to meet some metric benchmarks a little bit higher than normal to make sure that we aren't challenged with the credit mark.

So we're still keeping our eyes and ears open on the traditional side, but realistically, we would see that possibly out 2013 and beyond.

And, Matt, just like we've said in the past, on a go-forward basis, we love the traditional ones that will fit into our culture.

It's one that you can pick exactly related to your culture.

It's just we're seeing and you can see it in the industry it's a challenge right now with the accounting rules and the credit mark that you have to put on these and the uncertainty in the economy.

And so while we had hoped it would pick up sooner, we're still not confident that it won't be a little later before it happens.

But one thing we have learned over the past is that some of the best opportunities come when you least expect them.

So being prepared, having the team in place to be able to shift the gear from the FDIC mentality to a traditional is also very important.

So, we're trying to make sure we're prepared and we're ready for it when it comes up.

Last question, probably for Bob, as far as the margin in 3Q.

A little bit of weakness there.

I was thinking that Q3 would be seasonally better.

Any color you can give us there?

We also were hopeful the margin would pick up a little bit.

One of the items was, our liquidity did not increase as much as we hoped it would this quarter.

Now, on one side, net interest income was where we expected it to be.

However, the margin went down and most of that was related to the liquidity.

So we wouldn't have picked up, really, any bottom line impact, but it did have some.

So about 8 of those basis points that you're saying is related to liquidity.

The other is purely related to the loan value.

And we had a 6% drop in the loan value.

And we were hopeful it wouldn't be quite that much.

So those 2 items were the big items that impacted us.

Going into Q4, obviously Q4 will be lower than this Q because of our seasonality in agri loans, particularly.

But we see Q4 probably being flat to where it was last year.

That's our expectation right now.

It's all going to be loan volume driven in that process.

(Operator Instructions) Dave Bishop, Stifel Nicolaus.

Following on Matt's question there, my question has been answered, but in terms of some of that liquidity growth this quarter, noticed a marked improvement in terms of the end-of-period demand deposits there.

Was there anything there seasonality, or was that just more a reflection of the cautiousness we're seeing across middle market America there and just (inaudible) their cash?

I think you got it with your last one.

I think it's more a result of that safe haven look, and going into a non interest-bearing account and being prepared to move either back to the equity market or back to wherever it may ultimately decide that it's going.

Likewise, the larger deposits can move into that non interest-bearing account and be fully insured.

So we're probably seeing a lot of that.

Generally speaking, we'd be tickled to death with that kind of look in non interest-bearing.

But when you're only getting 25 basis points overnight and you reflect on your cost of capital and your FDIC insurance, I'm not sure it's that exciting.

But that's where we're seeing the bulk of it, so I think you're right on target there.

Did you have a follow-up or not?

No, most of my questions had been answered before.

Derek Hewett.

Your line is open.

Circling back to the Repurchase program, did I hear Mr.

May correctly that the Repurchase program is going to be limited to the current period's earnings?

I think what I said is that what we would like to do at this point in time is to preserve the excess capital that we basically acquired in the market, in November of 2009, because we think we can put it to work for the shareholder in the FDIC acquisition.

However, we also felt like that there was a price opportunity in the buyback.

So we were going to use our net income minus our dividends.

And the net of that is what we would use in the Buyback program.

So, if you had numbers of, like, a number of $26 million, $27 million, and your dividends were $13 million, $14 million, then we're looking anywhere from $10 million to $12 million that we would have in the Buyback program.

And what we're saying also is our capital levels are at the 90, 95th percentile of our peer.

We wanted to maintain at that level and not grow it.

We wanted to be on the high end of peer, use that excess capital for acquisitions, as Mr.

May said, but use up our current year earnings in either dividends or in stock repurchase.

And it would probably be more on an annual basis than just each quarter.

And, we wanted to make sure that the market understood that we like both of them.

We like the excess capital, but we like it because we think we can put it to work.

But we also like the opportunity to buy some of these shares back at these kind of values.

And so this allows to us have our cake and eat it, too.

And then in terms of lending, any new lending activity going on in your Kansas and Missouri markets yet?

Or are you still just working out loans in those areas right now?

I'll let Marty Casteel who has oversight for those 2 markets to say a word.

Derek, we're seeing limited activity.

Of course, as you know, in the Missouri market, we have still limited staffing there with 1 location.

But that team is getting some opportunities.

And we are, in fact, putting some loans on the books.

Some good credits, just a limited number.

In Kansas, I'd say just to this point where we're seeing some activity.

We have some lenders in place that are now calling on customers and seeing some small successes.

But nothing of any consequence at this time.

The markets there are similar to what we see in Arkansas as far as demand.

There's not a lot of demand.

There is still a lot of price competition.

But we are working those markets and seeing some traction with new credits.

Derek, one other thing is that we talked about in the Kansas market the agri sector.

And we're working really hard to put into place what I would call the Kansas agri team so that it will be ready to go for the new year.

And that's easier said than done, especially when we talk in terms of our history, our standards.

We got to find the right person.

And we're searching hard for that area because we do think there's some agri opportunities for us there.

And for that Kansas agri potential opportunity, would it follow similar seasonal type trends that we're currently seeing in the existing Arkansas portfolio?

Very similar, except they also have integrated cattle operations that are more or less year round.

They do have some peak borrowings, but the row crop seasonality would be very similar.

Cattle would be the difference.

We do not have a lot of cattle loans in Arkansas.

We'd see more cattle lending in Kansas.

And then my final question is, are there potential portfolios to purchase instead of maybe if the FDIC deals don't come in as quickly as maybe you had hoped, maybe the walking wounded at this point?

Yes, not for us.

That would be outside of our culture and strategy.

We understand it.

We watched it.

We've seen it.

We receive contacts quite a bit about it.

But we still believe that our best opportunity is through either acquiring an FDIC deal.

And then once you acquire the FDIC deal there is -- there can be, if you get the right deal -- a significant portion of it that you're going to keep, that's going to make it all the way through loss share, and is going to be a good loan and will represent some internal growth to you.

That's the ideal situation on the FDIC acquired side, because the rest of it, obviously you're going to liquidate over a period of 5 years to 7 years.

And then on the traditional side, we would much rather find that right partner that's been successful and then grow it organically.

(Operator Instructions) Matt Olney with Stephens.

Just a follow-up.

Thinking about the covered loan run-off that we've seen the last few quarters, looks like we've averaged somewhere around $19 million, $20 million per quarter run-off.

Is that a fair run rate going forward, for the next few quarters?

No, we don't think so.

We think that at this point, as you know, based on our own experience and based on what we've seen in the market, that first 6 months to 12 months is when you get rid of some of your larger greater challenges.

And we believe that we're approaching where you'll more than likely see something like 50% of that number on each of the next 2 quarters.

And then at that point in time, it will just level out and most of it after that point will be hopefully what we will -- we're not going to be able to keep all of it, but we believe we'll see the numbers start to go down from here.

Bob, is that--?

Yes.

At some point, those loans, while they may be covered, will be moving into your legacy portfolio.

Sure.

And then lastly, as far as the securities book, I know you guys are traditionally averse to mortgage-backed securities.

What's the thought right now, given the low rate environment that looks like it's here to stay for at least a little while?

How has that changed your thinking over the last few weeks?

Are you talking about change of thinking relative to mortgage backs or relative to just overall investment strategy?

I'm thinking about 2 things in particular.

What products you're buying, or replacing the runoff.

And then, two, the overall duration, what you want to do with that.

I guess the best way to sum it up is that we know we have a whole lot of liquidity when you look at our overnight sales.

And if you look at a $600 million securities portfolio that's got $200 million that is coming due in a 12-month period.

And we know that there's some extension temptations there.

We're not going to do that.

We know there's some temptations to start looking at maybe some of the mortgage-backed pieces that are GSE guaranteed.

We're really not going to look at that.

We'll continue to look at some municipal opportunities there.

And most of our reinvestment strategy is certainly built around a rising interest rate environment in the 18-month period.

We would be looking at some 2 years, 3 years with 90-day calls and there's not a whole lot of excitement when you look at those.

But we still think that from the standpoint of our Company, and realizing that our securities portfolio has primarily always been developed for liquidity purposes.

And we think it will again.

And you need to remember, Matt, and I think it's a good question, when you think in terms of this liquidity that we have, and why not go ahead and step out and stretch a portion of that.

Remember that if we were to do 2 acquisitions -- if we were to do a $500 million acquisition and you looked at the deposit side of that institution, more than likely, you're going to get anywhere from $70 million to $100 million that is going to run off when you go through the process of breaking interest rates.

And so we expect to use certainly a large portion of our existing liquidity for that, and maybe a portion that's in our securities portfolio.

So we're going to stay comfortable with the short-term investment strategy.

We're going to bite our lip that we're going to stay comfortable with it and not look to extend, unless it's going to be in the municipal bond portfolio.

(Operator Instructions)There are no further questions at this time.

I'll turn the call back over to Mr.

May for closing remarks.

I appreciate everybody being here.

And whoever you're rooting for in the World Series, good luck.

Have a great day.

Thank you.

This concludes today's conference call.

You may now disconnect.