Truist Financial Corp (TFC) 2004 Q1 法說會逐字稿

Good day. I'll set you now on the conference line in a listen-only mode. And at this time I'ld like to turn the program over to your host Mr. Ed Milligan. Mr. Milligan go ahead.

Thank you, and welcome to the first quarter earnings call for Main Street Banks. Our strong earnings momentum continued during the quarter as we met analyst consensus estimates of $0.38 per share, and the quarter was characterized by a robust loan growth, and solid core deposit growth. This is our cautionary statement that our presentation may contain certain forward-looking statements as usual. I will adopt our usual agenda today. Run a quick overview followed by some recent developments of interest, and then a discussion of our first quarter results, and some insight behind the numbers. Following that we'll be glad to entertain questions either by phone or by e-mail, and web cast at mainstreetbank.com. I am pleased to have Sam Hay, and Bob McDermott join me this morning as usual to provide their insight on our performance. Bob will present our financial performance followed by Sam's commentary on the factors impacting that performance. Now a very quick overview of Main Street Banks. We continue to be the market leader in community banking in metro Atlanta. A market that is forecast to continue to grow well above the national average. That growth has allowed us to more than double our size over the past three years, while maintaining high operating performance, and strong asset quality. We've been traded on the NASDAQ National market systems since 1997, and we continue to trade near the top of our 52-week range, and our average daily trading volume continues to increase, we think as a result of institutional bank, as our market cap has crossed the $500m threshold. We enjoyed a 38% appreciation in our shares in 2003, and we are up slightly in 2004, continuing a five-year trend of strong shareholder returns driven by equally strong operating performance, and earnings per share growth. But we continue to believe that we represent evaluation opportunity especially when compared to a high performance peer group, and Sam will be addressing that later.

We are covered by the seven firms that you see here on the screen. In recent developments at Main Street, we presented at the Raymond James Institutional Investor conference in Orlando in March. We will be presenting next week at the Gulf South Bank Conference in New Orleans. We will be presenting also at Sun Trust Robinson Humphrey's 33rd annual institutional conference in Atlanta in May. And the items that Bob and Sam will discuss in more detail later, we have three new banking centers presently under construction, four replacement banking centers under construction with improved location, and improved facilities, and in about 30 days we will be converting to the Jack Henry Silver Lake System. We introduced a new tag line in brand for our company,` Together we can go anywhere`. Which we feel represents our partnership approach with our clients, our employees, and our shareholders. And we continue to focus on organic growth with the addition of ten sales professionals during the quarter. Moving on to our earnings release, that we disseminated earlier today, we reported net income of $7.6m for the quarter up 31% from 2003. Diluted earnings per share was $0.38 versus $0.34 for 2003, an increase of 12% and those met the analyst consensus GAAP EPS estimates of $0.38 for the quarter. Asset quality remained strong and it actually exhibited a pretty strong improving trend for the quarter. We experienced strong loan and transaction deposit growth, strong double-digits in both of those areas, and we are today reiterating our comfort with the full-year 2004 consensus estimates. Those estimates, as you can see, are for the second quarter June of '04 $0.39 with a high of $0.40 and a low of $0.38, and for the full year ended December of '04 consensus of $1.61with a high of $1.62 and a low of $1.57. Now, with that I will ask Bob McDermott to present a more detailed look at our quarterly operating performance. Bob?

Thanks Ed. As you can see from the graph at the top of slide 11, Main Street has demonstrated five steady net income growth over the past five quarters. The chart at the bottom of the slide reiterates the information on this morning's press release. You could see our net income rose from the first quarter at $5.8m to $7.6m in the first quarter of 2004. That's a year-over-year increase of $1.8m, or as Ed said, 31%. Operating income, which we define simply as net income less tax affected impact on intangible expenses increased year-over-year from $5.8m to $7.7m or 1.9%, that's a 33% increase -- $1.9m or 33%. Our diluted earnings per share increased from the first quarter of 2003 at $0.34 to $0.38 in the first quarter of 2004. It was $0.04 or 12%. On an operating EPS basis, we increased from $0.34 to $0.39 or $0.05 or 15%. The graph at the top slide illustrates our consistent loan growth over the past five quarters. You will notice the large increase in the second quarter of 2003; this increase is largely associated with the First Colony acquisition.

On a link quarter basis, loans increased $68.1m or an annualized 18.9%. As Ed said loan demand continues to be very strong. The chart at the bottom of the slide shows that loans outstanding for the first quarter of 2003 were approximately $1.048b versus the first quarter of 2004 at $1.511b that's an increase of $463m or 44%. Excluding the First Colony acquisition and the loans associated with it of roughly $287.9m, Main Street's loans still increased from $1.049b to $1.224b year-over-year, that's an increase of $175m or 17%. Similar to the loan slide, the graph at the top of this slide illustrates Main Street's last five quarters of consistent deposit growth. Again you will notice the spike in the second quarter of 2003 associated with the First Colony acquisition. On a link quarter basis, deposits are up $72.6m or an annualized 20%. Low cost core deposits on a link quarter increased $33.2m or an annualized 17.5%. The chart at the bottom of this page illustrates our overall deposit growth. You could see that Main Street's low cost core deposit growth grew 34%, time deposits grew 35%, and overall deposits grew 35% year-over-year.

Excluding the First Colony acquisition, where we acquired $282m of deposits, you can still see our low cost core grew $96.1m or 16%, time deposits grew roughly $15m or 3% and overall our total deposits grew from $1.138b to a $1.249b or a $111m which is a 10% increase. This graph shows the net interest income on a tax equivalent basis, again demonstrating steady quarter-to-quarter growth. On a link quarter basis, net interest income is up $614,000 or 12.6%. Again, the chart at the bottom of the page shows that Main Street's net interest income in the first quarter of 2003 was $15.4m versus $20.2m in the first quarter of 2004 as $4.8m increase with 31%. Our net interest margin in the first quarter of 2003 was 4.95 versus 4.60 in the first quarter of this year for a decrease of 35 basis points, or 7%. Next we would like to highlight Main Street's net interest margin, or NIM.

During the first half of 2003, our NIM was approximately 4.98%. As we commented at the time, we knew that the First Colony acquisition and the expansion in the Northern Atlanta with our new Denovo Banking centers would reduce our NIM. However, due diligent pricing, you can see that our NIM is stable. In fact, on a linked quarter, NIM increased from 4.49% in the fourth quarter of 2003 to 4.60% in the first quarter of 2004. Credit quality. You can see from this line, the credit quality is back with Main Street's historic levels. Net annualized charge-offs as a percentage of average loans decreased from the fourth quarter at 24 basis points to 15 basis points this quarter. Our nonperforming assets as a percent of total loans reduced from 68 basis points at the end of the year to 35 basis points at the end of this quarter. And, once again our reserve for possible loan losses remained flat at

. Year-over-year, all of Main Street's major fee businesses are up. Overall, our non-interest income is up $2.5m, or 47%. Excluding the impact of the Banks Moneyhan and Hayes Insurance Agency acquisition, non-interest income is still up at $1.4m, or 27.2%. As Ed mentioned in the press release this morning, this acquisition accounted for roughly 70% of the increase of our insurance agency commissions. However, even excluding the acquisition, our insurance commissions grew year-over-year $466,000, or roughly 40%. For the first quarter, non-interest income represented 28.2% of our total revenues.

As you can see, non-interest expense year-over-year increased from $11.1m to $15.6m, that is an increase of $4.5m, or 41%. Total personal expense increased, accounted for $2.8m of that rise and then the majority of the other expense increases were in occupancy and all other. The majority of these increases were directly associated with the Banks Moneyhan and Hayes Insurance Agency acquisition, the First Colony acquisition, our Dunwoody and Buckhead denovos, as well as the introduction of our payroll solutions. As you can see from this slide that if you exclude these acquisitions, our denovos and our new lines of business, non-interest expense year-over-year increase from $11m to $13.2m, or $2.2m, or roughly 20%. Most of this increase was in support areas to help support our growth were in lenders as Sam has commented in the past in our existing markets. In fact, excluding acquisitions and startups, Main Street's non-interest expense for the last three quarters has been consistently between $13.0m and $13.2m. Now, I'd like to turn the rest of the presentation over to Sam Hay.

Thanks, Bob. Before we get into factors impacting first quarter, I'd like to reiterate a couple of things that some of you will be very familiar with. First, our objectives and then the guiding principles that guide our day-to-day actions in achieving our goals and working toward executing our plans. Most of these performance objectives will be very familiar to those of you who follow us closely. You will see that we continue to set 1.6% ROA and 18% ROE kinds of objectives. EPS growth on an annual basis of 12% to 15%, dividend payout about third of earnings, fee income ratio of 30% by the year 2005, obviously superior asset quality, which is the hallmark of our company and top quartile peer performance, which we believe earns us the privilege of having our jobs as a management team. Notable in its absence on the slide as some of you may realize is the efficiency goal. We set an efficiency goal of 50% and put plans in place to reach that by the end of this year. About a year and half ago, we have decided and are announcing today that we're eliminating that efficiency plan due to the heavy reinvestment opportunities that we have and the growth opportunities we have in the Atlanta market. e certainly are not throwing in the towel on being conscious of expenses and good stewards of our shareholders' dollars, we promise you that, but we believe that getting to 50% would significantly curtail the opportunities that we can avail ourselves in the market we are in for future growth. We will continue to be very conscious of cost however.

And next, the guiding principles, which have not changed, we continue to solidify our position as Atlanta's market leader in community banking and we do that by focusing heavily on internal growth of loans and deposits. In fact we spend a large part of our time on recruiting and retaining and motivating our people, making sure that our culture is unified and that everyone is singing from the same song sheet. We will focus most heavily on internal growth, looking for 80% of our growth to come from that and only 20% to come from acquisitions. If and when you do see us in the acquisition market, we will be very disciplined and rational in implementing our acquisition strategy. Now, onto the factors impacting first quarter. We are extremely excited to announce our results this quarter.

On the sales side of our company, we could not be happier with our results. We had record loan production during the quarter and outstanding growth in loan outstandings as well. As I had mentioned earlier, we have four replacement banking centers under construction, the first of which to come online will be our Roswell banking facility. It is a replacement for the facility that we inherited in the First Colony acquisition. It will open in June of this year. We also are planning to break ground on our Suwanee banking center, a location that I believe we announced at our previous earnings call, during the third quarter of '04. Also, we are planning to open our Midtown banking center very soon. In fact, it was slated to open in July of this year. We are excited about the Midtown location. It gives us our first Peachtree Street address in Atlanta, the location actually for those of you, who are familiar with Atlanta is 1355, Peachtree Street. The building is called the Peachtree Building. It is very close to 17th street as the Cross Street. We are excited about this facility. We will be in the bottom floor of this building.

Our Galleria banking center is under construction and should open either very late in '04 or in the first quarter of 2005. The entire year of 2004 is heavily focused on service. As you will see at the bottom of this slide during the first quarter, we launched several new initiatives that surround the service and our service quality and support thereof. As I had mentioned, we introduced a new brand, a new tagline. We also have revamped all of our point of sale information and product brochures. As good retailers must do, we constantly have to reinvent ourselves and improve all of our materials and support functions. And I will tell you a little bit more about the service quality initiatives when we talk about support functions and the changes in it during the quarter. Moving onto fee income, as Bob mentioned and I won't reiterate all the numbers, we are extremely excited about both our acquired fee income growth as well as our internal fee income growth. As you see total non-interest income was up nearly 50% in the first quarter of '03 versus -- over the first quarter of '03.

Each of our fee businesses is performing very well. SBA had very strong growth despite the legislative challenges that all of you are familiar with. Mortgage was up 50%, despite a more challenging rate environment. We continued to staff up our mortgage area for future growth and for continuing to make it complementary to our banking footprint. Brokerage saw extremely good growth as we transform our brokerage operation from an annuity and mutual fund operation to more of a wealth management focus, focusing on small businesses and high network individuals, who have specific money management kinds of needs. We are excited about this business and looking for great things from our staff in that area. As Bob mentioned, the insurance revenues were up very strong. Of the 133% increase as he told you, we nearly doubled our insurance revenues with the bank's . But if you do the math, you still see that on an internal basis, our growth was over 35% in the insurance agency. We are very excited about our future prospects there as well. We continued to work on involving our treasury management or treasury services functions. We are scheduled to launch a new product in the fourth quarter of '04, not ready to make an announcement yet, but are narrowing down sources on a new system, and excited about the possibilities for that, considering our small business niche and the opportunity to lever our small business relationships.

As we did last quarter, we would like to update you on the payroll solutions product, which was launched Last November.

Just to focus on the reinvestment rate and the reinvestment opportunity we have in the future of our business. As of month-end, we were processing for about 48 clients, which represented 1300 employees. We are averaging adding about 12 new clients per month, and the way we are really differentiating ourselves from the market is with flexibility. As you can see, we now have clients ranging from anywhere from 2 employees up to 300 employees, and we believe that our process as well as the system that we are providing maximizes flexibility for our clients, and gives us opportunity to grow this business very rapidly. We continue to project an annual revenue run rate of about $300,000 by year end, and believe that this business will breakeven by the 20th month, if you include the value of new deposits which it will generate.

Information to share with you on our M&A activity is very scant, and that is by design. We are proud to tell you that our North Atlanta markets which represented our latest banking deals both the acquisition of the First National Bank of Johns Creek, as well as the acquisition of First Colony Bank shares, that we are now fully staffed and firmly established in these markets and growing. We are very excited about our teams in these markets and about the prospects for growth in the most vibrant markets in the Atlanta area.

We are very bullish on the bank's, Banks, Moneyhan, Hayes insurance deal, we've successfully integrated these folks into our culture, and on to our team and very excited, that we've retained all of our new teammates from Banks, Moneyhan, Hayes. We continue to not seek any current banking deals. We've no banking deals under consideration at present, and are focused very heavily on internal growth for the future as well as insurance deals within our banking footprint.

Like to update you, just for a few minutes on our performance enhancement or profit improvement activities. This is a full fledged department that will put us Rob McDermott as most of you will remember, Rob spent most of his time at SouthTrust Corporation before coming to Main Street, has had a performance enhancement, and he has brought many of his talents and many experiences to bear at Main Street as well. You'll see here we are reiterating that we are eliminating our 50% efficiency plan, but continue to focus very heavily on managing our cost. Last quarter, we did tell you that we were seeking to eliminate about 39 productive jobs within our banking side of our business, and we did eliminate actually 23 jobs during the first quarter. We'll not continue to try to achieve the other seven jobs as we find that the opportunity particularly on the sales side of our company continue to build as great, and you'll see us continue to grow on the sales side of our business.

During the quarter, as we told you, I believe last quarter, we did acquire $5m in additional bank and life insurance. We also, we advanced the leadership of our profit improvement, our performance enhancement department under the leadership of a former consulting veteran with US Banking Alliance, a company that is national in scope, a consulting company that is national in scope, but is very well known in the Atlanta and Georgia markets as well as most of the SouthEastern markets. And one last thing, coming very soon in the next few weeks, we'll consolidating our Barrett Parkway banking center in the Kennesaw area into our Town park facility on Chasten

just off of 575 North of the city. Moving on to staffing changes and other support function changes during the quarter, we have a good bit of positive information to share with you. As we mentioned in our last call, our risk management group is now under new leadership of Gary Austin, who is a veteran of all these RBC Centura and as well as National Citibank, Gary has fully staffed his group and has integrated them under his leadership and we are very positive on his new leadership of our audit, loan review, and compliance functions. We also are proud to tell you that we've successfully completed the first of two marked conversions, looking towards the May conversion to the Jack Henry Silver Lake system, and that marked conversion went very well. Thanks to so many of my teammates for their hard efforts and for the long hours they are working to make sure that this conversion is successful for our entire company and for its impact on our clients.

During the quarter, we also were able to add a 30-year Banc of America veteran as a senior credit officer reporting to John Monroe, our Chief Credit Officer. This person's name is Jerry Clarke, someone who some of us have known for many years and we are very excited to have Jerry on our team. We also as I had mentioned added 10 new sales professionals to the banking and three sides of our business, and continue to grow the sales sides of the business as we have mentioned previously. I talked about service quality a few minutes ago and I would like to tell you a few things that the initiatives that we have going on that impact on service quality during the year. Just a few weeks ago, had an entire employee dinner, we rolled out our new brand and tagline. We have been training over the last year or so on new client service standards and training on those specific standards as well. We are now using client surveys to measure our client satisfaction with all of our services in the process by which our clients access our bank. We also are now using in-store mystery shopping as well as telephone mystery shopping to grade all of us as teammates and to improve upon our service.

We now also in 2004 have implemented incentives measuring service quality and the improvement thereon for all officers within our organization. So service will be a hallmark of our organization this year and many years to come. We probably are most excited this quarter about our improvement in asset quality. During the quarter, we reduced non-performing assets by nearly 50%. Our hats are off to our great credit team and our team of lending professionals for the hard work and focus that they have gone through in the last couple of quarters both in cleaning up a couple of non-performing assets that were on our books prior to the First Colony acquisition as well as a few relationships that we picked up in the First Colony acquisition that had to be cleaned up.

We had charge off of 50 basis points during the quarter and rivaled to bring on performings down to 35 basis points as a percentage of assets, back to normal historical levels for our company. Our trends continued to be positive for the rest of this year in non-performings and delinquencies in the last few items there, you are really familiar with. In terms of asset quality, we are very much collateral vendors. We require principal guarantees. We have no shared national credits and have very grand new report folio as well.

The next line I think depicts the improvement or the spike up in non-performing assets. Although when we say spike up, we would remind you that our numbers still were at or below peer numbers on asset quality. But then the significant improvement during the first quarter that we were able to manage. We think this speaks not only to the strength of our credit team, but also the strengths of the Atlanta market as well.

We are very positive in looking at our business pipeline for the rest of this year. We are continuing to project double-digit line and deposit growth. We are focusing on very stable commercial and residential real estate sectors for our lending opportunities. We will remind you that we continue to maintain a very healthy mix of owner occupied credits particularly on the commercial real estate side of our business. And during this year, even though our incentives are multi-faceted and focused on loans, deposits, fee income referrals and asset quality, that specifically this year our deposit incentives are focused on checking balances, because these are the cores of core deposit balances and because deposits continue to be a challenge for our entire industry. We are happy that we are having very strong double-digit growth in our low cost core deposits and our checking deposits and we will continue to focus in this area.

We believe our fee income will continue to improve. Because of several areas, all of our businesses are growing well. But we point out that our insurance acquisition, the changing wealth management focus in our brokerage area as well as our new parallel service should contribute significantly to our growth in fee income. And I would remind you that we believe that our margin outlook is flat in a stable interest rate environment and probably somewhat positive if interest rates begin to move back up.

And finally to summarize our comments this morning as well as to ask you or to provide you answers to the question why invest in Main Street, we believe that we are a unique combination of top core top performance, a double-digit earnings growth, that we operate in one of the best markets in the country and in the most vibrant segments of the dynamic Atlanta market. We continue to fill a competitive void, banking small businesses and professionals. We are focusing on in having significant internal growth we think due to our special culture, that is entrepreneurial, that is service oriented, and where recruiting and retention is a heavy focus for our organization. We believe we have a team that is second to none, that is made up primarily of bankers from large organizations. We have a very limited and disciplined acquisition strategy and we think that we have significant valuation opportunity compared to national peers. Taking a look at this final slide, you will see a group of similarly situated banks in the $1b to $2b asset range. Similarly situated in metro markets, you will find that Main Street from the performance stand point ranks at the top of this list in this group but actually it is eight in terms of PE and I believe fifth or sixth in terms of PEG ratio as well. Barring the slide if you would see they are comparing us to the average for this group, there would be several dollars remaining in our stock, but profitably in our opinion comparing us to the top group because of our performance. You would see that there are many dollars left in our stock in terms of opportunity for evaluation. Now, I'd like to turn it back over to Ed for conclusions.

Well, thank you Sam and thank you Bob for your presentations, and more importantly your contributions and that of our entire team to what was a great quarter for Main Street Banks. I can tell you we've never been more optimistic or excited about our future or opportunities at Main Street. We'd now like to -- that will conclude our formal presentation. We'd now like to give you an opportunity to ask questions either verbally or by email and webcast at mainstreetbank.com, and with that I'll turn it back over to our moderator.

Thank you. And at this time, if you would like to register your site for a question or a comment, please press the star and one on your touchtone phone. And if you would like, for any reason, to withdraw your question from the queue, please press the pound key. And it appears our first question comes from Jeff Davis with FTN Securities.

Good morning. Good quarter.

Thank you Jeff.

Ed, question for you. It looks like tangible equity ratios came up a little bit during the quarter and with the 30% return on tangible equity you're generating internal capital pretty fast. Can you update us your thoughts on your shelf offering and potential commentaries?

Yes. As you know, we filed for that back in December, a $100m shelf offering, and we have continued to evaluate the situation. We are, as we mentioned earlier, getting ready to convert to the Jack Henry SilverLake System and when we do that we'd feel like that we will have a platform in place that will provide the support that we need to maximize our growth in the LR market. And we feel like that's the key component to our going ahead and raising capital out of the shelf as to make sure that we put that money to work efficiently for shareholders and grow the company and not be dilutive. So, we are continuing to evaluate it and not ready to announce something today though.

Okay. But if I looked at your quarter out, I'd say it looks like you're generating capital at a level relative to this balance sheet growth that you don't necessarily have to raise capital?

Exactly. We want to raise it when it makes sense to do it for our shareholders and where we can efficiently utilize it. But we feel like at the pace that we are growing historically for the first quarter, the internal capital generation is adequate to support that.

Okay. And two follow-up questions if I may. Bob, the SilverLake conversion, is there any -- are there going to be any charges with that? I know you're comfortable with consensus, but any charges?

The only charge that we are going to have is the write-off of the existing systems. The Goldpack system, Teller suite system, and

system?

How much is that likely to be?

I think it's in the neighborhood of $400,000 to $500,000. And, of course, they'll be one-time expenses pretax.

Okay. And then, last question. Mortgage banking is holding up well for you. Can you -- a little commentary there?

Yes Jeff. This is Sam. As you know, our mortgage strategy is complimentary to our banking footprint as well as our construction lending program. We are active construction lenders as you will remember about a quarter of our portfolio is made up of primarily residential construction, a few percentage points of residential A&D volumes as well. But we are finding that our growth opportunities on a organic basis are good, despite the rate environment. Certainly, you'll remember in fourth quarter we were down some, and that was due not only to the new rate impairment but also some of the turn over that we had in the First Colony acquisition. But we are now fully staffed with our entire mortgage footprint that mimics our banking footprint and we believe that we can continue to grow at some rate in excess of what the normal mortgage growth rate might be nationwide, both due to the strength of the Atlanta market and due to the strength of our overall organizational model. Can't really quote unit statistics there, but we are pretty bullish about being able to continue to grow that business organically.

Okay. Thanks Sam.

And our next question comes from Arielle Whitman with Sandler O'Neill.

Hi guys, good quarter. I just wanted to ask -- it may seem nit picky in all the positives, but can you comment on the trends being seen in service charges and other customer fees and what we should expect going forward?

Yes. Arielle, this is Bob. Our trend in service charges has been relatively flat. As you are aware, the two acquisitions that we made, both Johns Creek and First Colony had virtually no DDA, which is where you get your service charges. And when you open up denovo banking centers, they don't attract a lot of DDA. So, we expect that to be flat for another quarter or so.

Okay.

Until we get our payroll solutions and treasury management areas up, and then we expect that to really take off.

Okay.

Hope you won't mind if I add this.

Sure.

We're focusing

and we expect good results from that as you can see our low cost

have been strong in terms of double-digits.

Yes.

phenomenon mainly because those acquisitions were smaller

DDA quite as much.

Yes. Okay. Thank you. Good quarter.

Thank you.

Your next question comes from Christopher Marinac from FIG Partners.

Hi guys. Good morning.

Good morning Chris.

Could you elaborate on your deposit pricing, the tick up from Q4 to Q1? I'm curious to what extent you are using teaser rates or different pricing structures when you are opening new branches or just in general?

Chris, this is Bob. We do in, as we open new branches, what we've found successful is to come out with to the market relatively high, money market rates, to keep our other rates, CDs, now rates very competitive in the market, we're actually on the low side of that. But we will come out with the money market rate and offer a six-month teaser on that, and then in general we keep that a little higher and then bring it down. One of the advantages we have in the Atlanta market is that we are actually able to price our loans and deposits branch by branch, which many of our competitors are not. So, we do some unique pricing, for example, at our Buckhead location, it has no impact in our Athens market or Covington or

county. So, it is very selective and that's why we are able to keep our overall net interest margin at that 460 level while we are offering pieces to attract new customers in certain markets.

Great. And then secondly, can you comment on, I guess, the new hires as well as any attrition on the lending and other staff side?

Chris, this is Sam. Can you repeat that or may be more specific?

Can you comment on any attrition of staff from the lending or other areas of the company in addition to new hires, curious on sort of the trend there?

Very good and very stable as you remember from our fourth quarter call. We mentioned that attrition or turn over in the First Colony acquisition had been fairly heavy or heavier than we would have liked, probably as much as we might have projected, because we certainly didn't tell the entire numbers and turn over in that unit. But that trend is again very positive, don't have any specific numbers to quote you. We've had much lower turnover during the first quarter, and of course banks historically have turnover in the first quarter because of paying incentives on an annual basis. Most folks hang around until incentives are paid. We did lose a couple of folks during the first quarter, but our numbers are way back down from our third and fourth quarter, experienced with the First Colony acquisition. So, we feel very strong about that, and our recruiting success is still very good. Recruiting trends are very good.

Great. Thanks very much guys.

Thank you.

And our next question comes from John Pandtle with Raymond James.

Hi, good morning everyone, and a couple of questions. First, on the interest rate sensitivity, it sounds like you are assuming a stable rate environment. Bob, can you kind of run through what percentage of the loan portfolio is tied to variable rate into prime,

and what percentage of that is already at floors?

The majority of that John is already at the floors. We are trying to put floors in on any new production. What we're assuming is the rates are changing every day. But our internal model, I guess, is calling for rates to remain prime and liable to remain flat through the election and then to increase after that. We've the more market sensitive rates increasing in that time frame. As Sam alluded to, we are a little asset sensitive, so we continue to bank on margin, and then we will hold the net floor to 50 to 455 level.

Okay and then what percentage of the loan portfolio now is variable?

It gets....

John, this is Sam. As I recall about 40% of the portfolio is actually variable, but I think one thing you have to remember though is we are very short lenders. We are just looking at the average life of our loan portfolio just a month or so ago, and I believe that number was in the six-tenth of a year kind of range. So, you can't just look at the variable components. You got to look at really the entire portfolio because we do so much balloon lending and when a 3-year balloon is amortizing, obviously the average life of it is fairly short. So, that's the reason we continue to say that we will be a little bit asset sensitive in an increasing rate environment, because we're just -- regardless of the contractual structure of the balance sheet, we'll always get the money back on the less side of the balance sheet before we'll have to reprice the money on the right side of the balance sheet. So, we think it's a good place to be, particularirly since we've tried to pull in most of our loans as well.

Okay. And then just as a follow up in terms of balance sheet growth, it looks like you reallocated some liquidity from the investment portfolio into better loan growth this quarter, and I'm showing an average loan to earning asset ratio of about 83.5%. How much further can you push that higher or should we see balance sheet growth match up a little more closely with loan growth going forward?

This is Sam. I would think you better expect those to be in sync, John. We try to manage liquidity very closely, obviously but, we like to have dropped out or around, we like to have dropped out in liquidity, in actual liquidity, we like to have it in loans that are saleable and bonds that are liquid and also in contingence to credit lines as well. So, I won't think it would be wise for anyone to build in anymore real laboring at a balance sheet from the liquidity on investment standpoint. And John you'll see our - as you mentioned, our investment portfolio from the pre-colony days has actually decreased. We've shortened up our lives to be ready for any rise in interest rates and we're receiving a lot of cash. We expect our investment portfolio to grow a little bit, but in relation to our overall asset growth, it will be very consistent.

Okay, great. Thank you.

Thanks John.

And our next question comes from Jennifer Demba with SunTrust.

Good morning. Question about your newer branches and the branches you were building were about to open now. How are the Buckhead and Dunwoody branches doing versus your expectations? And have you hired bankers for these newer branches that are coming on?

Jennifer, this is Sam. We are very pleased with our results in those new facilities, I don't have any numbers at the top of my head or with me right now to coach you, but very pleased, as you will remember we were expecting 18 to 24 months breakevens on a couple of those offices. In the case of Buckhead and Dunwoody, we did have a very strong and very large team in place by the time we were able to at least open the Dunwoody facility and certainly that helps to ramp up or actually shorten the break even projection. We are in the process of hiring for all of the new facilities as well, and would expect them to be hired long before opening days. We don't have any special announcements ready for any of these offices in particular, but I can tell you that our hiring and recruiting process goes on everyday, all the time. So, we would anticipate - really no problem in being able to staff these facilities before they open. We continue to see very strong trends toward our kind of model, toward our size company and really towards the entrepreneurial tendencies that our people have and entrepreneurial opportunity that we give them, even though most of them of course are willing to subject their audit and credit controls for the good.

Okay Sam, I have a follow-up question, I'm sorry if I've missed this earlier, but do you guys have the kind of run rate in mind for the investment brokerage revenue line items, since it has been quite lumpy?

Excuse me, our run rate?

Yes.

No, I wouldn't say that we really do - we are very pleased with where we are now there, I think that we are still so infantile in terms of size, but it would be crazy for us to expect that business to grow on any sort of percentage basis. We feel good about the number that we reported this past quarter and our ability to sustain that level and grow from there. But no, I wouldn't want to quote the hard number, just because we believe, even though we've been in this business for six or seven years, we had significantly re-advanced our strategy as well as our sales staff there and believe we need to continue to get the kinks out of that business before we let you hold us to a number.

Okay, thanks Sam.

Sure.

And once again if you would like to register yourself for a question, please press the star and one at this time. And it appears that we have no further questions at this time.

Well thank you, and thank you again for joining us this morning and thank you for your continued interest in Main Street Banks. And this will conclude our call. Have a good day.

Once again this concludes today's conference call. We thank you for your participation.