Truist Financial Corp (TFC) 2005 Q2 法說會逐字稿

Good day. All sites are now on the conference line in a listen-only mode. I'd now like to turn the conference over to Mr. Sam Hay, President and CEO of Main Street Banks. Mr. Hay, you may begin, sir.

Thank you. Good morning and welcome to Main Street Bank's second- quarter 2005 earnings conference call. We welcome you this morning and we want to thank you for being with us. We appreciate your interest in Main Street. We have had a busy quarter working to move our business forward and we look forward to sharing our results with you this morning.

First, I would like to remind you of our cautionary statement that our presentation contains forward-looking statements about the future operating results of Main Street and that these forward-looking statements do involve risks and uncertainties, factors that could cause our actual results to differ materially from the forward-looking statements or are set forth in our reports filed with the SEC.

Next, we will cover our agenda which is a standard for us for the last few years. First I will introduce my colleagues who are with me in the room who will be participating in the call. We will give you a little overview of our company, talk about recent developments at Main Street and then give you an introduction of our second-quarter results.

Next, David Brooks, our CFO, will be presenting in more detail our second-quarter financials. John Monroe will also be talking about credit quality. Then we will discuss some factors that impacted second-quarter results and also talk about future opportunities.

This morning I am joined by Max Crowe, our Chief Banking Officer; by David Brooks, our Chief Financial Officer and by John Monroe, our Chief Credit Officer. David and John will be participating in the call and Max will be available during our question-and-answer period.

First, for an overview of Main Street, most of this would be familiar to probably all of you. Main Street is the largest community banking company based and located in the metro Atlanta area. As you may know, the Atlanta population is growing at roughly three times the average U.S. population growth rate. We believe that Main Street is filling a void in our market both for clients and investors.

In terms of clients, at least in the northern arc where we have a nice franchise in the Atlanta area, we have traditionally combined healthy operating performance and growth and believe that we can continue to do that. We now have 23 banking centers in 18 different high-growth communities in the Atlanta area and one also in the Athens area, or two facilities in the Athens area and at the end of the second quarter, did have assets of 2.4 billion.

For an overview from the market's perspective, our symbol is MSBK. You see a closing price of a couple of days ago on this slide of 27.36, our 52-week range diluted shares outstanding, market cap volume and our trailing PE and we will leave those to your own reading.

Next, is a list of covering analysts; analysts who provide research coverage on Main Street. Those include FIG, FTN Midwest, KBW, Raymond James, Sidoti, Sanford, Sterne Agee and SunTrust Robinson Humphrey and you might notice that Sterne Agee is a new addition to the list having picked up coverage last month on our company.

Now I would like to update you on a few recent developments at Main Street, or at least developments during the quarter. As most of you know, we did announce in early May that David Brooks of Wachovia would be joining us as our new CFO. We are very happy to welcome David to our team and are excited about what he brings to the table in terms of his career, specializing particularly in balance sheet strategy, pricing treasury and other financial areas in banking. We also are pleased that he will be using his candid and congenial style of leadership to help us carry our company forward in the future.

During the quarter, or at least this morning that is, we did also announce a couple of internal promotions too to round out the senior management team at Main Street. We announced the promotion of Gary Austin, who has previously served as Risk Management Head for our subsidiary bank, Main Street Bank, to a comparable position at our holding company level and also the promotion of Rick Blair (ph), who has served for a couple of years in an operational purchasing and real estate role to an expanded role at the company level covering administration and operations. We are very excited to have Gary and Rick as a part of the senior management team now even though they have been playing a nice leadership role in the company in the last couple of years.

During the quarter, we also lowered our earnings forecast for the quarter to $0.25 to $0.27 per share and our 2005 full-year forecast to $1.40 to $1.46 per share after we completed a problem loan portfolio review, which I am sure you have read about my now. During the quarter, we have been working on also adopting some new credit initiatives to augment our credit structure and John Monroe will be updated you not only on the details of those initiatives but also on where we stand on many of them.

During the quarter, we continued construction on our Galleria and Suwanee banking centers. For those of you who are not familiar with Atlanta, the Galleria area is in the northwestern quadrant of the city near where I-75 and I-285 come together. That facility will be opening later this year and the Suwanee banking center up the I-85 corridor northeast of the city will be opening sometime next year.

During the quarter, we also launched fully, even though it began right at the end of the first quarter, but we got into the full launching of our high-performance checking program, which does feature free checking as well as several other interest-bearing accounts do. We are pleased with the initial results after one quarter of this program both in terms of the impact that it is having on checking balances and also the impact that it is having on fee income growth as well.

In terms of recent development from an investment community standpoint, we did attend and participate in the FIG Partners CEO forum in April. As I mentioned a few minutes ago, Sterne Agee did pickup research coverage on us on June 28the. In terms of future events, we will be presenting at the SunTrust Robinson Humphrey Sunbelt Community Banking Conference in September.

Now turning to our second quarter performance, I would like to give you the highlights of that performance and then turn our program over to David Brooks who will be giving you more detail about our financials. As you may have seen this morning in our release, net income for the quarter was $5.8 million or $0.27 per diluted share. As we discussed in our June 8th release as well as an update on that in this morning's release, the problem loan portfolio did impact earnings negatively by $0.06 per share as opposed to the $0.07 per share that we anticipated on June 8th. We also incurred an additional tax provision during the quarter of $0.03 per share and closed our loan settlement services subsidiary with a charge of $0.01 per share as well.

In terms of balance sheet growth, our loan growth on a year-to-year basis was generally in keeping with past growth for Main Street. As you'll see a note there that are annualized growth from quarter-to-quarter, at least from first quarter, was 6.7%. We will be talking about that a little bit more this morning but we see that the growth quarter-to-quarter was primarily the result of some unusually high payoffs due in the quarter in addition to roughly a $10 million sale of SBA 504 loans that we do periodically from time to time.

Checking balances were up considerably from first-quarter levels, up nearly 24% on an annualized basis, more flat on a year-to-year basis which we think speaks to not only the flatness of our checking account growth in the last year or so but also our efforts, our realization, of the need for increased efforts on checking growth as well as the nice results that we had from the high-performance checking program during the second quarter. You will see a note here that net interest margin increased 24 basis points in the first quarter. We are very pleased by those results and David will be speaking to the margin improvement and future expectations along those lines here in a few minutes. I do want to pay a compliment and a great word of thanks to our banking teammates for their discipline and their efforts in pricing products in the Atlanta market.

During the quarter, both due to the write-off of certain assets but also an improvement in other areas of our loan portfolio, we did see nonperforming assets come down 26% from first-quarter levels and certainly we are pleased by that progress. As I mentioned earlier, fee income was led primarily by deposit service charges in addition to SBA lending and David will discuss our expense levels in more detail but non-interest expenses were up 11.6% from first quarter and David will be particularly speaking to you about what sort of expense levels you should expect from us going forward.

With no further adieu, I'd like to turn it over to our CFO, David Brooks, for a more detail discussion of our financials.

Thank you, Sam. This is David Brooks. We are on page 10 now in the package which is the net income page. You will see that net income is down 21%, or 1.6 million to the same quarter in '04. It's down about 2.3 million, or 29%, from the first quarter. The main drivers of this were of course the net charge-offs in the second quarter that John Monroe, our Chief Credit Officer, will talk more about in just a minute as well as the other items that we mentioned in our June 8th release.

The income tax line also has a $600,000 additional provision in it that Sam mentioned a minute ago. We took this in the second quarter after we completed our internal tax analysis and consulted with our auditors E&Y and with Jefferson Wells, our tax consultants. All of this information of course is included in more detail in the investor package that we sent out this morning.

Moving to page 11, our average loans page, we are still experiencing continued strong loan growth due to the strength of the Atlanta market and the efforts of our teammates. Average loans are up over 200 million, or 13%, from the prior year with healthy growth in real estate construction, commercial real estate, C&I loans. It's not quite as strong on a linked quarter basis because of the unexpected paydowns and the SBA loan sales that Sam mentioned just a minute ago.

Page 12 is our average deposits page. We have also experienced some solid deposit growth in the last year of about 11% with the strongest growth in non-interest-bearing DDA, money market and public funds. The low-cost core (ph) is growing about 16%. As Sam mentioned earlier, our high-performance checking has been very successful since it was started in late March and our checking deposits, which is the combination of the non-interest-bearing demand and the interest-bearing demand that you see on this page, have grown about 24% on an annualized linked quarter basis.

Move to slide 13, our net interest income. Net interest income was up 14% with the net interest margin up slightly over the second quarter of '04. Our bankers have done a great job in discipline pricing on both sides of the balance sheet as our net interest margin was 418 in the first quarter of this year and that is an improvement of 24 basis points in one quarter. We do feel that our net interest margin has stabilized but we don't think that the 442 is a sustainable level and we believe it will come down somewhat from that.

On page 14, there are some variances in non-interest income and non-interest expense. We'll take a minute to talk through a little bit lower-level detail on these slides. Non-interest income was up 4% to the prior year due to increased service charges as we grow our DDA accounts and to the regular sale of our SBA loans in the second quarter. I would also mention that there were zero security gains in this quarter and there were 549,000 of security gains in the second quarter of '04. On a linked quarter basis, non-interest income was down a little over 2% with declines in mortgage banking, investment brokerage and insurance revenue.

The investment brokerage had one very large transaction in the first quarter which created this variance. The insurance agency revenue was seasonally high in the first quarter due to contingency commissions which are based upon performance for the year and they occur in the first quarter of the year. The mortgage banking unit has actually seen improved net revenue even as gross revenues have declined in the quarter. These declines were substantially offset by the SBA loan sales for the quarter.

Moving to page 15, our non-interest expenses. Non-interest expense was up 7% to the prior year and 11.6% of the prior quarter. Some of the main drivers to the prior quarter are 200,000 of commissions on the SBA loan sales, which of course is a direct revenue related expense, 400,000 of personnel related expenses, 200,000 of increased regulatory and audit fees, and that shows up in the professional services line, and about $400,000 of the write-off in assets in our Piedmont Settlement Services and that shows up in the other expense line and was disclosed in our earlier disclosures. We do plan to continue to invest in our business but we also believe that the underlying expense growth rate will moderate somewhat from this level. So I turn it over now to John Monroe on asset quality.

Our main asset quality news during the quarter was the special review that we conducted of the problem loan portfolio that we've discussed in prior quarter. We engaged in outside auditing firm and they together with our internal credit review department conducted an extensive file review of that portfolio. We engaged outside attorneys and on certain larger loans conducted title searches to verify our lien positions and in other cases we also engaged in new outside appraisals to verify our collateral position. We ended up taking $2.8 million in charge-offs during the quarter in that portfolio and it is now down to $12 million in outstandings, nearly all of which is secured by real estate. We now have 1.4 million in nonperforming assets remaining associated with that portfolio, $1 million in non-accrual loans and $400,000 in foreclosed real estate. We are now confident that the elevated losses to that portfolio has contributed over the last three quarters are now behind us.

Looking at nonperforming assets or -- I'm sorry -- looking at charge-offs, bank-wide, they did increase from 56 basis points in the first quarter annualized to 86 basis points annualized. Of that 86 basis points, 63 basis points, or about 3/4, was in the problem loan portfolio. Our nonperforming assets declined quarter-to-quarter from 90 basis points to 66 basis points. Our non-accrual loans declined by $7.5 million from $19 million. We only had one new nonperforming asset over $250,000 during the quarter and that was $800,000. Of that $7.5 million decline, $4.2 million came through charge-offs, $2 million through the transfer of assets to foreclosed real estate and the remainder through payoffs or return of loans to an accruing status. The net result of all that was that our nonperforming assets declined by $5.4 million during the water.

We expect our losses to moderate substantially during the second half of the year now that we are comfortable that the losses from the problem portfolio are behind us. 13% of our NPAs are guaranteed by the SBA and therefore have lower risk of loss. Our larger NPAs are well-secured or have been previously reserved. Our internal criticized (ph) loan percentage has declined over the last five months as well as our 30-plus day delinquencies and our 30-plus day delinquency percentage is now at a two-year low. Based on all that, our general asset quality outlook is favorable.

We've made some progress on a number of credit risk management initiatives. We have enhanced our staffing and technology in our credit review area and our internal credit review department is at fully staffed and as such, that they can maintain an annual review cycle on all of our lenders. We have enhanced our lender performance standards associated with those credit reviews and we will review those on a monthly basis. We're also now conducting front-end review immediately after booking of large loans to ensure compliance with loan policy and the approval conditions. We added a special assets officer in June and he is now actively involved with most of our large nonperforming assets.

We have created an automated system for detecting concentrations of credit risk among related borrowers and are now implementing that. We rolled out and are now live with the TCL Specialized Construction Management System. 98% of our portfolio is collateral and principle guaranteed. We have no share of national credits and our largest credit exposure is less than 1% of the portfolio. Sam.

Thanks, John and David. I'd like to talk about the future for a few minutes. First, discussing the general strategies which guide our business. Those of you who have been familiar with Main Street for several years will not recognize much of any change in these strategies. First and foremost, we want to continue to constantly measure and manage service quality. We believe that in the banking business that it is of utmost importance and we have many initiatives in place to continue to do that and continue to see improvement in the results of our measures.

We also want to build on our position as Atlanta's leader in community banking; a space that we have enjoyed for several years now and one that we believe will continue to be good for us. We want to do that by continuing to invest in internal growth in the Atlanta market with a much more limited acquisition strategy. We believe that preserving our culture that is informal and somewhat entrepreneurial at particularly the point-of-sale is very important. That keeping somewhat of a decentralized structure is important to that entrepreneurship but that strong credit and risk controls of course are paramount.

As a more minor note, we want to continue to transform our lending success in the last few years to augment our checking account growth into the future and to continue to build our core deposit franchise. In terms of more specifics for 2005, taking a look at several items, some of these our goals and some of these are more specific initiatives. We believe that double-digit loan and deposit growth is a very viable goal for us despite the loan payoffs during the second quarter and the softer growth on a linked quarter basis. We want to continue to price business as we have always tried to do. But as we've particularly have made more effort to do in the last few months to price business versus our internal goals or benchmarks and not against our competition. We have had some nice success doing that and our salespeople have done a tremendous job of stressing the value that they add in the advisory role that they play with our client base.

We will continue to work on the high-performance checking program from a consumer standpoint and believe that that is going to have good results for us for hopefully many years to come. We also intend to launch the high-performance business checking module later this year. Of course, we intend to continue to improve asset quality, believe that are trends are positive, as John laid out a few minutes ago. Part of that of course is significantly reducing loan losses in the second half of 2005. Despite the fact that we are a growing business and that we continue to invest in our future, we will of course maintain good expense diligence in spending all of our dollars.

As a more particular update from a sales and marketing standpoint during the quarter, as we have said, we did continue healthy balance sheet growth during the quarter and we have discussed in fairly good detail this loan growth as well as checking account growth during the quarter. Our Galleria banking center will open late in the third quarter of this year. As I said earlier, Suwanee is under construction and will open sometime probably the middle of next year.

We did raise our sales incentives on checking deposits back in April. This was not additional carrots offered to our team but simply a reallocation of existing incentives and we have seen, even though we had been moving toward heavier checking deposit and deposit incentives over the last couple of years, we have seen some nice response by our salespeople, our teammates along these lines and are really grateful for their efforts to embrace the need for growing core deposits.

The high-performance checking program continues on plan. Our account openings right now on a consumer basis are up 2.4 times over comparable periods in 2004 and we're really pleased by those results. Part of that effort includes fairly heavy direct-mail marketing program. We are mailing to 100,000 plus prospects every six weeks. In addition to conducting training, mystery shopping and all sorts of efforts internally, both internal and external promotion, to attract checking accounts. So we're pleased with those efforts.

In terms of M&A activity, we really don't have much to report here. We continue to be interested in banking deals that have a strategic fit and by that, we particularly mean a cultural fit to Main Street's organization and also a geographic fit particularly for the Atlanta area and areas immediately surrounding and with Atlanta. We're not actively pursuing any deals at this point and continue to build on our internal growth success.

We are continuing to look for insurance agencies within our footprint and have made a couple of small purchases of insurance books of business over the last few quarters.

Looking to the future, we expect and foresee continued healthy loan and deposit growth as we have had in the past. We're focusing heavily on stable commercial and residential real estate sectors. We're focusing heavily on owner-occupied real estate credits because we believe those are the best kind of credits in terms of longevity, in terms of client relationship and suitability with our business. We continue to expect to transform our lending success on deposit gathering and believe that we're now doing that with both high expectations and now we think good results from our new high-performance checking program. We are mandating compensating balances on loan relationships and are having great success along those lines.

In terms of the Atlanta real estate market, we do believe that it is continuing to be in balance, particularly the housing economy, but we are seeing an expansion of lot inventories in the Atlanta market and are therefore tightening up our acquisition and development lending standards due to that expansion. We also continue to focus on building and growing our fee income businesses, both in terms of top-line and bottom-line, in terms of earnings impact. That concludes our prepared remarks for this morning. Now we will be glad to answer some questions.

+++ q-and-a.

(OPERATOR INSTRUCTIONS). Jennifer Demba with SunTrust Robinson Humphrey.

I was just wondering, looking at your operating expense growth from the first quarter to the second quarter, what you would identify as nonrecurring in there. I would say it is the 400,000 in the write-off. What else would you characterize as non-recurring?

Jennifer, this is David. If I look across those expenses, I would probably say something a little higher than $400,000 is probably not reflective of core expense growth.

Okay. Can you give us, if you have at your headcount at the end of the second quarter versus the first quarter?

Yes, I've got that Jennifer. Just a second.

I think, Jennifer, we are at 508 employees at the end of the second quarter.

What was it the end of the first?

I don't have the end of the first quarter handy but at the end of the second quarter of '04 we were at 553.

David Parr with FIG Partners.

I was wondering how you would characterize the potential acquisition market here now just in terms of seller expectations, if you think they are too high or if they are coming down.

David, this is Sam. We don't have any real recent either specific or just anecdotal sort of information to share with you. I think the Atlanta market continues to be so strong that we find that banks in the Atlanta area rarely choose to sell or rarely have to choose to sell, particularly the smaller organizations. The growth in the area, and of course you know this well being here yourself, the growth in the area has afforded bankers a lot of opportunities and of course we have a good many startup banks in the area. But I don't think that expectations necessarily have changed. That certainly would not expect that they have subsided. I have heard of a couple of deals coming to market in the last couple of quarters that I have not seen final announcements on which leads me to believe may be folks weren't getting what their expectations were. But other than that, I don't think we have any more specifics that we can share with you.

Okay. A second question if I could would be about deposit cost. What kind of pressure are you seeing from competition to raise rates either in CDs or money markets or checking accounts?

This is David. I think we have seen some pretty good competition in the Atlanta market. It's a pretty competitive market, especially in the northern arc where we are heavily located. I think that will have some impact on our net interest margin going forward. That's a very competitive market. I think we will be trying to stay relative and competitive in that market.

John Pandtle with Raymond James.

I had a few different questions if I could. First, David, could you provide a go-forward tax rate, what we should expect?

I think probably in the 31 to 32% effective tax rate.

I'm sorry if I missed this, the $0.03 in extra provision this quarter, we should view that as non-recurring?

I think that's not reflective of a future tax rate. So if you calculated the tax rate for the second quarter, you'll see that it is substantially higher than the 31% to 32% that we expect going forward.

Yes. It was about 38. The SBA loan sales, how much did you sell and what was the corresponding gain?

We sold about $10 million in SBA loans and the corresponding gain was about $730,000.

What is your game plan over the back half of the year in terms of future actions and selling loans in that portfolio?

This is Max. Let me address that. We periodically look at selling SBA product as the market comes to us. And that's just a reflection as we grow the portfolio. So that depends on how the growth rate for the remainder of the year goes and our ability to fund up the portfolio.

John, this is Sam. You might look back on last year's quarterly results and you would see in the third quarter a similar sort of revenue spike up for SBA. And what that is, as we mentioned in the release this morning, is is that is a sale of a block of 504 loans that we generally do retain and season and then sell on a periodic basis.

Okay. And then the A&D (ph) loans, do those fall under the construction category if I'm looking here at the balance sheet?

Yes, they do.

Based on your comments of tightening standards, should we expect slower growth there and then maybe if you could comment on how the repayment environment progressed through the quarter and kind of your expectations for the back half of the year in the commercial real estate portfolio?

I would look for a little moderation in growth in the construction portfolio. The housing market still appears to be in very good balance so the A&D is only about 5% of our portfolio and housing is about another 18%. So I would not look for a lot of moderation there but we are, based on the slowing of the turnover in that market, we are applying some tighter standards to the neighboring markets that proposed A&D loans. What was your other question?

The other question was how the repayments progressed through the quarter and what your outlook is in the back half of the year for growth in the commercial real estate portfolio.

Repayment has been fine. We have not seen any signs of financial stress among our developers as of yet. This is really strictly based on market information that the turnover is slowing down. I think most players in that market would tell you that supply is still tight. But we do see it slowing down and so we're going to apply some tighter standards. I think otherwise our production is strong in all areas of commercial real estate. I would anticipate continued growth in that area.

Just to clarify, it sounded like prepayments, repayments, however you want to define them, negatively impacted loan growth this quarter. Was that in the commercial real estate area?

I think it was across the board. Although, I think we did have maybe higher than normal seasonal repayments of subdivision loans and home construction loans.

I'm a little confused. Do you expect those prepayments to moderate in the back half of the year?

I think they will moderate seasonally. Again, I think we will be applying tighter standards and may see our production decline a bit in that area. The subdivision lending is a small part of our portfolio.

LeCoco Salazar (ph) with Morgan Stanley.com.

Good morning. My questions are in relation to the problematic loan portfolio. First of all, I'm wondering was the former loan officer who you said originated over 2 million loans outside of your lending policies, was this person a residential mortgage officer?

No, they were a general loan officer.

So it wasn't mortgage specific then?

No, it was a number of different loan purposes. It did include a couple of subdivision loans but they were a variety of purposes.

So it did include some mortgage loans? Is that accurate?

It included two subdivision loans but the rest of that portfolio was in a wide variety of purposes.

And on those two subdivision loans, was there any alleged criminal activity?

No.

As far as those two loans, how did those fall outside of your lending policies?

They were not closed as approved and serviced according to our policies. A downpayment was not applied into the project as required. And draw inspections, we don't have evidence that they were done as required. We did have losses in both projects and would attribute those to -- some to cost overruns and some to over-advancing of the loans.

As far as major steps you have taken to prevent recurrence of those things on the mortgage related loans?

The TCL construction lending system that we implemented in June, which has been in progress for several months, requires draw percentages of completion to be input with each draw and they are monitored centrally on a central computer system. That allows enhanced monitoring of our servicing of home construction loans. On the two types of loans that we just discussed, we're going to start monitoring draws on all of our construction loans over $1 million after the fact and our credit administration officers are going to review the progress against those draw inspections to make sure those aren't being over advanced.

Jefferson Harralson with KBW.

I have two questions. The first question is regarding the margin expansion you had in the quarter. Was some of that related to the credit improvement you had where the NPAs were coming off, coming off NPA and some of that interest income was being credited back into the margins?

We did have one loan return to an accruing status but it did not make any significant contribution.

From the expense standpoint, is there -- I guess how much was the external review? It sounded pretty exhaustive and it sounded kind of expensive when you guys were describing it last quarter. You only said there's $400,000 and they are nonrecurring. It seems like there maybe -- there should be more since this exhaustive external credit review is now over. Can you quantify that external credit review?

Well, I think just to clarify what we were saying earlier. We had $400,000 of expense associated with the write-off in Piedmont Settlement Services and my comment was to say that there was probably about $400,000 in excess of that that we thought was not reflective of core expense growth in the numbers. Does that help?

It does.

(OPERATOR INSTRUCTIONS). John Pandtle with Raymond James.

Continuing along the expense theme, in terms of the beefing up of the loan review function and the general credit administration, etc., how much in incremental cost --? I understand those are ongoing costs but how much of the incremental sequential quarter growth would you assign to bringing those new individuals onboard?

I don't think they were onboard long enough to have had much of an impact in the current quarter. You will see some increase in the salary and expense (ph) line this quarter compared to prior quarter. That is sort of built into the organization.

My last question, David, in terms of the net interest margin, you mentioned that you think it is stabilized in general but you feel like we are looking at a lower run rate going forward. Can you try to frame that for us and talk about the drivers of that, please?

Well, you know I have been here for two months now. I am beginning to get more involved in the forecasting and modeling effort and starting to put my stamp on those efforts a little bit. I will be more confident in our projections of the net interest margin going forward. But if I had to put a best foot forward on what our thoughts are around that number right now, it might be somewhere in the 420's kind of range for the margin. We do believe that there will be some continued deposit pricing pressures as rates have continued to move up and they have moved up late in the quarter and there will be some deposit pricing moves associated with that that will hit in the third quarter and that will have some dampening impact from the 440 plus margin that you saw in this quarter.

And then I promise this is my last question. I appreciate your patience. Sam, can you comment on the impact on loan growth, if any, in terms of being focused internally on cleaning up this problem loan portfolio and then making changes to the review function etc?

John, I think that's a natural question, one that ought to be asked. But we don't see really any impact from those efforts on our entire organization. Certainly we've had a lot of folks focused on that and have had outsiders in helping us with that too. But we have got, we think, good momentum in the core of our business. We truly believe that the linked-quarter loan growth being somewhat soft was viewed primarily or viewed virtually totally to these payoffs as well as the SBA loan sale. Our loan production numbers are good. They are commensurate with the last few quarters as we mentioned in the release. We feel that our pipeline is good and we really don't believe that these efforts on cleaning up this problem portfolio have had any kind of effect on our people otherwise or on the momentum of our business.

We have no further questions at this time.

Well, thank you for being with us today and have a good day.

This does conclude today's teleconference. Thank you for your participation and you may now disconnect your lines.