Glacier Bancorp, Inc. (GBCI) Q2 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Glacier Bancorp's Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Mick Blodnick. Sir, you may begin.

Welcome, and thank you for joining us this morning. With me this morning is Ron Copher, our Chief Financial Officer; Don Chery, our Chief Administrative Officer; Barry Johnston, our Chief Credit Administrator; and Angela Dose, our Principal Accounting Officer. Yesterday, we reported earnings for the second quarter of 2012. Earnings for the quarter were $19 million compared to $11.9 million in last year's quarter, that's an increase of 60%. Diluted earnings per share for the quarter were $0.26, an increase of 53% over last year's second quarter results of $0.17 per share. There were no one-time or extraordinary items, nor did we have any gains or losses on the sale of investments during the quarter. The second quarter's performance was pretty much straight forward, with core operating earnings continuing to drive our results. We earned an ROA for the quarter of 1.04%, and a return on tangible equity of 10.15%, our best quarterly earnings ratios since March of 2009. The improved earnings were driven primarily by lower credit costs, as we continue to see stabilizing and in some areas, better asset quality trends. As I stated on our last quarter's call in 2012, that 2012 would be the year we provide better returns to our shareholders, and we still believe that to be the case. In addition to better earnings, there were a number of other bright spots this past quarter. Our loan portfolio increased for the first time in 3 years, and although loan demand is still soft and competitive force is still intense, it was nice to see a quarter of positive growth. I thought the banks continued to do a great job of adding new checking account customers, which translated into increased balances of noninterest deposits. Credit quality showed further signs of improvement. We continue to take a deliberate approach to the disposition of our distressed assets and have been encouraged by the level of activity and interest in many of these projects and properties this past quarter. Noninterest income and noninterest expense both trended in the right direction, with the income category up 7%, and the expense category down 6%. Not everything went our way this quarter, however, as our investment portfolio, and to a lesser degree, our loan portfolio, continued to be negatively impacted by the slow rate environment and the increasing amount of premium amortization that it creates. Interest income is down 5% for the quarter, the majority of which came from premium amortization. By now, we had expected a slowdown in refinance volume. Unfortunately, that is has materialized, and we don't expect much relief in the third quarter, as refinances have continued to run significantly above historical norms. Our assets grew at a 12% annualized pace, this past quarter, as we finally saw an increase in both loans and the investment portfolio. We were fortunate, during the quarter, to find the volume and structure of agency CMOs to offset the pay-downs. Because of the size and the short-term duration of our CMO portfolio, we received significant payments each quarter. This past quarter, we were fortunate to cover these reductions, something that's always not possible. A majority of the growth in our investment portfolio in the second quarter came from taxable municipals and corporate bonds, as we strive to further diversify this portfolio and reduce our exposure in the amount of amortization we have to contend with such, as we've had to the past 3 quarters. Both of these security types, like our CMOs, were purchased with short maturities. In this interest rate environment, we just cannot get comfortable with extending maturities and durations. We don't believe the risk reward, of owning longer-dated assets at these interest rate levels, is justified. Although we did see an increase in loan totals during the quarter, it is still a difficult market, as loan demand remains marginal at best and replicating this performance in the second half of the year will be a real challenge. Nevertheless, I'm especially pleased with our loan production considering we have passed on a number of larger credits that we could have made, but it would've required us to fix the interest rate for an extended period of time, so we chose to pass. Although it has only been 2 short months since we completed the reorganization of our bank charters, we are already seeing the positive impact it's having in allowing our banks staff to focus more on customers in generating new loans and deposits, and less time on duplicative tasks and regulatory issues. The second quarter was another good one for deposit growth, especially non-interest-bearing deposits which, for the second quarter in a row, grew at a 12% annualized rate. We had a very good quarter increasing both the number of personnel and business checking customers. Historically, this time of year brings more opportunities to grow our account base and each of our banks work hard to attract every checking account they can. We commit a significant amount of resources at each of the banks with a single person purpose of growing our checking account base. Our interest-bearing deposits, excluding wholesale deposits, also grew during the quarter, but at a slower 4% annualized rate. The continued shift in the mix of our deposits to more non-interest-bearing, once again, has helped us reduce the overall cost of our funding. For the quarter, our deposits had a cost of 38 basis points, down 3 basis points from the prior quarter. Total funding for the quarter had a cost of 57 basis points, that was down 4 basis points from the prior quarter. I credit the hard work our banks have put in to not only generating increasing volumes for deposits but also managing the cost of those deposits. Unfortunately, all this good work has not been enough to offset the pressure from lower yields on our earning assets, especially from the increase in premium amortization we've experienced the past year. Capital ratios for the quarter remained very strong. This capital strength has allowed us, for 109 consecutive quarters, to pay an attractive dividend while providing the foundation to continue to grow the company. Our tangible common equity ratios ended the quarter at 10.42%, a slight increase over last year's 10.39%. We continue to maintain capital levels that are at or near historic highs, and believe we are in a great position to further grow the balance sheet and still maintain solid capital levels. However, if neither of these strategic alternatives materialize, we are prepared to entertain other options, which could include a stock repurchase, an increase in our cash dividend or a combination of both. Credit quality continued to improve on a number of fronts during the quarter, and hopefully, we will see a continuation in these trends in the second half of the year. Our nonperforming assets, at the end of the second quarter, dropped below $200 million. A reduction of $16 million or 7% during the quarter. We saw reductions in all 3 categories of NPAs during the quarter. We continue to see strong demand from Canadian buyers, especially for recreational property in Northwest Montana, primarily due to the close proximity to the large population base centered in Calgary. It was also encouraging to note that of the $9.4 million in OREO sales during the quarter, we only booked a net loss of $89,000 or less than 1%. This reconfirms 2 things to us: One, that our resistance to a block sale disposition strategy is creating better value in the sale of these assets; and two, the marks we applied to these assets are close to the appropriate market price. Nevertheless, it's still a challenge and hard work to move these OREO assets all the way through to their final sale. But we think we still have momentum that should create additional sales in the second half of the year. Net charge-offs was another area that saw improvement in the recent quarter. Halfway through the year, we're tracking slightly better than our goal of 1% in net charge-offs as a percentage of loans. This would also be a marked improvement compared to the 1.85% in net charge-offs last year. For the quarter, we had net charge-offs of $7.1 million, which was a decrease of $2.5 million on a linked quarter basis and down $13.1 million from last year's second quarter. At the same time, our loan loss provision this quarter was $7.9 million or a coverage ratio of 1.1x. We mentioned last quarter that, going forward, the provision might not necessarily cover charge-offs. Although that didn't occur this quarter, we still don't preclude that from happening in future quarters. As a result of the reorganization this quarter, the allowance for loan and lease loss analysis now consolidates 11 separate analysis into one. The appropriate provision amount that was deemed necessary was slightly in excess of charge-offs. We believe the loan loss reserves will be adequate to meet our credit issues based on analysis we conducted during this past quarter. As has been the case the past 3 years, the majority of our problem loans are still in the landlocked and other construction category. However, the good news is that this category continues to shrink. In the past 12 months, we've had a decrease -- or we have decreased the size of this loan category by 21%. The other loan class that caused significant charge-offs the past couple of years was residential spec construction. Here, again, this category is down 19% in the last 12 months. Early-stage delinquencies for one category of credit quality that posted a higher number during the quarter. However, 1 large credit due for renewal went 30 days past due at quarter end. This loan has subsequently been renewed. Early-stage delinquencies ended the quarter at $48.7 million, that's up from $42.6 million the previous quarter. Excluding the 1 credit that has now been renewed, our 30 to 89 delinquencies would've been approximately $34 million. Hopefully, we can keep our delinquencies at or around this level. This past quarter, our net interest margin was down significantly, as the premium amortization on our investment portfolio increased $2.6 million. In addition, interest income on loans decreased $1.1 million, which was $500,000 greater than the reduction we recorded on our funding costs. Our net interest margin, for the quarter, decreased 24 basis points from 3.73% to 3.49%. For the quarter, premium amortization accounted for 15 of the 24-basis point reduction. Once refinance activity slows down, we should see a benefit to our net interest margin. Unfortunately, predicting the timing of when that will occur has become increasingly difficult as government programs such as HARP 2.0 and Operation Twist have opened up more opportunities for consumers to refinance their mortgages. Net interest income was down on a linked quarter basis by $3.1 million and $5.1 million from the prior year quarter, of which, $8.3 million of the decrease, again was due to the additional premium amortization. As I have stated previously, we are more focused on and continue to work to protect our net interest income, and have done so by adding to the investment portfolio. Plus, the reduction in interest expense was also an offset that enabled us to compensate for the decrease in loan yield and the additional premium expense. That was not the case this quarter. Noninterest income increased $1.5 million from the prior quarter, due to improved fee income on deposit accounts and greater mortgage origination income. With the great job the banks have done in generating new accounts, we saw an increase of $800,000 in fee income from deposit accounts. Compared to the prior year's quarter, the results are even more dramatic, as we increased noninterest income by $3.9 million or 22%. The bulk of which was a $3.2 million increase in mortgage origination and SBA fee income. We continue to be one of the leading SBA lenders in many of the markets that we serve. Our noninterest expense, on a linked quarter basis, decreased by $2.9 million due to the $4.6 million decrease in OREO expense. Compared to the year ago quarter, our noninterest expense increased $30,000, as we benefited from a $2.9 million reduction in OREO expense and a $900,000 decrease in FDIC insurance premiums that offset higher compensation expense. We continually challenge each of our 11 bank divisions to control their operating expenses, and through the first half of the year, they have definitely stepped up to the challenge and have done a great job in this area. On May 1, we completed the reorganization of the company by converting our subsidiary banks to bank divisions. I'm happy to report that conversion has gone smoothly. And as I stated earlier, we are already beginning to recognize improved productivity and a renewed ability to engage both new and existing customers. There'll be some hard dollar cost saves, but they were not the reason for the restructure. We felt, in this current operating environment, it was becoming increasingly important to free up time for our banks so they could focus on generating new business and not be saddled with the costs and burdens that go with a separate charter. In addition, we have removed much of the redundancy within the organization and simplified our operations, which we believe will make us more nimble and focused on growing the company and improving our performance. In closing, it was a good quarter on most fronts. We are at a head of -- we are at or ahead of target on most of the performance metrics we laid out for ourselves at the beginning of the year. Obviously, our net interest income was disappointing, but we have no intentions to extending assets or taking additional credit risk to increase interest income. We still had over $10 million in credit costs this last quarter, so that's an area where we need and expect to continue to improve upon. Loan growth, I still believe is still going to be difficult to generate, but our new model appears to be making a difference, and freeing up our staff to produce more loan volume. And finally, M&A activity appears to be improving. The low rate environment, the uncertainty over capital requirements and ever-increasing rate regulatory cost has numerous banks searching, or at least willing, to discuss strategic alliances. We expect to participate as these opportunities present themselves, knowing we have the background and experience, over the past 20 acquisitions, to get them done efficiently and most important, profitably. That concludes my formal remarks. We'll now open the lines and take questions.

[Operator Instructions] Our first question comes from the line of Joe Morford with RBC Capital Markets.

I guess, you touched on this a little bit. But you showed good improvement in the quarter on charge-offs, and NPAs and have been down for several quarters now, yet the reserves remain elevated, 3.9% of loans. At what point do you start to draw those down, or what credit indicators you need to see improve before you start to take those down?

Well, the one thing was -- I have touched on just briefly, Joe, but this quarter was somewhat of a enigma because we did have the reorganization that took place May 1. We did consolidate the 11 separate analysis that had taken place, for years and years, into one. And just based on what we saw, based on where some of the banks and the analysis that they were doing, we came up with our own analysis looking at historical laws, all the environmental factors, all the things that Barry and Don look at when they're -- in the past, when they were reviewing all of the ALLL analysis. This time, it was under their charge to get that done. And as we did the analysis, we did the calculations, that's where it came up with -- but you're absolutely right, Joe. I mean, that 4% -- I mean, at some point in time, we're going to probably see that start to move down. I don't know what the right number is. Clearly, I think part of the reason that we've kept it up was we're just still not sure where this economy is going. I mean, god forbid, if we were to have another turnaround and in a negative way. And this economy heads South. I mean, we're probably not going to be seeing that amount of reserve releases that maybe otherwise we would. So it's like I said before, it's more of an art than a science. There's probably no exact right number. But at the end of the day and at the end of the quarter we felt that, that was the provision that was needed, and we feel comfortable with where the ALLL is. Clearly, I think no one would every argue, Joe, but it's definitely on the high side.

Yes, make sense. I guess the other question was I think increased refi activity has hurt your margin, it's helped mortgage banking business. And how do you feel about the pipeline in that area? And do you perhaps see the bank retaining more the originations in the portfolio?

No, not in this rate environment. We really don't. I mean, I've been there before. I started my career as a thrift back in the late '70s, early '80s. I saw what interest rate risk can do. Boy, we just don't believe time to holding those long-dated asset on the books. With that said, though, I think we will -- and it's almost baked into the cake right now, where we really believe we're going to see some more refinance activity, and it's -- the negative there is that's going to create more premium amortization, at least in the near term. We do benefit, as we did this last quarter. I mean, our mortgage origination fee income was up $700,000 on a linked quarter basis over the first quarter. But I would -- if somebody would ask me, what my preference was, I would absolutely wish for a much, much slower refinance way. Because, the additional $700,000 we generated in additional refinance income -- that was just internal mortgage origination income, which -- only half of that was refinance. So let's just say that we would have only -- we would've given some of that up because of the refis. I would take to see premium amortization, which cost us $2.6 million in the quarter, head back down. I mean, when I look at the numbers and see that $8.3 million of additional premium amortization hit our income statement this quarter versus the year ago quarter. I mean, that is one heck of a nut to crack, and at some point in time, it's going to go back down. I just don't know when. I just almost wish, right now, that we'd we see a little bit slower refinance volume. I'd accept the lower mortgage origination banking fee in order to see that get done.

Our next question comes from the line of Jeff Rulis from D.A. Davidson.

It's actually Matt [ph] filling in for Jeff. Actually, going back to the NIM. I was wondering if we can get the monthly averages for Q2.

We could get those to you, Matt. I'll just have Angela send those to you after we break the margin down, obviously, every month. So...

Great. Any sense of the trend?

Yes, I mean, it was -- of course, the net interest margin is -- on a monthly basis, is greatly impacted by the number of days in the month. So, I mean, that has an impact. Angela, do you have those numbers readily available?

I have the month of June. Is that what you're looking for?

No, for April, May and June. All 3 months.

I got May and June, but I can get April if you want.

Okay, we can wait on that. That's fine. And then, I know you touched upon the consolidation, how that's going, but any tangible cost saves that you could supply us with or expectations on that?

I mean, there has been small -- they've been small. I mean, a couple of consulting engagements or consulting fees have gone down with the reduction in the number of charters. But it's just so difficult to put a price on how much time has been saved on regulatory and accounting, and some of those required duties and tasks that are now being reallocated into marketing, going on and generating both checking and loan volumes. So we just really haven't wasted or spent much time trying to track it. I'm sure that it's part of the reason why our noninterest expense has been trending in the right direction. But I'm not here to be able to quote that we've reduced headcount by 12 people or 20 people. I don't believe that to be the case because that was really never our intent.

Right, great. And then, looking at the tax rate this quarter. It was pretty low. I was wondering why it was the lowest quarter and if you had expectations going forward.

Ron, do you want to answer that?

Matt. We have the investments that produce new market tax credits, and those are claimed on the anniversary date. So when you look at the first quarter, very little. But the second quarter was just the peak quarter which will claim those credits occurred, and it will level out in the third and fourth quarter. So just for -- the difference in the quarter was about $1.4 million in benefit to the bottom line. And then, that'll go down a little bit in the third, but level out with the fourth quarter.

Ron, you might want to explain a little bit on the expense side. On other expenses, we have an offset to that...

Right. So in addition to the credit -- actually, the positive that comes to the tax expense line. We have some write-off of those investments, and so that will come down as well, as we claim the credits in the third and fourth quarter.

Okay. And I guess, that was following up to my last question with the other expenses. So the sequential increase of 24%, those are some one-times in there then or...

Well, yes. I think a big part of that was the New Markets Tax Credit expense. I mean, that was -- just about $1 million over the prior quarter. So that was a big part of it Matt.

Our next question comes from the line of Brian Zabora with Stifel, Nicolaus.

A question on OREO, just maybe sales. Would you think about bulk sales at this point? As it seems that what you're selling in now at market value.

No, because I don't believe that if we took a block -- and maybe we could test the waters. But it's been my experience that if we brought a block to any one of those people that work on that kind of OREO disposition, that thing would find a way to get a haircut of another 10%, 15%. And, I mean, they're going to do it to make some money and, here again, if they're going to buy it exactly what we own it for, you know darn well enough, going to turn around and sell it at that. So if they feel it's worth more than what they're buying it from us for, why shouldn't we just be holding it and trying to sell it ourselves? I think we've been pretty successful, last couple of quarters, by doing that. And we're patient in that regard, and I think it's been paying off for us. Maybe the optics don't look so good because you're carrying a higher level of NPAs. But, unless it's a property where we just don't feel like there's any real market attraction or that the level of interest is just not there, then we're willing to hold onto some of these properties. And some of these properties are beautiful. I mean, I think, at some point in time, they will sell. And we actually had a few properties sell. I was just giving you net numbers because we had a few properties sell out of OREO last quarter, that we sold at gains. So that was -- that $89,000 was a net number. Obviously, that included some of the gains. So it's working both ways right now, Brian. But the bottom line is, that was less than the a 1% loss. And in this market with the lack of opportunity -- I mean, their -- what's our opportunity cost? 1%? 80 basis points? Whatever we're investing it at these days. We're willing to hold on. And as I've said the last couple of quarters, we're definitely willing to hold on, in the hopes that maybe this real estate market continues to stabilize and that some of these properties become more attractive. And we think that's just the better way to dispose of them.

Okay. And then just a question on the securities book. Going forward, is it still going to be predominantly CMOS as far as where you're reinvesting cash flows or do you anticipate maybe higher percentages of munis or corporates?

No, I think that we've already seen a shift, from the last 2 quarters, in the investment portfolio and what percentage the CMOs constitute. Obviously, we are buying more short -- very short, munis and short corporate bonds. And my expectation, Brian, is that we would continue to do that, lighten a little bit on the CMOS. But we don't expect that CMOS are going to take any major drastic reduction. I think, when I was looking at the numbers last week, we've moved from approximately, I think it was about a year ago or -- at was the beginning of the year ago. We had a 66% of our investments in CMOs. It's down to about 58% today. So we are starting to move down the ladder on the percentage of CMOS as total of the investment portfolio. But, I mean, I wouldn't expect -- and I'm not saying that you can expect that to be 40% or 30% at the end of this quarter. That's not going to happen.

Our next question comes from the line of Joe Gladue with B. Riley.

First off, I guess, I'd like to ask a couple of asset quality questions and I'm not sure if I missed them or if you mentioned them. But could you tell me what, I guess, both accruing TDRs and inflows to nonaccrual were during the quarter?

Yes, accruing TDRs were just a little under $89 million. They were about $88.6 million or so for the quarter. That's only down about $1.5 million from the prior quarter, but they did go down, but they didn't go down measurably, and those are accruing TDRs, Joe. And the second part of your question was what?

Inflows to non-accrual. I think, last quarter inflows were somewhere around $26 million or so.

Inflows to non-accrual...

We had nonperforming loans, roll forward...

Yes, as far as -- we had -- where's the number at?

Strictly non-accruals to nonperforming loans, quarter-to-date and year-to-date.

Okay. So from...

So inflows is...

So we had approximately, it looks like $2 million dollars in inflows during the quarter. And that would be right because $28 million, year-to-date, it was $26 million in the first quarter. So that inflows clearly, has slowed down dramatically.

Great. And, I guess, I'd just like to ask you to maybe just give us a broad overview, just sort of economic-wise, through your markets. I'm wondering if the widespread drought in the country is having any particular impact on some of your markets or just anything like that.

Yes. I mean, it's having a very positive impact. Because a good portion of Idaho, specially the northern part of Idaho, Eastern Washington, Northern Montana, we had not seen that drought at all. So, I mean, those farmers, ranchers, they're benefiting from the drought taking place in the Midwest and down south. But again, ag lending is not a major, major part of our loan balance sheet anyway. So we do benefit in some of those communities that are more impacted by agriculture overall. It does make a difference because it lifts the entire communities in some of those areas. But from our direct perspective, it's not a huge, huge number for us. But the 3 or 4 banks that do have some position in agricultural lending, it's been good for them. And it's been good for their customers. Tourism, it's been a good summer. I think the hospitality industry is doing very well. Our 2 largest banks that -- our bank divisions, that being Glacier and being Mountain West, I think they're both benefiting from the continuous Canadian traffic that keeps coming down. Especially, probably Montana. Simply because, as I've said before, there's no sales tax here. We're in much closer proximity to almost 2 million people who live in Calgary and Edmonton. And those individuals love coming down here. And they really have made a significant impact to retailers, to the hospitality industry, to restaurants, it's been a very, very good thing. The energy complex, clearly, we benefit to some degree. We're not in Eastern Montana. Although, as I said, I think last quarter, somewhat as the second derivative to what's going on over there, we are making loans to some of our very good customers who are determining or deciding to either work over there as a service provider or building hotels, motels. I've got a -- as I mentioned, I think, this last quarter, in some investment conferences I attended, we've got a couple of builders who are over there building homes in the Bakken. So we do, in a roundabout way, benefit there from the energy complex. Clearly, our Billings bank division, Western Security Bank, it's probably a very, very nice benefit because they've got multiple refineries down there in that area and it just seems like that's where the heart of the energy complex, for this region of the country, is located. It's out of Billings, so there's definitely been a benefit there. Overall, the economy has been pretty good, Joe. I mean, unemployment in most of these states is down. Idaho probably still remains the weakest of the states that we have in our masthead. But even there, Idaho is showing some incremental signs of improvement. So overall, I think the economy is not bad at all.

Our next question comes from the line of Jennifer Demba with SunTrust Robinson.

I jumped on this call late, so I apologize if this has been addressed. But, Mick, I know you said earlier in the call, there are no specific cost savings from the charter collapse. A lot of banks, this quarter, have been talking more aggressively about reducing costs. What's your stance on that at this point in the game?

That's a good question, Jen. We do have an initiative out there right now, among the 11 bank divisions, and we've challenged them from an efficiency perspective. And part of -- and, obviously, efficiency entails noninterest income, net interest income and noninterest expense. Well, we've had enough discussion this morning about what's happening with net interest income and the impact of some things that are outside of their control. But I really do believe that the 11 Bank Presidents have really targeted operating expenses, especially those operating expenses that come under their direct control. And we've seen some good things happening out there in the banks as a result of this focus. I just think, though, it's going to be one of those areas where, if we continue to stay down in this interest rate environment, we're going to probably have to even make more substantial moves on the operating side. I know some of the banks are looking at their delivery channels. I think some of them are looking at various branch locations, making sure that branches are profitable. If they're not, either how can you get them profitable or what do have to do to maybe even shut them down. So I mean, those discussions are constantly going on at all of the 11 bank divisions. And then, they're going to have to continue to go on because I don't see this rate environment changing. So I think the pressure is going to continue to be on that net interest income line. So, in order to hold our efficiency ratios at the level that we have historically held them at, a lot of it is going to have come from the operating side.

Our next question comes from the line of Fred Cannon with KBW.

I was just curious on -- you talked a lot about the interest rate risk on the securities portfolio. Wanted to follow up on the loan portfolio. One of the things you said was you were losing out to some folks who were terming out loans more than you were willing to. I was wondering kind of how -- what kind of terms, and terms of duration, you are willing to offer your clients, number one. And number two is if you're looking to offer your clients a variable rate loan when perhaps partnering with somebody with offering them a swap so they can get the longer term loan they're looking for.

Yes. Fred, we've looked at, obviously, doing just that. Looking at swapping -- on a loan-by-loan basis, looking at swapping out fixed for floating on some of these longer deals. First of all, let me answer your first question, and that is -- that our preference has always been and where we have tried to steer most of our customers has been in that 3 to 5 years. No, we're willing to go out 3 to 5 years. We've got a couple of examples where -- very good customer, the pressure was there and we went out 7. The ones that -- and correct me if I'm wrong, Barry, but the ones that we have passed on were those that required us to lock rates for 10 and 15 years. And we just haven't been willing to do that. Yes, you're right, we could go out and do -- and we have done some interest rate swaps, but not on a loan-by-loan basis. In fact, I don't think we mentioned that, but we did complete another interest rate swap during this, just this past quarter. And yet we haven't -- we've looked at the product, we've looked at the possibility of doing loan-by-loan interest rate swaps and just haven't moved in that direction yet. I know, Barry, you've got some thoughts on the trouble that we have in selling that, that type of loan-by-loan interest rate swap.

Yes. Usually, what the -- you have to understand the size of the customer we're dealing with. We just don't have, probably, the volume or the size of transactions that really lend themselves to doing a loan-by-loan swap. And for the most part, our customers aren't at that level where they would really understand the respective transaction and the respective risk of doing that. And frankly, swaps are a great in instrument, but they're difficult to unwind if things go bad. And so we've opted not to do it on a loan-by-loan but rather on balance sheet side basis.

[Operator Instructions] I'm showing our next -- my apologies I'm not showing any further questions in the queue at this time. I'd like to turn the call back over to management for closing remarks.

Thank you very much, and thank all of you, today, for listening in. Again, for the most part, we were happy with the quarter. We thought we made progress on a number of fronts, as I said in my opening remarks. Clearly, we've got some work to do on the margin, and some of that is clearly outside of our control, but there are still some things that we could probably do, internally, that would soften any further reduction to the net interest margin. And believe me, that will be a focus of all of our -- they'll be a focus of all of our management team and our Bank Presidents as we move forward. With that, I'd like to, again, thank you all for joining us this morning. And each and everyone you, have a great weekend. Bye now.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.