BankUnited Inc (BKU) 2006 Q2 法說會逐字稿

Good afternoon. My name is Marvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the BankUnited second-quarter 2006 earnings conference call.

This conference call may contain certain forward-looking statements, which are based on management's expectations regarding factors that may impact the Company's earnings and performance in future periods. Words and phrases, such as will likely result, expect, will continue, anticipate, estimate, project, believe, intend, should, may, can, could, plan, target, and similar expressions are intended to identify forward-looking statement. Actual results or performance could differ from those implied or contemplated by such statement.

Factors that could cause future results and performance to vary materially from current management expectations include but are not limited to general business and economic conditions; fiscal and monetary policy; events beyond our control, including natural disasters and significant weather events such as hurricanes; foreign terrorism; changes in interest rates, deposit flow, loan demand and real estate values; competition with other providers of financial products and services; the issuance or redemption of additional Company equity or debt; volatility in the market price of our common stock; changes in accounting principles, policies or guidelines; changes in laws or regulation; reliance on other companies for products and services; and other economic, competitive, servicing, capacity, governmental, regulatory and technological factors affecting the Company's operations, pricing, products and delivery of services.

All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. Mr. Camner, you may begin.

Good afternoon and thank you for joining us today for BankUnited's second-quarter conference call for fiscal year 2006. Joining me on today's call are Ramiro Ortiz, BankUnited's President and Chief Operating Officer; Bert Lopez, our CFO; and Jim Foster, Executive Vice President of Corporate Finance.

The past quarter has been one of excitement and positive growth for our Company. We had double-digit percentage increases on almost all of our key benchmarks. Business has been good. The economy has presented us with wonderful opportunities, and our team has worked hard to turn them into impressive results. Our strong growth in deposits and loan categories tells us that customers appreciate our brand of banking, and our branch bankers are able to increase deposits significantly.

One of the many bright spots have been our continued improvement in margin. Our management team has put a lot of effort into this area. The numbers reflect our tactical decisions and execution coupled with growth in non-interest-bearing and core deposits and development of new residential mortgage products, all of which taken place in a rising rate environment.

Attributing to our financial results for the quarter was a gain of 1.9 million from the sale of a portfolio of residential loans. We have completed a number of these transactions in the last several quarters, and we will continue to do so as the secondary market continues to demonstrate its acceptance from our assets and our underwriting standards.

We read a lot these days about concerns over adjustable-rate mortgages. As those who have followed BankUnited through the years know, we understand this business on a level that far exceeds most of our competitors. We have excelled in the basis of mortgage lending for some time with conservative underwriting and top-notch credit. Our percentage of number-forming assets is just 0.09%, down from 0.21% at this time last year. Clearly, we have a formula that works. Part of that is certainly the great hard work across the board of our team.

In the second quarter, we successfully completed an offering of 5.75 million shares of our Class A common stock, which reflects the confidence and value that investors place in our Company. 150.9 million net proceeds of the offering will support our continued growth and create further opportunities -- earnings opportunities. Our Board of Directors declared the fourth consecutive cash dividend of 0.5% per share of Class A common stock to shareholders of record as of March 15, 2006.

During the quarter, total assets reached 12.2 billion, an 8% increase from the prior quarter. Net income was a record 19.7 million, a 45% increase from the same quarter last year. For the 6 months ended March 31, 2006, net income was 35.9 million, a 28% increase from the 28.1 million for the same period the prior year. Basic and diluted earnings per share were $0.57 and $0.54 respectively as compared to $0.45 and $0.42 for the same quarter last year. Earnings per share for this quarter includes the dilutive effect of the shares issued in the January public offering.

I am now going to turn this call over to our President and Chief Operating Officer, Ramiro Ortiz, who will provide more detail on our operations.

Thank you, Fred. A lot of hard work went into achieving the second-quarter results, and we're pleased to see the efforts pay off. We opened six branches during the past 3 months, including our first locations in Manatee and Hillsborough Counties on the West Coast of the state. By the end of the quarter, we had 71 branches in 10 counties, all of which are contributing to our continued growth in deposits and loans. Almost all of these new branches are contributing ahead of forecast.

Total deposits for the quarter were $5.5 billion; that's a 35% increase from the same period last year. Core deposits, which we have redefined this quarter to reflect current banking industry standards include checking, savings, money market accounts, and now certificate of deposits less than $100,000, they reached $4 billion. That's a 32% increase from the same quarter last year.

Non-interest-bearing DDA balances rose to $395 million, and that's up 28% from the same quarter in the prior year. Total loan originations reached $1.8 billion or 61% over the same quarter last year. Total loans grew by $1 billion or 11% to $9.8 billion at March 31, 2006. The balances on residential mortgage loans increased 831 million during the quarter.

P&I loan balances now total more than $1 billion. Commercial real estate balances grew by $341 million to reach 985 million at March 31, 2006; that's a 53% increase from the previous quarter. Commercial loan balances grew by $19 million to $203 million at March 31, 2006, and that's an increase of 10% from the same quarter last year.

Consumer loan production, which excludes specialty consumer mortgage loans originated through branch offices, was $84 million during the second quarter of fiscal 2006, a 32% increase from the same period last year. Consumer loan balances grew by $23 million or 8% to reach $328 million for the quarter.

Our results for the second quarter highlight the success of our micro-market strategy and the contributions of our branch network to our bottom line. Launched in 2003, the neighborhood micro-market strategy sets us apart from our competitors. It enables us to truly meet the needs of each and every local community we serve. The proof that the strategy is working can be found in the growth in the key deposit and loan areas I just mentioned as well as our positive trends in cross sell. Our commercial and business banking areas have also contributed to our growth in deposits and loans.

We continue to deepen relationships with existing business clients and attract new ones as a consequence of our local decision-making and the extensive knowledge of the markets we serve. I speak on behalf of our 1,000 employees and our Board of Directors when I say that BankUnited is proud to be the largest bank headquartered in Florida, no matter how you measure it.

I will now turn the call over to our CFO, Bert Lopez, who will discuss additional financial indicators for the quarter.

Thank you, Ramiro. During the second quarter of fiscal 2006, our net interest margin improved to 208 basis points from 197 during the prior year and up from 175 basis points same quarter last year. As we continue to add to our product mix, build a deposit base and put other tactics into place, we anticipate continued improvement in the margin. We have done a lot, as evidenced by a 41 basis point increase in the margin in the last 9 months, but we continue to find ways to improve the margin.

For the quarter, the MTA index increased 41 basis points, while 3-month LIBOR used as a proxy increased an average of 44 basis points. Looking back to June of '04 when the Fed began its continual increases, the MTA index has lagged 3-month LIBOR by a cumulative 98 basis points. So, when there is a slowdown in Fed increases and certainly when they stop, we should experience a large portion of these 98 basis points on $5.3 billion of MTA mortgages coming back into income as these loans contractually reprice without a commensurate increase in the pricing of the bank's liabilities, which should result in continued improvement in our net interest margin.

Total non-interest income for the second quarter was 7.2 million, up 1% over the same quarter last year. Fee income, which includes loan fees, deposit fees and other fees outside of loan servicing fees, was $3 million, up 42% from the same quarter last year. In our ongoing effort to manage our balance sheet and improve liquidity, we sold a block of residential loans during the second quarter, which resulted in the gain of $1.9 million. We intend to capitalize on the demands for assets in the marketplace by selling and possibly securitizing loans in the future.

Fred touched on our portfolio of MTA loans. As you know, MTA option ARM loans contain payment options that allow borrowers to select from different mortgage payments each month. We feel our option loan differentiates itself due to our underwriting standards. All our MTA option ARMs borrowers are qualified at the fully indexed rate, not at a discounted rate. We maintain our own in-house appraisal review process. The average loan to value of our loans at inception is 76%, and loans produced with LTVs greater than 80% require purchase mortgage insurance. The average LTV of the portfolio after inclusion of mortgage insurance is 73%.

These certificates for us at quarter end in LTVs can be lower due to depreciation of housing markets and the reduction of principal by borrowers. The average balance of our MTA loans in the portfolio is $295,000. As of March 31, 2006, option ARMs and negative amortization of $37.3 million or 0.7% of the $5.3 billion of MTA loan balances. As of March 31, less than 3% of the option -- of the MTA option ARM residential loans in the portfolio had negative amortization of 3% of the original amount. So, there's not a large amount of negative amortization in total, nor on any one individual loan.

Our portfolio of residential loans serviced for others was 1.7 billion at March 31. Servicing and ancillary fees for the quarter net of amortization resulted in fee income of $864,000 compared to $26,000 during the previous quarter. This portfolio had an impairment adjusted of $330,000 during the second quarter compared to no adjustments during the same quarter in the prior year.

In our second quarter, non-interest expense was 35.4 million, up 38% from the same period last year. This increase reflects our Company's aggressive growth in branch networks, operations in support areas as well as ongoing compliance with regulatory guidelines. The efficiency ratio for the quarter was 52.6%, a decrease from 54.96% for the same quarter in fiscal 2005. We are happy with the manner in which we were able to reduce this number and that's due to operating leverage. While expenses increased by 9.7 million due mostly to higher rewarding of our folks and the continued investment in growing our branch network, top-line revenue grew by 19.2 million or 50%, yielding the aforementioned positive operating leverage. BankUnited supplied hedge accounting interest rate swaps in the shortcut method provided for and statement of Financial Accounting Standards Number 133.

Recently, the SEC issued guidance on proper application of the shortcut method. Based on this guidance, we reviewed our application of the shortcut method and concluded that three current hedges did not meet the requirements set forth in the guidance. However, the effect of the reclassification is not material in any previous period. Instead, we took an expense adjustment of $242,000 for the current quarter. The effect of the swaps not being offset on the balance sheet as a hedge transaction this quarter resulted in a decrease of income of 672,000, bringing the total quarterly impact to $914,000. This $914,000 includes a $1.6 million charge or a one reclassified swap.

As Fred mentioned, nonperforming assets as a percentage of total assets remained at 9 basis points, unchanged from the prior quarter and a decrease from 21 basis points for the second quarter of fiscal 2005. While there is no guarantee that BankUnited's low levels of nonperforming assets will be sustainable in the future, we're certainly proud of this quarter's results.

The allowance for loan losses as a percentage of total loans was 31 basis points at March 31 compared with 36 basis points from the same period last year and 32 basis points on our most recent quarter. This quarter, we provided $2.3 million in provision, nearly double what we provided last year.

We continue to maintain a strong capital position in excess of regulatory requirements. Our poor and risk-based capital ratios at the bank were 7.31% and 14.3% at March 31. Our book value per common share is $18.85 during the second quarter, up from $16.45 the same period last year. Our tangible book value was $18.07 versus $15.51 this time last year. We're very pleased with the results for the quarter and believe we can sustain this growth through this fiscal year and into the future. I will now turn the call back over to Fred.

Thanks, Bert. Considering that interest rates have been advancing all through this period that we've managed to survive any additional new FASB interpretations, we experienced increased compliance costs that so many banks in this country have. Notwithstanding that, we had a great quarter. Because we are pleased with our progress so far and are optimistic when we look ahead, the continued execution of our plans and the daily efforts of our team are a combination that really works.

Moderator, if we could go ahead and open up the call for questions.

(Operator Instructions). Laurie Hunsicker, Friedman, Billings, Ramsey.

Just two quick questions -- resi loans, how much was actually sold in the quarter?

The amount of loans?

Yes.

$424 million.

424. Okay.

A little bit higher than the last quarter.

Is that probably a good run rate?

Plus or minus a little bit. That's approximately where we'll be. It depends on the particular products in the market where we feel that we get certain gains on them. The emphasis on our producing for our portfolio, we get demand for other products that we think are appropriately saleable and we go ahead and sell those. Some of that is Fannie Mae, Freddie Mac. Others are actually MTA products.

Then just jumping back over here to the FAS 133 adjustment, I guess we're trying to do just a sort of net-net comparison. I realize your margin was up 11 basis points in the quarter. But if we were to sort of retroactively go back and adjust the December quarter margin, I'm getting that in reality, your margin expanded 14 basis points. Or can I not use all of that $914,000 to do an adjustment?

The $914,000 actually went into non-interest income. So, it didn't go into the margin. The swaps were still in place. It's just the way the FASB has asked us to (multiple speakers)

To account it, right. So, theoretically, previously, it would have been up under net interest income. I mean, I guess I'm just trying to do an apples-to-apples comparison as we saw (multiple speakers) margin expand. Or let me ask this another way --

It would be difficult to do. We are of the belief that as pointed out, we took an impact that we would not have normally taken under the prior accounting set-up. So, we don't anticipate anything in the same regard this quarter. So, it could be some charges still and some adjustments on mark-to-markets. But basically, we expect to do a certain unwinding of some of the swap so that we don't keep having this bouncing up and down all over the place.

Okay, so you are going to unwind them over what timeframe?

We may be doing some unwind as much as particularly the largest one this week.

But the mark-to-market is what you see in the 1.6 million and the particular one that Fred is referring to. Then, just for comparison, we did have the swaps throughout the quarter. So, a comparison of March quarter to December quarter really stands as is. The difference is in the application or the inability to apply shortcut method, and that is what generated $914,000 difference to non-interest income. But, the margin stayed the same because we had the swaps throughout the entire period. So, the margin is comparable.

So there would be no way to take that -- for example, that 197 and say in theory, that should've been 193 if it was counted on the same apples-to-apples basis as it applies for the March quarter?

No. Because the swap income is in the margin in both quarters. It's just the mark-to-market that previously we had the swaps hedging, some trust preferred securities. They hedged each other out, and it was a very, very minimal impact on non-interest income. Now, those two items are no longer hedges, so we have the mark-to-market of a swap but we don't have the mark-to-market of the liability that generated $914,000 into non-interest income.

Certainly, it was an impact (multiple speakers).

It was a negative to non-interest income. That's not a plus to it. This is a charge against non-interest income of that amount. We generally do not anticipate having that type of situation this next quarter.

Al Savastano, Janney Montgomery Scott.

I've got two questions here for you. First, can you give us an idea of if you changed your start rate at all on your MTA loans?

It's a little more complicated than that. We've had some adjustments in the start rates. Some have gone up; others have not gone up as much. We've also introduced some other products. It's really a completely mixed bag as to what the effects of all that are.

What happens is because you may even have offerings but the actual -- the way you price things, you may end up with start rates that are higher than even offered start rates as you are averaging. So, there's a whole menu and matrix that's involved.

So, let me ask it differently. When you look at your competition, are you at the low end, the midrange or at the high end of the range on the start rates?

We're not at the low. We're not at the highest. I guess that means we must be somewhere in the midrange.

Secondly and more important, you had a great loan growth again this quarter. As an investor, how can we get comfortable that you guys are properly managing the risk on the loan growth and is this level of loan growth sustainable?

Well, we continue to have strong loan demand. We've been very happy with that. Part of this relates to continued product development. Part of it relates to the excellent job our people are doing in the markets we serve. So, we anticipate that we will continue to have good growth throughout this year. We do anticipate that there will be in a sense a slowdown in the overall market. But because I guess we are a smaller player compared to a couple of the really large ones that have a place on every street corner, we will probably have some additional market areas that we move into. We think that will more than take up the slack of any possible slowdown in the overall markets. So, we are pretty -- we're feeling pretty good about our being able to continue good production levels.

Our credit standards, I can assure you, have not been changed at all. On the contrary, if anything, they've been tightened somewhat. But, I would tell you that the strong results that you see here are more the results of very experienced loan officers, who have followings and the business that they bring to the bank.

I think overall, if you are referring to credit standards, the one thing we don't do is loosen standards. We've mentioned in a number of calls in the past that we have felt that overall with the Fed raising rates, there would be some general slowdown in the nation coming up. We've been steadily tightening our overall loan standards. There are a lot of ways to do that, everything from items relating to credit numbers on scores to particular LTVs for types of loans to reducing certain exposure to certain some types of loans as opposed to others --

Advance rates on commercial loans. Those sorts of things.

There's all sorts of things that we've been doing. But, this has been a steady process. We didn't do it overnight or last week. It's really been something we've been doing frankly since June.

I will circle up with you again at the end of the call; let others ask questions.

David Bishop, Stifel Nicolaus.

A quick question for you, in terms of the maturity schedule of borrowings. What does that look like in terms in the near-term in terms of the schedule I guess of [flub] advances and the like in terms of the near-term in the next couple quarters?

David, this is Bert. We have a decent amount of Federal Home Loan Bank advances, totaling about $3 billion that are within a year. Those really are there to match our MTA portfolio, which obviously as we discussed earlier adjust monthly. So, what we've been doing over the last few years is bringing both sides of the balance sheet in some, and we think we're pretty well matched, given our funding and our asset structure.

We did -- in terms of non borrowings and in terms of deposits, we did run some campaigns during the last year that stretched out maturities in advance on CDs. We purposely went about doing that. So there is some stretching out in the sense of having at an earlier time run some CD campaigns at rates that will extend through the end of this year and somewhat into next year.

Any current campaigns that are of note this quarter or currently in terms of (multiple speakers)?

We've run a couple of campaigns, mostly with opening branches. But, we've done some general campaigns in certain levels anticipating rates and attempting to ultimately result in comparable maturities of CDs, gathering them in at lower rates than the comparable Home Loan Bank advances. Of course, Ramiro could get into a lot more detail on our general micro-market strategy because we've done a lot of different things in different markets. But I think that would take a lot longer, and you are welcome to talk to Ramiro where he can get into more detail, relating to the kinds of things we do per market.

If you could remind us in terms of the branch pipeline, what does that look like in terms of over the course of the year? You mentioned 6 in the first quarter or second quarter.

Yes, we expect to complete out as we announced originally about 14 for the year. It could be plus or minus 1 in that regard. You never know in terms of permits and construction delay, but we expect fully to have by fiscal year-end around the 14 done. Then, we expect basically to go at about the same pace for next year. Of course, it will be on a larger base, so it will have less impact in terms of our expense situation. But, we are certainly mindful of having steady progress and think this is an extraordinary time for opportunities to grow and expand into other markets in the state. I guess some other institutions have recognized that as well. But, thus far, we feel we have picked some very good locations. For the most part, they've been doing extremely well.

Most all of our new branches are head of schedule in terms of the expectations we had for deposits.

To that point, we talked a little bit about operating leverage during the comments. But, fully 28% or thereabouts of our branches are less than 1 year old. So, you can see that the expenses related to those branches are already baked into our expense base. So, we think we have a very good opportunity to generate operating leverage going forward, as they in some cases approach breakeven but certainly as they pass through breakeven and contribute more to the bottom line.

One housekeeping item, the end of period share count -- did not see that disclosed.

The end of period share count for the common shares?

Yes.

Just 1 second. Why don't we go for the next call (multiple speakers)?

Yes, we will announce that one as we go along. Let's go ahead to the next call.

Jefferson Harralson, KBW.

Fred, I just want to follow up on an answer you gave before on -- you mentioned you had introduced some other MTA products. What are the new products you guys have introduced recently?

Well, we don't get into the exact specifics of those. We have a whole menu of them. But, they are different ones that we've tried to develop that we believe adds to benefit per margin. One of those products in particular has become extremely popular during this last quarter. So, we believe that that's one of the areas where we have some really additional margin add-on opportunity going into this next quarter. We just don't get into that specifics. I suppose I could sit you down with a loan officer, and he could go through all of them. I guess we could work out that one. But we haven't announced (multiple speakers) analyst item.

(multiple speakers) your amortization period or are you changing the start rate or I guess what are those--?

There are variations relating to that, relating to the accrual point and so forth.

A question for Bert on the margin expansion. How much of the margin expansion this quarter was the result of slower prepays? Or I guess what were the prepays this quarter? How much was the MTA loan yield increasing in the quarter faster than the cost of fund?

Let me go through that. Bert, I think you should go to the last one first. That's the MTA. I think we were down 3 -- I guess 3 against -- how much was it at day 1 (multiple speakers)?

The MTA went up 41 basis points. We used 3-month LIBOR as a proxy; that's 45 (multiple speakers).

So, none of the margin expansion came from MTA catch-up?

No. The margin as a generality, no. There are other ways it does because some of the products had quicker accruals. So, in a sense, some of it does catch-up that way. That is a piece of it. But when you look at the whole spectrum of the situation in terms of margin, you really have to look across the board in a lot of ways. So, yes, in some respects prepays have slowed, but they've been at a slower pace overall for us for some time, including last quarter. Likewise, though, we have a certain amount of prepayment fees that relate for those as well. So, we have done a lot of development in terms of this portfolio. Over a period of time, we had more and more of our loans that have prepayment fees. That results in turn that even if there's a slower prepayment, we may still actually have higher prepayment fees. But these are all variables that in a sense come in everyday.

So, when you look at them over a period of time, we think the overall statement there is that is having a very positive effect. I don't know if that's partly the answer that you want. It's hard to pin down an amount attributable to any one item because we have a lot of factors going on at once. We have more non-interest-bearing deposits for example. We have a little more matching in terms of the kind of funding. We have CDs that we've done in advance, anticipating some of the rising rates. So, as things we think sometime this year where we will have some pauses, we will still have the benefit of that. But we will have already been ahead of the curve in terms of already wherever these increases might be, either this or perhaps two more times. There are a lot of things going into it. I don't know if that helps you at all.

Let me just move on to the MTA product. You guys have given before the percentage of loans that were paying at a rate less than the interest-only rate. Do you have that number in front of you? Has that been increasing as rates have increased?

Interest-only piece, Bert?

Well, we used to disclose -- those were negatively amortized. We will have that out in our Q. I don't know that we ever gave a number that just shows how much is interest only.

(multiple speakers) I guess I'm just trying to get a feeling. That number had moved from 20% to 40 some odd percent as I recall. I was wondering if that number had increased, the percentage of loans that are negatively amortizing.

I would think it has increased a little bit. But, I don't have the specific number right now and it will come out in the Q. I don't know if I'm anticipating some basic statements because I've seen some of the comments both in articles written and some periodicals as well as some analysts' information relating to deferred interest. I'm a little puzzled by it because I've never seen banks in the past criticized for having deferred interest, which is frequently classified by most banks.

Particularly ones that are in commercial area and commercial real estate, they have some of them who are very heavy in the construction commercial area, have very large amounts of deferred interest. But, they don't call it deferred interest. They call it reserves for interest that they collect during construction loans. They have much higher risk factors than anything relating to a home loan. In particularly home loans when we underwrite them conservatively and generally write them at a relatively lower LTV basis, we are on higher credit scores.

So, I just want you all to know, we would be happy to get into this philosophical discussion with people at some point. But, I know in the past, there have been a number of banks in this state that used to emphasize very heavily and in fact, I think there is some still operating from some other nearby states in this state that have heavy amounts of construction loans and commercial loans, which have what they call high interest reserves. They make up to 100% of the cost of construction, and their only repay possibility is that they only complete that condominium or shopping center, whatever it may be and that they get all the leases or all the people to really buy and pay them back, having advanced 100% of the construction costs. That's certainly a higher risk concept than a home loan.

No one -- those interest reserves can be anywhere from 5 to 10%. I've seen sometimes even more of a loan, which is basically 100% loan. So I've never seen analysts break out or ask those banks how much they put there in something, which relates to a negative amortization because that is what that actually is. It's nothing more than another label on negative amortization of the bank. But, for some reason, everybody seems to be centering in on MTA loans.

We've been at this far for a long time in MTA loans and have been highly successful at it. There are an excellent product. I just want you all to know that we have done some -- our own internal numbers, and we indicate that in fact, 1-1s, 3-1s, and in some cases 5-1s have a much greater risks with respect to the borrower's ability to pay in this loan. Over the next 4 to 5 years, if you're looking at increasing rates that somehow maintain that entire period, which I think is somewhat unlikely, that nevertheless, the person involved in an adjustable-rate loan at this natured MTA is actually less of a credit risk problem, less of a pay risk problem than in fact those other loans.

Now, clearly, if somebody underwrites them in a risky fashion, then that or any 1-1, 3-1, or 5-1 will likewise have a high risk. So, I guess that's my statement. I will be happy to talk to any analyst at length. We will be happy to even give some numbers relating to this. I think the market and certainly some consumer groups have probably totally overplayed this and actually damaged the consumer in my estimation as opposed to help the consumer. But, in any event, I don't know if that helps you. But I've never seen it -- everybody is asking how much was our negative amortization versus the income we had for any period. I never heard or saw anybody ask a bank how much their negative amortization relating to a construction loan was for any period. In some cases, it's very substantial.

I will just ask one follow-up and then maybe pass on then. Because it does seem like your negative am is relatively high as a percentage. But, when do you think that that inflection point comes, when your negative am as a percentage of total earnings begins to decline? Or maybe you don't think --

Well, first of all, it's not very high at all. To us, it's very low. It's extremely low and way below a lot of other people. But secondly, I don't have a particular point on that. What we do is our loans have caps that are set up so that there's a faster amortization at an earlier time. A lot of people put on 125 caps. We put on 115 caps. So, there's no question that principle gets paid ultimately quicker in our situation than perhaps in some others.

But, we've done studies relating to where this loan was. If you just kept advancing all through a 4 or 5-year period and this loan comes out actually ahead at times of 3-1s and 5-1s. So, I'm not just not sure how different or what it is that you are trying to get at that makes a difference to the ultimate payment of this loan. This loan has a long history, and I do not know -- as long as you have normally good underwriting, I don't know of anybody who has had a problem with this loan.

The exact inflection point is hard to determine because you would have to make assumptions about where interest rates go. Historically, what we have seen and what the industry has seen is that negative amortization builds up in a period of rising interest rates. The consumer is making the same level of payment. Then when rates start decreasing, that same payment pays more certainly interest. Then depending on where the level of interest rates go, it's actually paying more principle. So, on a decreasing rate scenario is where you start seeing the same negative amortization being reduced by the same level of payment that the consumer was making as rates were increasing. So, there is obviously a cash flow concept to this.

But, more importantly, it depends on where interest rates go and which part of the payment or how much of the payment I should say goes to interest versus principle. So, the actual inflection point is hard to determine. Historically, that's what we have seen and that's what the industry has seen.

Before we start the next question, just to answer David's question, the common stock share count at March 31 -- 36,246,717 shares.

The other thing that everyone should know is -- just getting back briefly on the MTA is that again historically, these loans, like other of the adjustable-rate loans, have had a history of prepaying essentially in accordance with typically adjustable-rate loans. Depending on the lender and the areas and what type you're doing, these -- some of the biggest lenders in the country generally tell you that they prepay in a 3-year average. Ours are a little bit extended off that because we try to underwrite in what I'd call a more conservative fashion. In terms of that, ours may be stretched out a little bit passed that. But, frankly, generally, most people expect these loans primarily are off your books and fully paid within a 4-year period.

Just a little bit more, just to address the non-cash earnings component, I think that's where most folks are headed with the amount of negative amortization that comes into the income stream. We look at this differently than typical non-cash earnings, where say you're looking to gain on sale of accounting. Those earnings via non-cash are typically deducted from the income stream. These are non-cash earnings, but these are contractual non-cash earnings. These are added to certainly the pay off balance. It's added to the principle of the loans. So, we have every right and certainly every intention of collecting this when the loan pays off. Or, as I mentioned earlier, as rates come back down and a higher portion goes to principle. So we think it's distinctly different than the typical non-cash.

As Fred mentioned earlier, again, drawing the parallels to the construction loans on the commercial or real estate business for years. Where they've had an interest reserve, they have carried this type of deferred interest negative amortization for years and that was something that was funded in essence by the bank. This is contractually. We get the amount back when the loan pays off or as it pays down. So, that's why we think it's different than your typical non-cash earnings.

Jennifer Thompson, Oppenheimer.

Question on the branch profitability mentioned a couple of times that things are tracking ahead of what you are expecting. Can you give us any color on -- I don't know -- breakeven and how much faster you're seeing it or how you think about the profitability there and how do you think about now that the good portion of the branches are more than 1 year old, how is that going to accelerate going forward?

We've got a very formal methodology for tracking branch profitability, where we throw everything at it. What we see is continued progress month over month over month. In general terms, I would tell you that our rule of thumb when you take all that formula down and you look at a general rule of thumb, what you're looking at is about $35 million in deposits for our average branch to breakeven. Usually, that takes us about 14 to 16 months.

Some of that depends on the location and the type of branch it is, if it's in a business area, the time -- the amount of deposits may be lower. If it's in a residential area, it could very well be (multiple speakers) the larger number.

Obviously, deposit mix has a lot to do with it. But I will tell you if you take our 71 branches and you just take all of the formulas, which are very, very exact, and you were to ask me kind of a rule of thumb, that would be about it.

So the 14 to 16 months is on average, and what you're saying is it's tracking actually a little better than that?

Most of them are, yes.

Just a quick thought --

An opportunity going forward is that when you do look at our formal methodology that we use, every month, more and more of the new branches are coming in line in terms of being profitable.

Just some thoughts, you know, certainly one concern with all Florida banks has been real estate valuations. Just your thoughts on trends in the market and specifically if you could address your condo exposure and how you are thinking about that business specifically?

I will start with the last question first because I really think that's in a sense the primary question. That is that in terms of the word condo, we really need to refer to high-rise condo. Basically, where I think there is exposure is in those projects that are high-rise and which are relatively recent in either completing construction or are going to be closing in the near future. We feel there are pockets of those that will clearly have some problems. Generally, with respect to those high-rise condos, we have stayed away from lending.

There are high-rises, some of which are along the water, and I would say as a generality, the ones that are in areas that are relatively popular with either retirees or young professionals are along the water, are probably in a somewhat better shape than let's say the ones that are in some of the downtown areas, such as in downtown Miami. So, we consider that to be a problem.

In terms of the state as a whole, we have expected for quite some time and I think it's starting to be experienced that you are starting to see in different areas of the state, particularly I would say north of Broward and Dade Counties, I believe you will find that there is some flattening of pricing and some general slowdown particularly in new home sales, and this is to be expected. There's going to be some certain amount of workout.

But, I must always remind you that overall, with respect to those kind of areas and also with respect to single family in general, there is a considerable demand that is fairly steady for people moving into the state, both from the South, from Europe and clearly from the Midwest and the Northeast. So, this steady number of people that have been moving to the state and the high employment levels that we have in the state would indicate that the workout of that will be relatively a soft problem if any problem at all. I am concerned though back again to some of the big, giant high-rises that have been funded by some major institutions and their ability really to close ultimately on those units, I think there will be some problems in that area. I don't know if that gives you enough information on that (multiple speakers) --

The other thing that I just wanted to add to that is that in terms of our underwriting, we limit our exposure on any one condo building in terms of number of units that we will go ahead and provide end loans for as well as dollar amount limits, and we've got that all over the place. Again, I will remind you what I have been saying all along is that we are not in any of the sexy go-go stuff. Ours is kind of bread and butter and plain vanilla.

We also have very little in the way of condominium high-rise exposure -- very little.

Would you -- very little meaning less than 5%? Is there any way you can characterize--?

I would have to get to the number, but it's pretty small.

How about like total exposure to condos as a percent of I don't know real estate or anything that you can give us?

(multiple speakers) Let's just go back to the other question. We stopped lending on those high-rise condos about 12 months ago. We've got one building high-rise luxury condo that is not in the downtown areas, and that building, that development is delivering units through the end of June. We don't suspect there will be any issues with that. In fact, sales have been very strong, and they should be well built out and well taken care of. So we have a very minimal exposure to the high-rise luxury (multiple speakers) --

I mean, our total -- we can try to publish it in the 10-Q, but our total in actual high-rise exposure is very, very small.

Okay, but condo exposure I would expect would be a pretty -- would you characterize it as a--?

Probably small. But condo in general and in Florida -- I'm not going to speak for other areas but I know as I recollect it's similar in some other states -- but, when you were referring to the market in Florida, condo can refer to everything from zero lot line, single family on into townhouses, two-story, four-story. Generally, what we look as the trouble spots or the things we're concerned about are essentially your 10, 12-story-plus types of condominiums.

I mean there's some -- the ones we particularly are mentioning are much higher than 12 stories, and I -- we believe their sales are very, very heavily speculative. But, probably if you were talking to the builders, they would perhaps say is differently, but that's our belief.

Jim Ackor, RBC Capital Markets.

A couple of questions. Bert, I think you mentioned something about the MTA lag and what you might expect over the course of the next 6, 12 months in terms of the coupon on the MTA portfolio adjusting upward. I was wondering if you might be able to walk through that?

Sure. What we did is when we looked back at the MTA going back to June of '04, when the Fed started their shall we say measured increases, if you relate the MTA to 3-month LIBOR as a proxy, the 3-month LIBOR has exceeded or the MTA has lagged 3-month LIBOR by a cumulative 98 basis points. While the lag is not as bad, it's been decreasing. We haven't reached that point where we've reached equilibrium, and the MTA is coming back and repricing higher than 3-month LIBOR.

That's where we mentioned that when rates slow down and/or stop, the contractual repricing of the loans will continue to increase, even though the funding costs should not increase. They should slow down and/or stop. So, that's where we go back in saying that we should get a good portion of that 98 basis points coming back into the margin as after rates slow down and/or stop.

I think the estimate -- and maybe Bert will correct me on this -- but I think you can generally say that a pause would result in 20 plus basis points depending on the particular time they pause in catch-up during that particular pause. Each time they skip another meeting, you would have 20 plus catch-up. So, it could be as much as 30 plus. It just depends on the particular months and the way you are calculating it. But, there's actually a pretty rapid catch-up when you pause.

Going with the MTA as a product is really well-matched in a sense to the between 3 and 6 year -- 3 and 6-month month I mean LIBOR, other than in the occasions where you have rapid increases as we have had where they are every single meeting increased. But if you look back historically over a long period of time, generally, it's a very good matching instrument. There is actually an effect that occurs as a pause at some point in fact that the catch-up may exceed the present differential, where you actually move ahead of what LIBOR would be or what the Fed has done. So, while Bert is referring to a 98, some of the studies of MTA will show you that it will in fact maybe increase as much and ultimately be catch-up to a positive side as much as 10 to 20 more basis points.

Maybe then Bert, can you tell us what the annualized prepayment speed in the MTA portfolio was in the most recent quarter? Have you given any thought to modeling and what you would expect prepayment speeds in a specific portfolio to do if the MTA rate continues to price to the upside?

I (technical difficulty) have enough checking that we're comfortable with (technical difficulty).

We are kind of going around our finance discussion here as to whether we are all comfortable because we haven't previously published that, but I think our MTA is running up -- I will give you a range of what we anticipate MTAs generally to run for us -- somewhere between 15 to 20-ish area. But you must understand because we are adding on in an upfront position as these would reach as any 3-1 or 5-1 does, what happens is as you reach the point where there's more of a major adjustment, the 1.5 year before, there's a speed-up of prepayments. So, it will ultimately down the line probably have shown an average closer to 25. But, for quite some time, ours have been running somewhere in the 14 to 20-ish area.

Jim, that has held true for the last three quarters. Prepays were about level where they were last quarter. We didn't see a decrease this quarter. But as I mentioned, we've seen a general slowdown in the last three quarters. As Fred mentioned, over life, we were modeling it at a 25 CPR, but we've experienced between 50 and 20 the last couple quarters.

It should be also understood that we have a fairly large portion and a growing portion of our portfolio has in it prepayment fees. This of course discourages a rapid payoff period during the period, which generally is 3 years of those prepayment fee requirements. This allows us in a sense, which has been a positive for us, to recapture our cost of production so that our yields under the FASB rules go up and that certainly had an effect.

[Irwin Katz], Raymond James.

Nice to chat with you and congratulations on a nice quarter. My question relates to the fact that you are now expanding and opening branches up on the West Coast of Florida. As one who has lived in a number of places in Florida, the markets are different. Your micro-market strategy obviously is important and critical to the expansion here because the Manatee County and the Hillsborough County and I presume you will move into Pinellas County and maybe Pasco County. Those are different markets than Dade, Broward and Palm Beach County. How are you finding it to find locations and then the people that fit into that, are you having trouble finding people?

Well, the key is that we are exporting the same philosophy into those markets. We are not sending a Miami banker to Hillsborough County. We are not sending a Miami banker to Fort Myers or to Sarasota. We are hiring local, experienced bankers from those markets, who know a heck of a lot more about those markets than I will ever know. Then, we give them the authority and the autonomy for them to do what they have got to do to be successful in that market. Again, it's a very decentralized retail strategy and one of the things that we focused on as we started expanding out of South Florida was making sure that we maintain that decentralized management style.

One of the things I have heard from other bankers before you moved into the market is they are having a little bit of challenge in hiring people. From what I am hearing you say, you are not having that problem?

Well, it's difficult for us, like everybody else. But, we've been fortunate that our decentralized strategy, where we give our market presidents autonomy and authority plays right into the hand of the folks who are the real talented folks, who are willing to be left on their own and want to deliver the bank. As a consequence of that, the folks that we are attracting are folks, who are frustrated with the big bank model. Our market presidents have a lot more authority relative to their peers of other banks. So, that is something that has really helped us in terms of recruiting top talent.

Also, just for your area, and this is not a surprise to you to some degree that you will recollect that we once had a major institution throughout the state that I was involved in, that you used to be an investor in. We once upon a time sold it to Nation's Bank. We actually -- some of those branch managers from the old days have joined up with us. So, (multiple speakers) --

Yes, I know it. The manager in the Tampa branch came from there. I spoke to Linda recently. That is good. I do remember that other one, and you know, we'll just kind of hang in there with you guys and appreciate what you're doing.

Sal DiMartino, Bear Stearns.

Just three quick questions -- first, how much of your residential production is now coming from the satellite mortgage offices? Secondly, on the expenses, what is the -- I'm trying to get a feel for a real run rate on expenses. I'm thinking we should be backing out the 1.8 million related to the reclassified swap. The last question is, do you have a target capital ratio now that you have rebuilt capital? Thanks.

That's a lot of questions. Let me -- I think as a generality, about 60% of the residential loans are coming from in Florida. Total loans though would be a higher amount than that because we are producing a lot of other loans. So I would have to get you that number because I haven't gone through that particular number. Let me see, I hope I am missing one. You said the run rate of --

Capital --

The run rate of expenses. The tricky thing that has been about the run rate of expenses is that like everybody else, we have had to add on a lot of different areas of compliance spending, Sarbanes-Oxley, all this kind of stuff in the last year plus. We certainly had done some more expansion of those kinds of things through this period as we've been growing. So, that combined with the fact that we are doing the branches, I would like to think that on a number of things, we've had some additional infrastructure done this last year that has gotten to be better and better. So, we are trying to look down the road.

One is that while we will continue branch expansion, we expect not to be -- you know, when we started the branch expansion against 40 something branches, the amount you were expanding was quite a bit of an increase. Now, it's 71 today. If we continue on at the pace we've been doing, the basis is much larger. So, there should be a slowdown occurring there -- slowdown occurring and ultimately having built up the new compliance setups. To some degree, it's a slowdown in some of the general infrastructure expenses. Ramiro and the finance area have been doing a pretty good job of keeping tight reigns on these expenses. But, there will still be as we expand some continuation.

Now, with respect to the FASB-structured item, the net figure which we have mentioned was $900,000 something. The exact amount is shown in the press release. That net included some positive and then the 1.6 million negative. We expect to be looking to unwind or be out of the 1.6 million item sometime very shortly. Assuming that occurs, there will be clearly some benefits for this next period, but you won't have the positive part come in. So, the number you are looking at is generally the 900,000 and there might be a few $100,000 adjustment off of that. So, that would probably be the differential that you are looking for. Anyways, go ahead, Bert.

Just to help you with that, Fred is absolutely correct. That was a onetime event with maybe a modest impact when we actually unwind. But, recall the 914,000 is actually in non-interest income. So, that is a reduction of non-interest income, doesn't affect your expense run rate.

Now, as a target capital ratio, generally, we would like to be in the 5-ish area. There may be times that you slightly dip below that and other times that we expect to be above that.

John Pandtle, Raymond James.

I was hoping you could help me with some math here to make sure I'm looking at this correctly. Bert, if I look at the sequential quarter increase and interest income, it looked like it was up about 21 million. Then the negative amortization was up about 16.2 million. Does that imply that three quarters basically of the sequential quarter growth and interest income was non-cash in nature? Or am I looking at that incorrectly?

I think that's a component of it. I think you need to look at some of the other underlying items that have moved in the margin. We talked about some product development. We talked about the funding with our deposits. We talked about some other structural -- some other structural items that we did. So, the 16 would be buried in the base amount, yes.

The other question I had related to nonperforming loans, non accruals. I understand that the percentage -- the ratio has been stable the past couple of quarters. But, if we look at the dollar amount, I think it's up about 30% from September. Do you have a -- or can you disclose what kind of loans are driving that increase?

I'm sorry it's just --

NPAs, NPLs, nonperforming loans, non accruals up about 28% since September. What percentage of those are commercial? What percentage are option ARMs, etc.?

As we compare those to December, we are up 16% from December and we are actually down about 40% from March of last year. What is in there is mostly residential loans as we go through the cycle. I mean, the percentage of comparison is a little bit unfair because we are starting from an extremely low base. But, if you take it from that standpoint, most of it is just coming through the fact that we just have residential loans cycling through there. Sometimes, we have them out by the end of the quarter. Sometimes, they take a little bit more.

Generally, after the holidays, you tend to see a pickup -- being the March quarter, you tend to see a pickup in just loan delinquencies across the board. I think we've been pretty fortunate on one hand and very diligent on the other in making sure that this ratio and the loans themselves -- the loan level of nonperforming stays pretty low.

I would be careful using -- it's a little misleading using a percentage for those increases because the numbers that you are starting from are so low that any kind of dollar deviation is going to make it sound very big. You need to look at the actual dollars themselves, which are minuscule.

No, no, I understand. That's why I was saying the percentage has been stable and has been (multiple speakers) --

I would just take a look at --

I was just trying to understand what was behind the dollar amount of the increase.

It's nothing different really from any other particular period, and I think what's -- through hard work and I would like to think our underwriting standards -- my experience in the industry over the years though we've to some degree have been able to do somewhat better than the industry is generally I think you'll recollect that I used to be a principal of another major institution and also a principal of a major national mortgage banking operation. In those days, most of the time, you experienced a fairly good increase in delinquencies after the holidays. So, we were extremely satisfied with where we are at this point in terms of our delinquencies.

I guess back to the whole discussion about anticipating and having underwriting standards that we adhere to and that continue to develop those today somewhat tightening fashion as we've tried to anticipate over this last year that as the Fed would increase rates, it would make it tougher for some people out there to pay their debts and pay their mortgages. So, we like to think we've done the right thing. Clearly, some people have had perhaps a differing situation in the market.

But, we've stayed away from the idea that a lot of people had of doing 100% loans by lending, whether with this product or other products, also piggybacking on with credit lines and all sorts of other things. We've stayed away from a lot of that. We stayed away from the situation of being in a position to lending to people, who can ill afford what they are doing. We always have -- we've been making our loans to people based on fully-indexed adjustable rates so that we know that they are in a position to pay.

One of the things that is really good going forward but we almost anticipate there could be well some slowdown from the Feds, having raised rates as quickly as this, that nonetheless when we have done some views of where the MTA loan stands right now and the types of payment adjustments it has, there actually to some degree is less of a payment shock to the consumer and more preparation to be able to prepare for those changes as they go forward. So, we think this mortgage, which historically has performed extremely well for us, will perhaps even do better for us than the typical 3-1's and 5-1's that will reach rolls sometime possibly into the slowdown period. So, we are fairly optimistic about our entire delinquency situation.

A couple other quick questions. Bert, I don't know if you mentioned this earlier. I apologize if you did, but what was the basis point impact if you calculated it of prepayment penalties in the quarter for the margin?

Prepaid penalties themselves were about 3 or 4 basis points (multiple speakers).

Then, Fred, I would like to get your thoughts on the announcement that Downey made in their press release this morning regarding option ARMs. They're -- it sounds like significantly increasing the start rates because they are starting to get concerned about the credit risk of the product in a rising rate environment. I guess they've been in that product since the '80s, and I just didn't know if you saw that and kind of what your thoughts were? Is it a different market, etc.?

Well, we've done a lot of modeling and our figures have had some increase in starts, and we've done other things relating to them. I can't speak specifically to Downey because I don't really know their entire portfolio. They to some degree -- and again, I'm not as totally familiar with them -- but they seem to be a very large, one of the major sellers I think into the market of products in general, probably more in the nature of mortgage banking set-up. So, they probably have been producing all sorts of products, and it's more difficult for me to relate that to the situation of what does that mean in terms of perhaps things where they retain servicing, I mean so forth so that may affect them down the road.

From my viewpoint, I believe that the overall rates in the market as start rates will steadily and have begun doing so increase somewhat and I think that's a good thing that that happens. As was mentioned earlier or were probably somewhere in the middle, we expect some further increases in those start rates to be occurring as we go forward. What is interesting about the modeling of the product though is that even based on an increase in the start rates, it's a better paying product for the consumer. At the same time, whether at that or even the lower figure, there is less ultimate shock in terms of how the market develops in some of the prior 3-1, 5-1, and particular 1-1 situations.

So, again, I haven't seen their announcement. That may also relate to some of the interest-only situations. I mean there's a lot of things going on. There's a lot of products out there. Some of the underwriting that we have seen by others without mentioning names, it is my belief that that was of somewhat risky circumstances and set up the borrower to perhaps fail or certainly have a problem against their either credit situation or their ability to actually produce cash. Up until recently, some major institutions underwrote based upon not the fully adjusted rate but based upon the start rate. That to me is a serious question as to what the delinquency rates ultimately will be on those kinds of products. Without knowing exactly what their files look like, that particular item to me is a very important one.

[Donald Give], Private Investor.

I've been a long-time investor, since 1998, and I've seen a lot of things happen and I've never seen anything quite as spectacular as what you have been able to report today. This is quite interesting. My question has to do with the shareholders like myself, the non-institutional shareholders. How do shareholders such as myself fit into your business planning or business strategy? Do you have any thought to rewarding shareholders?

I don't know if you mean in terms of dividends or (multiple speakers) --

No, no, no. Well, that would be one way, but I'm focused more on the value of the shares in the public marketplace. Other than today, the share price has been pretty flat for the last couple of years. Of course, having started investing in 1998, I've seen up and I've seen down and so forth. So I am a fairly seasoned investor, and I expect this kind of thing. But, when I see a long flat spot, like a couple years, while the business is really growing, I begin to wonder, do the shareholders -- and I realize that the institutions own the biggest part of the shares so that's probably a different mindset than private shareholders such as myself. But, what are your thoughts on the value of the shares--?

Well, I would be happy to answer that. Over the last 5-year period, I believe you will find that we have had a fairly sharp increase, generally if I recollect the last time I had seen a model relatively above some of the indexes. A lot has happened in the markets over these last 4 years certainly. But, with respect to us in particular, there's no question that we made some decisions last year that needed to reposition the balance sheet, which put us in a circumstance that I believe and I believe what the market really was asking us for when investors and our analysts and so forth really have to say to us is, okay, you did this last year. Now, you've got to sort of reprove yourself. I set out and I said that in the September call as well as December call and again, that that is our goal; that is our intent is in a sense to reprove ourselves because we knew we had to make some changes. We knew we had to reposition ourselves in a number of ways, and those resulted in internal situations in terms of sort of rededicating what people did in the management team and the directions we were going in as well as making clear financial decisions to better improve our circumstances.

Over certainly a period of time if you look at it, if we were back approximately 4 or so years ago, we were actually in this I believe around 14 or $15 a share. I don't know what we are right now at this moment. I haven't gone and popped out on the machine.

$188.83.

But my circumstances are --

You are up about a little over 7% on the day.

Our circumstances are that while that's pretty good, I feel bad that this last 1.5 year, while it has had its ups and downs and certainly rising interest rates have hit some bank stocks more than other stocks. But, we also took clear moves to reposition ourselves and we're reproving ourselves. We've got to prove ourselves to everybody that has been on this call today and to a lot of our institutional investors that we're going to accomplish what we want to and that is to be by far, not only the number one franchise in this state but the best franchise in this state and to continue to build on what we have accomplished.

We've got a lot going for us now. We think there are a lot of positives. We managed to beat a lot of headwind this quarter, not only in interest rate increases but FASB rules. It's amazing how much you have had to spend in the numbers of millions of dollars in the last several years and all sorts of new compliance rules and SEC rules and etc. You know, as a giant company, people overcome that a little more readily than they overcome it when you are our size and growing rapidly. So, all of this we have had to take care of, and I'm very optimistic right now that we will keep proving ourselves to the market.

So, I hope that helps you as an individual investor and I think some of the investors I've talked to out there -- some of our institutional investors really feel good about us now. They feel we are headed in the right direction. They are actually very, very comfortable with our mortgage products. But, I realize there are others that still need to be convinced, and we are about to pop in on some more roadshows. I will be on this next one coming up. Bert is out on some more shortly as well. We're going to keep out there, getting the message out so that people get more and more comfortable with us. I hope that then results that you make more money. Because you know, if you make more money, I make a lot more money since I'm the largest stockholder.

Thanks, that escaped my attention.

Okay, I think we had -- perhaps one other question coming up. Two more people said say they would like to ask questions. I think that would be two more and then that will be it.

Al Savastano, Janney Montgomery Scott.

I think most of my questions have been answered after 90 minutes. Thanks.

Jennifer Thompson, Oppenheimer.

I will be very brief. I just want -- I think this is an important point, just to be clear on what you guys were saying in terms of the potential impact of the MTA catch-up adjustment. Basically, you are saying if there was a pause and let's say the 98 basis points or let's say, let's just use 1% -- 100 basis points impact would be applied to the $5.3 billion portfolio. That would be the impact to annualize net interest income. Is that right?

Over a period of time. If you simply said the Fed stopped tomorrow and they stopped for I would say about three meetings or so -- I would have to get the exact number of meetings -- we would probably have somewhere between I'm going to call this because it varies on the index -- somewhere between an 85 and 110 catch-up.

Right, so the 5.3 billion portfolio.

Well, at that time, it will probably be more than (multiple speakers)

Or whatever it is (multiple speakers)

More than 1 billion, but I'm not supposed to say those things, mind you. [Porter] is Investor Relations person is right here, and I'm not allowed to say that. But I would expect the portfolio to be larger than that and --

But, if it was 53 -- the 5.3, then the impact would be 53 million over some period of time?

(multiple speakers) with somewhere between 85 to -- I would believe somewhere between 85 to 110. It depends on where the forward yield curve is at some point during that period because that would affect the ultimate determination of where the actual LIBOR stood versus the MTA. So, it's not a precise catch-up. But as I mentioned while it may not catch-up totally, we are at 98 separation right now against LIBOR. On the other hand, in other time periods, it in fact has more than caught up; it has exceeded that. We could go back to one of these situations, where the MTA actually runs higher than LIBOR. There are a number of instances that's occurred. So that's why I'd say as a general range and you will have to pick your number, it's probably about 85 to 100 or so.

Jennifer, as Fred mentioned, it's not precise. The other pieces that are moving on the balance sheet that would occur is much the same way as other banks, we lag our deposit rates. So, we still have a little bit of pressure from deposit rates catching up to a slowdown or a stop to the interest rate scenario. So, there is a couple of moving parts. But, in general, we do expect to see a big portion of that coming back into income.

Right. I think in the past, you have said maybe that would take 6 to 9 months for the full catch-up to occur. Does that sound reasonable?

Yes. It's running about -- it varies. Some months, it runs 12 to 14. But, there have been other months when it has run 16 to 18. So, on an average, you could probably -- if you were trying to model something, you could probably pick 14 to 15 as the average.

Months for it to fully catch-up?

Yes, per month.

I think that's it. I appreciate everyone being involved in the call today. All I can say is that I really thank our management team and all of our associates and employees. Everybody has worked so hard to continuing forward with our strategic plans with our desire to create a better bank out in the market for our customers to continue to improve in that regard. We're not done. We've got a lot more to do. We still feel there are opportunities to improve all across the board. There always is. We think there are more opportunities even to improve our margin, which I know a lot of people have been viewing. But, a lot of hard work has gone into everything that we've done this past quarter and really the several last quarters, a lot of hard work. I think everybody is up at keeping it going, and we appreciate all of you being involved. We look forward to some more good times. Thank you very much.

This concludes today's conference call. You may now disconnect.