Mercantile Bank Corporation (MBWM) Q2 2016 Earnings Report, Transcript and Summary

Good day, and welcome to the Mercantile Bank Second Quarter 2016 Earnings Results Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Robert Burton, Investor Relation with Lambert, Edwards & Associates. Please go ahead.

Thank you, Aronson. Good morning everyone and thank you for joining Mercantile Bank Corporation's conference call and webcast to discuss the Company's financial results for the second quarter of 2016. I am Bob Burton with Lambert Edwards, Mercantile's Investor Relations firm. And joining me are members of their management team, including Michael Price, President and Chief Executive Officer; Robert Kaminski, Executive Vice President and Chief Operating Officer; and Chuck Christmas, Executive Vice President and Chief Financial Officer. We will begin the call with management's prepared remarks, and then open the call up to questions. However, before we begin today's call, it is my responsibility to inform you that this call may involve certain forward-looking statements, such as projections of revenue, earnings and capital structure, as well as statements on the plans and objectives of the Company's business. The Company's actual results could differ materially from any forward-looking statements made today, due to the important factors described in the Company's latest Securities and Exchange Commission filings. The Company assumes no obligation to update any forward-looking statements made during the call. If anyone does not already have a copy of the press release issued by Mercantile today, you can access it at the Company's Web site, www.mercbank.com. At this time, I would like to turn the call over to Mercantile's President and Chief Executive Officer, Mike Price. Mike?

Thank you, Bob and good morning everyone. Thank you for joining us to discuss our second quarter 2016 results for Mercantile Bank Corporation. On the call today our CFO, Chuck Christmas will provide details on our financial results, followed by COO, Bob Kaminski with his comments regarding loan development, growth initiatives and asset quality. In addition to the earnings and dividend announcements this morning, I am sure you’ve seen the announcement of a planned transition in leadership at Mercantile early next year. While that is still quite aways off, I would like to reiterate a couple of points that I think are important for the investment community. First, this is an indeed a planned transition contemplated on other corporation's management succession plan. Second, I’ve worked with Bob Kaminski for more than three decades in the banking business and my confident in his knowledge of the industry, business savvy and understanding of Mercantile is without any reservation. Bob is a great banker and will be a strong and visionary CEO. He has and will continue to have my full support. Turning to the quarter Mercantile delivered a strong first half of 2016. We find ourselves in a very good position for the remainder of the year as our financial metrics are healthy and in many cases are exceeding our guidance. Our markets continued to be robust as evidenced by the new loan activity and Mercantile is firing on all cylinders. In the second quarter specifically, our performance around key metrics like net interest margin, non-interest expense and net incomes were very good. In short, this management team is looking forward to sustained outstanding performance over the remainder of the year. In particular, let me highlight several accomplishments in areas of strategic focus that underline our optimism. New commercial term loan growth was $193 million for the quarter, significantly contributing to an annualized loan growth rate of about 9%. Bob Kaminski’s team has done a very good job in positioning Mercantile in our markets and balancing our approach to new and existing customers. We are encouraged by the outlook for the rest of the year particularly in light of our committed pipeline. Bob will detail our activities, the health of our markets and the strength of our customer base in his comments in a moment. During the fourth quarter of 2015, we discussed a series of cost control initiatives that we put in place in which we expected to provide about $2.7 million in savings annually. These savings are on-track and were evident in non-interest expense in the quarter. Chuck will touch on this further in his comments. Net interest margin outperformed, reflecting impart the recording accelerated discount accretion on called U.S. government agency bonds. Nonetheless, we’re very pleased with the strength and stability of our core net interest margin, reflecting our continued focus on loan pricing discipline and strong asset quality. It is worth noting that our net interest income is expected to benefit from any further rate hikes initiated by the Federal Open Market Committee in light of our balance sheet structure. We continue to experience pure leading asset quality which is evident in the very low level of non-performing assets, representing only 0.2% of total assets. As we said in the earnings release, past due loans are nominal, the bankers’ in an extremely strong position here. As evidence of our strong capital position in demonstrating our continuing commitment to shareholder return, we earlier today announced a quarterly cash dividend of $0.17 per share for the third quarter, providing an annual yield of about 2.7% based on our current share price. We continue to exercise our share buyback program with repurchases of 158,000 shares year-to-date. Lastly, we’re also gratified to seeing increasing market recognition as Michigan’s Community Bank. The consolidation has taken place in the Michigan banking industry. The past year has allowed Mercantile an even better opportunity to differentiate ourselves from our competitors. Customers, communities and employees continue to take notice of our commitment to excellence. Looking forward, we see additional opportunity to participate in the economic strength of our markets as Michigan’s premium community bank. Our business activity levels indicate that the overall continued healthy employment and business expansion that has been reported for Central and Western Michigan will continue, particularly within our largest market. The area’s economic indicators remain positive suggesting growth will continue through the coming months. At this time, I’d like to turn the call over to Chuck.

Thanks Mike. Good morning everyone. This morning we announced net income of $7.4 million for the second quarter of 2016 and net income of $16 million for the first half of the year. On a diluted earnings per share basis, we earned $0.46 per share during the second quarter and $0.98 per share during the first six months. Our earnings performance during the second quarter of this year reflects an 18% increase in diluted earnings per share when compared to the second quarter of 2015 and a 26% increase in diluted earnings per share during the first six months of 2016 when compared to the same time period last year. We are very pleased with our financial condition and earnings performance for the second quarter and believe we remain very well positioned to take advantage of lending and market opportunities, while delivering consistent results for our shareholders. Our net interest margin was 4.01% during the second quarter, continuing a relatively stable trend during the past 8 quarters in which the margin has ranged from 3.79% through the 4.01%. The stability of our net interest margin primarily reflects our strategy to grow the loan portfolio as a percent of average earning assets in large part by funding a majority of our net loan growth with monies from our lower yielding securities portfolio. Average loans represented about 86% of average earning assets during the second quarter, compared to 81% during the second quarter of last year. Primarily reflecting the ongoing very low interest rate environment and competitive pressures, our yield on total loans has generally been on a declining trend. However, our yield on total earning assets has remained in a tight range, which when combined with a steady cost of funds, provides for a stable net interest margin. Our net interest income and net interest margin during the first six months of 2016 and especially the second quarter were positively impacted by calls on U.S. agency government bonds that have been purchased at a discounted price as part of our interest rate risk management program. Accelerated discount accretion totaled $1.5 million during the second quarter and $1.8 million during the first six months adding 22 basis points for the second quarter net interest margin and 13 basis points for net interest margin during the first six months. We recorded a loan discount accretion totaling $0.9 million during the second quarter of 2016, a little lower than previous quarters and the guidance provided in April. Based on our most recent valuations, we currently expect to record further quoted loan discount accretion totaling $1.1 million to $1.2 million for the next five quarters, then reducing the amount recorded to about $0.5 million during the fourth quarter of 2017, and then about $0.2 million per quarter during the 2018 calendar year. Actual accretion amounts recorded in future periods may differ from our forecast due to a variety of reasons, including periodic re-estimations and the payment performance of the acquired loan portfolio. We expect our net interest margin to be in a range of 3.75% to 3.85% throughout the remainder of 2016 and then 3.70% to 3.80% during 2017. This forecast assumes no changes in the Federal Funds and prime rates. Our interest rate risk measurements continued to reflect an improved net interest margin in an increasing interest rate environment. The overall quality of our loan portfolio remains very strong. Non-performing assets as a percent of total assets equaled only 0.2% as of June 30, 2016. Gross loan charge-offs totaled $0.4 million during the second quarter and $0.9 million for the first six months of 2016 recoveries of prior period loan charge-offs equaled $0.1 million during the second quarter and $0.6 million during the first six months of the year. Net loan charge-offs as a percent of average loans equaled only 4 basis points during the second quarter and 2 basis points during the first six months on an annualized basis. We did record a provision expense of $1.1 million during the second quarter of 2016, bringing the total amount for the first six months of 2016, up to $1.7 million. The provision expense during the second quarter was primarily driven by our loan growth and an assessment change in our economic and credit concentration environmental factors, the latter equating to about $0.5 million in additional provision expense. We expect to record quarterly provision expense of $0.5 million to $1.0 million during the remainder of 2016. Our loan loss reserve totaled $17.1 million at quarter end. The reserve for originated loans equaled 0.94% of total originated loans at quarter end, unchanged from year-end 2015. We recorded non-interest income of $4.1 million during the second quarter of 2016, compared to $4 million even during the second quarter of last year. We experienced a $0.3 million increase in service charge and deposit accounts compared to a year ago, in large part reflected in ongoing projects to ensure that all depositors are in a product that best meets their needs and is priced appropriately. We saw a $0.3 million reduction in mortgage banking activity income, primarily reflecting lower refinance activity. However, we expect mortgage banking activity income to increase in future periods reflecting the strategic initiatives we have implemented in our residential mortgage lending function. With caution that mortgage banking income and recoveries on certain acquired charge-off loans can be difficult to forecast, we expect quarterly non-interest income during the remainder of this year to be in a range of $4.0 million to $4.5 million. We recorded non-interest expense of $19.2 million during the second quarter of 2016, a decrease of $1.2 million from the second quarter of last year. We are now realizing expected cost savings associate with our efficiency program announced in late 2015. We currently expect quarterly non-interest expense to total between $19.2 million and 19.5 million through the remainder of 2016 with our effective tax rate at around 31%. We remain a well capitalized banking organization, as of June 30th our Bank's total risk based capital ratio was 13.1% and in dollars was approximately $82 million higher than the 10% minimum required to be categorized as well capitalized. As part of our $35 million common stock repurchase program, we repurchased approximately 20,000 shares at an average price of $23.44 per share or about $0.5 million during the second quarter. Since the repurchase plan’s inception in early 2015, we have repurchased about 956,000 shares or nearly 6% of total shares outstanding at year-end 2014 for $19.5 million for an average cost of $20.38 per share. Funding for the stock repurchase program has generally been provided via cash dividends from our bank and any further stock repurchases would likely be funded in a similar manner. Those are my prepared remarks. I'll now turn the call over to Bob.

Thank you, Chuck and good morning. In the second quarter, Mercantile had a very strong volume commercial loan funding of about $193 million, pushing the year-to-date commercial funding to almost $300 million. As we mentioned in our April conference call, loan funding is often rather uneven and as we’ve demonstrated with the second quarter results, commitments and process were more heavily concentrated in this quarter compared to the first quarter and the combining results provided for solid growth in the first half of 2016. Distribution by loan type was fairly equal between non-owner occupied commercial real estate and C&I plus owner occupied commercial real estate. While the majority of the loan growth originated in the Grant Rapids Kent County markets, there was a very good activity in all of our markets. Loan pipelines remains strong, despite the high level of funding experienced this past quarter. For our retail team, the mortgage pipeline continues to grow and is now at its highest level experienced since the merger two years ago. During the quarter, we added four commission mortgage loan officers for our major markets. These lenders possess many years of experience in West Michigan. Employees also continued to gain experience with our new backroom processes which will help provide an even higher level of customer experience, as well as improved operational efficiency. Asset quality continues to perform well with non-performing loans dropping to about $5 million and ORE dropping below $1 million as of June 30. The staff remains vigilant in closely working with our clients for early detection of stress with individual borrowers and for the portfolio as a whole. The Michigan economy has maintained a steady performance demonstrating job growth and a fall in unemployment rate. The unemployment rate is currently at 4.7% compared to 5.1 at December 31, 2015. Employment gains during 2016 have been witnessed the most sectors including construction, finance, insurance and real estate, leisure and hospitality and manufacturing. Auto production and its supporting industries continue to perform at a solid level. Operationally, we are pleased to recognize a positive impact of the efficiency initiatives announced last October on our non-interest expense. We continually strive to deploy our resources of maximum efficiency and effectiveness to leverage client acquisition opportunities in all of our markets. Additionally, the Mercantile staff continues preparations for the start-up updates to our online banking platform, as well as our payroll processing platform. These updates will help accommodate our workforce solutions offering which includes payroll, human resources, benefits and time and attendance management. Finally, I’d like to thank the entire Mercantile team for their work each day, in maintaining strong relationships with our clients and delivering the highest quality banking products and services in all of our markets. Those are my prepared remarks. I’ll now turn it back over to Mike.

Thanks, Bob and thanks Chuck. Aronson at this time we’d like to open up the call for questions.

Okay. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Matthew Forgotson of Sandler O'Neill & Partners. Please go ahead.

Bob I was wondering if you could start with the commercial loan pipeline, give us a little color, the balance, complexion rate and then most importantly I suppose how you plan to fund that production?

Well as I mentioned in my comments, the pipeline remains very consistent with where it was in April down in the second quarter, despite the significant loan fundings that we’ve achieved during the quarter, shows really towards the great relationship building that our lending personnel have worked down with our customers and prospects and continue to keep that pipeline very active and vibrant as we head into the coming quarters. The rate environment is obviously very competitive and as we’ve mentioned in prior calls, we value client relationships based upon relationships and not necessarily individual transactions, those are the kind of clients that we value are working most hard to obtain as clients of the bank. We’re not always going to have a lowest rate and the things we mentioned in the past, but I think have served us well with our margin maintaining at a very steady level and it’s showing that we’ve been able to accomplish that despite the loan growth we had this past quarter. As far as funding, we continue to look at what is the appropriate mix of funding for the growth that we have in the coming quarters and we have staff of folks who are working on that as far as, what’s in the pipeline from a deposit standpoint that will come with these new loan fundings, because we bring with us deposit relationships in addition to loan relationships. So that will help boost the funding as well, but also some new initiatives that we’re looking at on the standpoint of retail and commercial for all of our markets to make sure that the funding is there for the growth in the coming quarters.

Yes Matt, this is Chuck. Just let me add on to Bob’s comment actually. Obviously you’re noticing the fact that we did increase our wholesale funding during the second quarter and obviously a lot of that was due to the significant loan growth that we had during the quarter. And I would just add that, we did that primarily with FHLB advances. Those are up in large part because to fund the loan growth, but also we continue to let the broker deposits as they mature we’re basically replacing them, if need be with additional FHLB advances. In regards to FHLB advances, we are taking the opportunity to make sure that we’re showing up our interest rate risk position, especially if and when interest rates do increase. So a vast majority of those advances that we did obtain are really throughout 2016 so far has been at relatively long terms usually five to seven years. Obviously there is a cost to that it’s certainly more expensive to go get a five year advance than it is a one or two year advance. But we think it’s prudent to continue to protect our net interest margin in an event that rates do go up and this adds a level of protection, especially against primarily our five-year fixed rate balloons that we do and the portfolio and then the occasional seven-year balloon that we -- fixed rate that we do in the commercial portfolio as well. So obviously we need it primarily for funding, but we’re certainly taking advantage of the opportunities to get FHLB advances and protect our net interest margin as best as we can.

And I guess I’d just with funding for a second. We talked about the adjusted loan to deposit ratio, adjusted for the repos. Can you just talk a little bit about your comfort kind of driving that ratio past 100%, if loan growth remains strong and deposit growth continues to trail?

Certainly it’s our goal, and it’s our aspirations to keep that wholesale funding where it is now, which is about 10.5%, almost 11% to keep that steady. Bob already touched on the fact that we’ve got well various initiatives and looking at a lot of different things. Some of the stuff we’ve already put into play and over the last month or so, we’re seeing some very good success in bringing in local deposits. A good portion of our commercial loan growth has been and we expect to continue to be on the C&I side. And as you know C&I customers bring solid deposit relationships with them as well. So certainly it is our goal to not have that wholesale funding ratio go up, but if it was to go up another 1% or 2% say over the next couple of quarters, we would not be alarmed by that. Again obviously, it’s looking at the opportunities that we’ve got and taking advantage of those opportunities when the pricing and the structure make some sense. So we’d like to see that steady out, but if we see some increases in that wholesale funding number, we wouldn’t get too concerned over it.

Okay. And then lastly, just Chuck, I’ll stay with you. Just on appreciate the color on the purchased accounting accretion and how that’s ultimately going to tail off naturally overtime. Can you give us just your outlook for the core margin excluding PAAs, excluding the discount accretion and how that trends overtime in light of the development in the yield curve?

Yes well the yield curve is a whole another conversation we can have. But in my prepared remarks I talked about the fact that my expectation was that 2017 the margin would probably down 5 to 10 basis points. If you do the numbers which I am sure you will, with that discount accretion that will pretty much keep the yield pretty much unchanged, so that 5 or 10 basis point decline that I mentioned in my prepared remarks really reflects what's going on, when we’re booking loans we’re bringing deposits on and obviously as you mentioned the yield curve. So I think that’s kind of the reduction on the core that we would see for the remainder of this year and into next year.

Our next question comes from Damon DelMonte of KBW. Please go ahead.

Congrats team Mike and Bob on the announcement this morning. I guess my first question is just in regards to the mortgage banking outlook, I know you noted that you had hired a sort of four commission loan officers this quarter. As you continue to ramp-up the expense in this line of business, do you have a projection as to what you expect like the quarterly revenue is potential from the mortgage banking operations?

Now obviously it's a fluid situation with what's going on with the rates, markets and all that right now, and the things we are doing to really enhance our volume a little there. So it is kind of when we target, we know that we will do a lot better than we have in prior years with the volume of loans that we do because as we said in past quarters the mortgage banking activity that we’ve done in our major markets of Grand Rapids and Kalamazoo has really been very, very small compared to with the potential that’s there. So we are very hopeful that with the addition of these new mortgage lenders that we will be tap into some of that. And so irrespective of what happens on the rate front we feel that these lenders will give us the ability to bring on some new volume that we wouldn’t have had otherwise regardless of what rates do.

Got you, okay. And thanks for your color, that’s helpful. I guess with regard to the outlook for loan growth to get a sense that you said the pipeline looks as strong today as it did back in April and you’re optimistic for continued strong volume activity in the back half for this year. Any particular region of your footprint that you feel better about or maybe certain areas you feel worse about, could you give a color as to where you expect that growth to come?

As I mentioned in my comments we are seeing growth in all of our areas, obviously proportionate to the size of the portfolios more of the growth has come in Grand Rapids and Kent County. But we’ll also see some good opportunities in some of our smaller markets in the central region among Lansing and Cadillac. So proportionally speaking we are seeing some good activity in all those areas and that’s really encouraging to us because that really points to the fact that our approach to banking and some of the things that we’re asking of our staff to do with building relationships and developing that some of that comes overtime. And it's really starting to take hold now this approach to customers and getting them to know us and our approach to banking, that’s what we feel is holding us in good stead for the quarters to come or will hold us in good stead for the quarters to come. Because it’s all about approach, and what a customer comes to expecting us as their banker, as their source of funding and the kinds of things we can do for them as their financial institution.

Okay, great. And then I guess just lastly Mike kind of bigger picture, when you look at capital management opportunities, you still have a very healthy tangible common equity ratio. How do you guys prioritize M&A, organic growth and buyback? And where do you see the opportunities in each of those three categories?

Yes I think Damon it's certainly organic growth would at the top of the list for us, we’re enjoying a nice season of that now and we expect that to continue. M&A is one of those things that as far as priorities go, I know that it’s something we have at the top of the list other than what is it at the top of our list is to continue to access the M&A market and see what might be out there that we can avail ourselves of and that we continue to do. There has been activity as you know in the last couple of years in the Michigan market, there continues to be discussions but as we’ve said time and time again, it took us about 16 years to do our first M&A deal and it may take us another one, the first went so extremely well for us that we want to make sure that if we do get ourselves involved in another acquisition that it is well worthy of temporary dilution that our common shareholders might have to take. And the buyback again, it is another one of those things that, it’s relevance to us depends a lot as you might imagine on current conditions what is our stock trading at and what’s the level of, other uses of capital at this point. We continue to still be active but certainly not as active at $25 as we were at $20 but we still think 25 makes sense to keep it active. So I guess getting back to the original question, by far organic growth is what we’re focused on each and every day and it is at the top of the list.

Our next question comes from John Rodis from FIG Partners. Please go ahead.

I guess Bob maybe just a quick question for you, obviously you had a very strong quarter for loan growth but could you talk about what you saw as far as paydowns this quarter?

Paydowns were at a level that is probably a little bit less than we experienced in the first quarter and as we’ve talked about the unevenness and the funding obviously is a one type of equation and pay downs are another side of it. But obviously with the strong funding that we had, we were able to absorb the paydowns that we incurred and lend some, and that’s the plan going forward, paydowns are hard to predict, it depends upon what clients are doing with their respective investments and projects they may own, companies that they own, and so we try to get as a good of a handle on that as we can but it’s something that’s quite hard to predict. If we heat that in the strong pipeline and the fundings then we hope to be able to certainly negate any effects of paydowns that will occur in the future.

Okay. And Bob I guess just a follow-up on the growth again this quarter. Was there any larger credits that maybe drove the growth or was it fairly granular?

We had some larger fundings and then we had a lot of fundings in the more moderate range of funding, it’s all across the board as that’s reflective of my comments that I mentioned on growth in all of our markets obviously in some of those offices, smaller markets, those loans tend to be on the smaller side, relative to the kinds of business activities in those markets and then in the Grand Rapids metro area, we had some larger opportunities there as well and we’ll continue to have going forward. So it’s a good mix.

Okay. And Mike one question for you, just sort of given the various M&A activity in the market over the past year or two, any opportunities I guess outside of mortgage to maybe hire some lender, teams, lenders and so forth?

I think we’ve done a really good job in the mortgage area, outside of mortgage which is your specific question, I don’t know that when I talked to Ray Reitsma and to Bob and Doug all that whether or not there’s teams if you will, and I know that’s happened from time-to-time where whole teams have lifted out. But we certainly take -- we’d look at that it that was available but we certainly on an individual basis have had a chance over the last couple of years to hire some really good lenders to add to the team.

[Operator Instructions] Our next question comes from Daniel Cardenas of Raymond James. Please go ahead.

Congrats Mike and Bob. Just a couple of questions, most of mine have been answered. For the new lenders that you hired, is that fully reflective in your second quarter expense number?

Some is and some has not. We were bringing people on throughout the quarter. So it’s a little bit of both.

Okay. And then with the loan growth that we saw this quarter, any sense for how much market disruption due to M&A impacted the growth this quarter?

Well, certainly there probably is some of that in some markets, but I think the bigger thing that we’re hanging our head on is relationship banking approach that we’re taking. It’s a good steady approach where our lenders are getting to know the clients and developing that relationship. And sometimes that shows in the uneven fundings that we show, because those needs arise at different times. And we want to get a good report between lender and customer, so that they know what we’re going to be able to provide to them. So certainly disruption by M&A is always a factor out there they get some satisfaction by clients with their existing banks to the point where it maybe reaches the boiling point, but the good clients, they don’t make any harsh moves. They want to make sure. They know how important their commercial banking relationship is with our companies and they want to make the right move. And that takes them time to develop that even if there is some reason why, they’re having since they leave their current bank. We don’t want them to make a harsh move. We want them to think it through and no one can provide that and put together a complete package of financial services for them and we can be their complete bank.

Yes, okay perfect. And then can you remind me, what is your in-house lending limit right now?

Our legal lending limit Dan is a little over 80 million.

All right, and approximately how many relationships do you have right around that legal lending limit?

We maintain reports that show all the concentration of borrow relationships and it’s a very active list and how you calculate total commitments is a very fluid type of thing and in regulatory terms. So I couldn’t tell you how many we have in the upper limits of our in-house limit, but it is something that we watch and obviously maintain with concentration in the portfolio and industries and in types of lending as well as high power relationships as well.

Strictly Dan, strictly by regulatory definition, we don’t have any of the $80 million. But as Bob is saying that, we do for our own internal purposes aggregate a lot of stuff that would probably if one or two relationships that get with inhaling distance of it, but certainly not with the actual legal regulatory definition.

Yes and by adding all that so to add on a little bit. We look at our top-20 borrowing relationship by commitment. The ones down towards the bottom of that list are in the mid-upper teens, but it come of millions when it comes to total commitment.

Yes.

So most of our larger relationships are going to be in the 20s and 30 millions.

Right.

All right, and then as we look at concentration on the construction in the commercial portfolio, where are you guys as a percentage of total risk based capital at the end of the quarter?

I don’t have that number.

Yes I don’t have it right at the top of my head.

It's not very significant and actually what we have seen is our construction portfolio as some of the deals that we did over the last two or three years are coming to fruition and going into permanent status. Our construction portfolio is actually shrinking a little bit. And you see it we still got about 90 -- I think it was $92 million to fund yet but that number was quite a bit higher in previous quarters.

It has come down.

So we are not as heavy in the construction area as we have been before, we’re not saying we are not doing it. We are still obviously looking at different projects and making bids on some of them. But the construction portfolio by itself is smaller than it has been.

Okay, but it sounds like you are under the 300 and 100 thresholds that the regulators have played out there?

Yes.

Great, perfect. And just last question Bob, if you could remind me, I missed it comments on your pipelines, did you say they were pretty much in line with the second quarter at the end of the second quarter or?

Yes, that’s what I said. It is very consistent with what it was in our conference call in April at the end of the first quarter.

And that was kind of around 200 million or so?

That’s in that range, yes.

This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Michael Price for any closing remarks.

Thanks Aronson. And thank you all for your interest in our Company and we look forward to talking with you again after the third quarter results.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.