WaFd Inc (WAFDP) 2006 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. And welcome to First Mutual Bancshares first quarter earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Mr. John Valaas, President and CEO of First Mutual Bank.

Please go ahead, sir.

Thank you, Michael. Good morning, everybody.

Also with me today, I have Roger Mandery, our Chief Financial Officer; Scott Harlan, Executive Vice President and Head of Consumer and Residential Lending; and [Charles Smith], Vice President and Financial Analyst.

I'll begin by reading a forward-looking statements disclaimer.

This presentation may include some statements regarding the Company's trends, objectives, anticipated growth, credit quality and other expectations which will be forward-looking statements for the purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from those expressed or implied in this presentation. Additional information concerning the risks and uncertainties are discussed from time to time in filings made by the company with the Securities and Exchange Commission. These risks and uncertainties should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements. The Company does not have any obligation to update any such forward-looking statements.

I'm going to spend a little more time than I typically do in a quarterly conference call, talking about some of the highlights of our first quarter.

First of all, earnings per share were up 6% and on a pro forma basis, adjusting for stock option expense -- kind of apples-to-apples to first quarter a year ago -- up 11%. So up 6% over a year ago, or on a pro forma basis, adjusting for stock option expense -- which is about $135,000 pretax in the first quarter of this year -- up about 11%.

Excellent credit quality -- our nonperforming assets were at 5 basis points at the end of the quarter. I think that reflects the trends that have been true. In most of the bank reports you've probably seen, everybody's reporting pretty good credit quality.

We had $340,000 recovery on a residential loan during the quarter -- $171,000 recovery of a previously taken impairment charge, $125,000 applied to outstanding principal and a $44,000 reimbursement of legal fees. And as a result of that, had a $71,000 loan-loss provision for the quarter, keeping our loan-loss reserves as a percentage of gross loans at 1.13%; same as it was at the end of December and about the same as it's been for the last 12 months or 18 months - time immemorial.

Assets declined modestly by $1 million from year end. We had modest growth in loans, about $3.5 million; modest decline in securities, about $4.5 million. And yet loan originations were up slightly, sequentially, at $121 million for the first quarter.

We have taken the view that we're currently better off selling more of our sales finance loan production -- virtually all of it, in fact -- and other loans from time to time, and focusing a little less on asset growth and a little more on fee income. That gives us current gain on sale income, as well as building a nice servicing asset, which will give us future servicing fee income.

Secondly, by moderating asset growth but continuing to focus on growing earnings per share, we've been better able to focus on changing our deposit mix, rather than entering into what is currently a rather desperate race for retail deposits, certainly in our market.

And just as kind of a marker of progress in that respect, I'd point out that CDs were 59% of our retail deposits -- talking retail deposits, not including broker deposits -- at the end of the first quarter, down from 62% at the year end '05 and down from 75% of retail deposits five years ago. And I'm focusing on retail deposits, because that's where we're really trying to shift our funding mix. We use brokered CDs and PHLB advances interchangeably. And as we pointed out in our press release, currently brokered CDs are a little more attractive, because they currently are running about 15 basis points or so less than PHLB advances for similar maturities typically of a one-year maturity.

We're very pleased with that shift in mix, and also the fact that in the past 12 months year-over-year, our core deposits grew 19%. Business checking balances grew by 27%. And just as an ancillary note, deposit fee income during that same 12-month period increased by 34%.

So our focus is to continue to grow our loan originations -- little less focus on growing assets via selective loan sales, and being very focused, very focused, on changing our funding mix. And we think we've made a lot of progress in that respect.

So we had a good quarter. Like to just close by talking a little bit about the local economy; it is very strong. Microsoft has indicated that they are going to add 10,000 to 12,000 jobs over the next two to three years. That was a number they'd previously been targeting for the next 10 to 15 years. So they have accelerated their hiring significantly.

They're adding seven new buildings on their campus in Redmond, which is just 10 miles away or so from us here; and leasing or buying seven more -- so a total of 14 new buildings on that campus -- tremendous growth there.

And of course, the Boeing 787 program in particular is doing extremely well and adding a number of jobs, not in the size range that Microsoft contemplates over the next few years, but certainly very good growth at Boeing; particularly North King County and South Snohomish County, as well as the ancillary firms that come in to supply Boeing with their various parts and assemblies.

So the economy here is doing very well. Office vacancies are low. Apartment rents are starting to creep up a little bit. The housing market continues to do well. So we think we're really situated in just a terrific environment.

I'll conclude my remarks with that and open the call to questions, Michael.

[Operator Instructions] Matthew Clark, KBW. Please go ahead, sir.

Good morning, guys.

Morning, Matthew.

Good morning, Matt.

Couple questions -- can you just touch on the competition in Bellevue? Obviously you have a couple new players there, with Capital and Frontier on the business banking side -- new group there, in Umpqua. Can you just talk about kind of what their -- what kind of business they're getting? Where are they gaining traction, where are you beating them to the punch, both on the loan and deposit side; and maybe specific products?

Well, in terms of the general competitive enrollment -- as I mentioned earlier, the -- let's focus on the deposit side first. It's been, really, just red-hot competitive over the last six months or so, on the -- on the deposit side, particularly in the CD market -- one of the reasons why we're kind of leery of what's going on there. And we're seeing some local institutions paying right at about PHLB borrowing rates for market-rate retail CDs. We kind of look at PHLB borrowings as essentially cost-freeing. If you're paying the PHLB rate for retail deposits, you've got [capacitor] banking system in there. So it's an extremely aggressive and very costly CD market right now.

There's always that competition for really the mother load, which is the -- are the business checking and transaction accounts, both in very small businesses -- what we call community business segment -- as well as business banking.

And in terms of the new competition in the market now shifting to the asset side of the balance sheet, a couple of the new banks in Bellevue -- we don't -- we haven't really run across them. They've -- I know they've brought some business in that have come along -- has come along with loan officers that have transferred over to those banks.

Some of the other moves of business banking lending teams to some of our other local competitors really is just the question of transferring relationships to the extent they're moving from one bank to another. We haven't seen a lot of head-on competition from those. But there's no question it's out there. There's no question in my mind this industry is currently overcapitalized. It's incredibly easy to go out and start a new bank -- I'm overstating it a little bit -- but very easy to go out and start a new bank and raise $20 million in [equity].

We know that in addition to the two in Bellevue alone that started last year, we had another one in Seattle that started about 18 months ago, another new one that's starting in Seattle -- it's opening up, I believe, in May -- and rumors of yet another one that's starting in Seattle that's in organization stages right now.

So capital seems to be flowing to the business. And of course, that means that those new banks have got to redeploy that capital. So it is competitive. It's competitive on margins, on loans, and certainly competitive on deposits.

And does that answer your question, Matthew?

Yes, it does.

Maybe a little bit on the -- on the CD side, though -- do you see, in yourselves included, people starting to shorten up a little bit on the duration, on the CD side?

I might turn that over to Scott Harlan, who chairs our pricing committee and focuses on the CD markets week to week. Scott, do you have a response on that?

I would say, to some extent, we tend to be -- and I've noticed this amongst the competition as well -- tend to be more competitive at a year and less. And that's -- I think we're seeing more deposit balances flow into CD terms between six and 12 months as opposed to beyond that. But not a huge shift from a year ago, frankly.

I did -- this is John again -- I did hear earlier this morning, one local competitor that has been extremely aggressive on their CDs in -- I think it was 5% at a nine-month.

Yes, that's -- I can confirm that. Okay.

And then, on the sales finance side, can you just talk about what kind of application volume you're seeing per month, and your approval rates -- whether or not -- how they're trending, I guess, more recently?

Yes, this is Scott again.

Application volumes are looking very, very, very much like they did last year, same time last year. It's a very seasonal business, as you can expect with home improvements. But the application volume and approval volume is something that we track very closely, as you can expect with that much activity. And it -- in short, it looks very much like last year does. Approval rates are, again, very similar to what they had been in the past -- about -- between 60 and 65% approval rate. Typically, the [pulser] rate on approved loans is about half of that. So we typically will close between 30 and 35% of the applications we take in.

Okay, great. Thanks, guys.

Louis Feldman of Hoefer & Arnett.

Good morning.

Good morning.

Morning, Lou.

Notice something in the -- in your mini-MD&A that intrigued me. In terms of your margin and the overall declining balance in your investment property portfolio -- down to 31% -- and the reference that some of -- there was a lot of refinancing to fixed rates, which is moving away from you. To what extent are prepayment penalties boosting the margin within that? And if that's so, when that starts to tail off, can we see a decline in the margin?

Lou, I'll give you some comments, and then I might turn to Roger for a little color-commentator work on this.

But generally, the loans -- the income property loans that have been prepaying our older portfolio loans -- the one-year adjustable loans -- and those typically have never had a prepayment penalty. So we haven't seen, I would say, a significant amount of prepayment income from those income property loans that are -- that have been prepaying. The newer loans that we're doing in income property do tend to have prepayment penalties. And of course, we haven't been seeing any prepayment activity from those.

But, Roger, you want to add anything?

Yes, hi, Lou, this is Roger.

I think we may have talked about it in previous quarters' MD&As regarding prepayment penalties. Because it has been kind of strong for the last few years, and quite frankly surprised us a little bit. But a big piece of that is [DMP] from our residential portfolio, in particular [custom] construction loans, where we had extensions, where the properties didn't get completed in the time that everyone thought they would be completed. So there's a little extension fee that goes along for adding another 60, 90 days, or something like that, to the construction period. So a big piece of our prepayment has come from that activity.

Okay.

And then, Roger or Scott, I guess, you talk in the MD&A about checking balances being up. What is your average business checking balance at this point in time?

Lou, we don't have a number for that. I can't give you that.

Okay. You talk about these balances being up. But if we don't have a base number to -- a number to base it on, it's hard for us to examine that and say, okay, yes, they are growing up.

Well, they're up about -- in terms of dollar amounts, they're up about, what, 27% or so from a year ago.

Again, without the numbers, that's just you giving us a piece of information.

Okay.

It's good information.

Okay. I'll step back at this point.

[Sara Hasan], McAdams Wright Ragan.

Hi, guys.

Hi.

Hi, Sara, how you doing?

Good. How are you?

Good.

Good.

You mentioned that your commercial real estate loan growth didn't follow the seasonal trend the way that you'd expected. I was wondering what's different now, relative to last year.

Hi, Sara, this is Roger.

We commented on the trend there. Typically, in the first quarter, we've seen the income property area do a lot of [regionation] -- [variably] strong in its origination activity. And for a number of the reasons that John commented on earlier, we just -- we have not seen that level of activity. Competition has been strong. The yield curve has been flat. And we tend to be an adjust-per-rate lender and so we're less attractive, and less [interested] in fixed-rate loans over longer periods of time. So probably a lot of the activity that would have come to us in normal years has gone to the competition.

That whole process has led us to believe that the income property portfolio, the commercial real estate portfolio, will be flat to down throughout the year. And that's a little different than what we've seen in the past. So --

Okay, good.

-- John, you want to --

Sara, I'd just add a couple comments on that.

The cap rates on commercial real estate are just astoundingly low. And we're looking at a deal -- and so we've tended to be fairly picky about the stuff that we want to put in our portfolio. We were looking at a deal the other day for a customer with whom we've had a long relationship; a very good customer. And they were looking at a multifamily building on Capitol Hill -- Sara, you'll know where that is. For the rest of you, that's close into downtown Seattle, just on the hill above downtown Seattle, above I-5. And he was looking at acquiring a property for sale that would have been a 3.5% cap rate.

And we had -- we struggled -- we just really can't make a loan that gives somebody a loan to value that they expect as a borrower at cap rates like that. So we've tended to pull back from any permanent loans, in addition to the factors that Roger mentioned about the attraction of the longer term, particularly the 10-year fixed-rate loans that the conduits and some other lenders in this marketplace are offering.

In this particular case, we could have done a deal that would have helped the borrowers by aggregating that with some other properties that he owns. But in the final analysis, we decided not to pursue it, partly driven by the cap rate issue, from the point of view of the purchaser. But cap rates are so low that we have been a little more cautious, and have been for the last 18 months, 24 months, in terms of the kind of loans that we want to put on our book.

So some of it was just a conscious decision by you?

Some of it's a conscious decision. But a lot of it is, frankly, the shape of the yield curve and that attraction of that 10-year fixed-rate product, which we can broker out and do. But it does not end up on our book.

Okay.

And then, is your stock-based comp guidance still $0.11 for the full year? I might have missed that.

I'm sorry -- what was the question?

On the stock-based comp, is your guidance still $0.11 for the full year?

Oh, on the option expense?

Yes.

Hi, Sara, this is Roger.

It appears that the option expense is not going to be as onerous as we originally thought. And certainly in first quarter, net tax, it was $0.01 per diluted share. So that's certainly very encouraging.

Okay. Thank you.

[Bill Desellum, Titan Capital Management].

Thank you. We had a couple of questions.

First of all, the comment in the MD&A about the low-doc residential sale not happening -- would you please walk us through kind of what the dynamics were there, and to what degree you believe that might happen in the second quarter?

And then the second question is relative to the first quarter consumer loan charge-offs being up due to the bankruptcy. Where do you think that we are at in that bankruptcy process? And just interested in your perspective there, please.

This is Scott.

I'd answer the second question first. We are clearly at the tail end. I think you've seen the tables on the sales finance section. There were, actually, surprisingly few charge-offs in the fourth quarter, which -- as most people know, the bankruptcy law took effect in October. And most of those kind of worked their way through the system. And you see that increase in the first quarter, as well as the increase in amount of claims filed with the insurers. And without any specific knowledge about what's going to happen this quarter, it's my observation of the trend is that we're at the tail end of dealing with that burst of activity.

On the first -- on the second -- or first question, on the low-doc sale, we were originally -- the pool that we were talking about there was extremely small, as these things go. And I think it was in the $3 million, $3.5 million, $4 million range. And while -- and it's really hard to get a lot of people interested in kind of a different kind of a product at that range. It just takes a lot of time and energy to get people educated on it. And so there wasn't a lot of interest in it, just from a size point-of-view.

And then, towards the end of sort of the process of trying to sell it, we had two or three significant payoffs, in terms of the size of the loans in the pools, dropping the size of the pool even further. So it just became one of those things where the size just didn't make it economically worthwhile for anybody to take a real serious look at it.

And therefore, presumably, that's not something that would circle back in the next quarter or two, just given that it was a size issue. That's now off the table.

Absolutely. And if it was on the table, the overall dollars we're talking about are so small that it would not be a significant event.

Thank you.

Ross Haberman, Haberman Funds.

Morning, gentlemen. How are you?

Morning, Ross.

Morning, Ross.

You're perky, Ross.

Yes, it's early. Earlier for you, though.

Could you go over -- you mentioned you were redoing your offices in the last quarter or so. Is that complete now? And would you attribute some of your core deposit growth, which I commend you on, as part of that upgrade?

Well, we'd like to attribute some of our core deposit growth to that. And I'm sure some of it is attributable to that, but probably not a lot. More, it's a question just marketing and focus, particularly on the business banking segment and the community business segment, as well as a lot of work that's being done by the people in our banking centers on the consumer or the retail side.

But to answer your question about where we are in remodeling -- pretty much done with the world headquarters building, as we call it here. And -- well, that is virtually finished in Bellevue. And then in the course of last year, we completed the remodeling of, I think it was four of our older banking centers, including the complete demolition and reconstruction of one of them in Bellevue. It's our third office in Bellevue, at about six miles to the east of the downtown core, where we are. And so now, all our banking centers are what I'll call the new-and-improved version. They just look terrific and updated, and have been brought into the 21st century.

In terms of what's coming, the last remaining one of our older banking centers is in West Seattle. That was a storefront location. We expect to move into a new facility, standalone facility, in West Seattle at mid-May or end of May of this year. So that will be another facility. And the last facility this year is scheduled to come on-line.

We have a 13th branch location, north of us here in Bellevue, up in a community called Bothell. It's an outstanding location. We have the permit. We're [offered bid] and expect that to open in January of next year. So that is what is coming up. But in terms of finishing -- yes, we're pretty much done.

I don't know -- Roger, you want to add anything?

I was just going to add a comment on the operating costs, Ross. Operating cost the first quarter of last year was roughly $340,000. Then it jumped to about $510,000 in fourth quarter, when all of the buildings were completed -- largely completed, and depreciation expense started. And that was pretty much flat in the first quarter of this year.

And as John pointed out, we're down to one more facility, and that's the new West Seattle office, later on this year. And that will add another $15,000 to $20,000 depreciation expense. So --

Per quarter.

Per quarter, yes, per quarter. So --

Just two other quick questions -- the reason for you for continuing to sell all of your production on the home-improvement loans, could you give us your rationale there? And how tied is it to your expectation of loan deterioration in that category?

Yes. In the case of our sales finance loans, the spreads that we get on the sale of those loans is extremely attractive. The yield is around 10.5% -- somewhere in that range -- is the average yield on that portfolio. So we're able to sell those with big spread. So it would pick up big gains up front. And then on top of that, the ongoing servicing fee income is somewhere around 260 basis points. So it's a good little book of business for us to sell loans there.

We've also been a little more interested here lately, because the pricing on the loan is tied to roughly the five-year federal home-loan bank rate, or the five-year LIBOR rate. And -- however, our cost of money, as you know, is a whole lot shorter than that. So we've had a little squeeze on the margin in that business line.

So we're able to kind of go to plan B, which is to sell these loans, take them off the books, improve our little capital position a little bit, still get -- or still obtain very good gains up front on these sales, and then the ongoing servicing fee income, which is extremely attractive.

So as we kind of stepped back and looked at it, we thought maybe now was a better time to sell. There seems to be, so far, a lot of interest from other institutional people that want to buy this product. So at this point in time, it's working out very well for us.

I was just -- I was just curious, because I -- I want to say a quarter or two ago, I seemed to recollect that you said you wanted to keep them because of the high yields. And so that's what I was trying to understand a little better.

We're opportunistic [inaudible] --

Okay. I'm glad you -- I'm glad you're flexible.

Just one other thing, Roger -- you threw out the prediction that your margin's going to drop, I guess, the next quarter or two, and then bounce back in the fourth quarter. If you're -- if you're successful with bringing on these core deposits, are you really factoring in that element into that projection?

Yes, that's included in there. The change in mix is kind of glacial. And so if we pick up 1 or 2 percentage points in a quarter in our mix, you know, that's been a pretty good quarter. So it's a big -- it's a big number in terms of dollars. But in terms of impacting our margin, it's kind of slow. And that has been factored in. And quite frankly, we're assuming that we'll continue to make good progress in that area. And that will -- that will help to restore the margin in the fourth quarter.

Okay, thanks. The best of luck. We'll see you in two weeks.

Look forward to it.

[Jim Bradshaw, of DA Davidson].

Good morning.

Morning, Jim.

Morning, Jim.

Can you talk about the appetite for the sales finance loans? Is there more or less appetites for the insured or uninsured product?

Threw me a curve ball at the end there; I have to think -- obviously, the bank that purchase portfolios of sales finance loans find a lot of value in the [insurance] -- in the loans that are insured, because of the -- stating the obvious -- because of the insured aspect of that. But the -- on the other hand, the loans that are not insured have a -- as consumer loans go -- a very high average credit score.

So it's kind of not a -- not a lot of it -- more interest on one side or the other. On one side, they like the high credit scores. And on the other side, they like the guarantee that the insurance provides.

Jim, I don't know if you were asking do we sell insured pools separately from uninsured pools. And what we sell -- maybe this was not your question -- but what we sell is essentially a mix of our current flow, which is a mix of both insured and uninsured.

Correct, yes.

Maybe it's hard to characterize, but how different is the gain from each product that you all book?

I haven't done the math on that. Because as John points out, when we -- when we do a -- when we create pools in a -- in a month or a quarter, they reflect a cross section of everything that we're doing, so that we don't end up with any unintended consequences of adverse selection, either on our books or on the - for the portfolios that the banks purchase. So we haven't done the calculation one side versus the other, frankly.

Okay, fair enough.

The second thing for me is, on your world headquarters, what's the leasing activity like on the -- on the space that was available?

I won't characterize it with specific numbers. But I will say we have signed several leases recently. We are getting good interest. And Jim, you're up here from time to time. You may be aware that -- I know this maybe sounds trivial, but it's not -- but the city of Bellevue, which was located -- their City Hall was located across the freeway from us -- moved into their new building, which is immediately behind us now -- oh, probably a month ago. And that, along [with] the move -- the spin-off of Symmetra from Safeco about a year ago. And their move -- I think it was last July into downtown Bellevue -- has really filled up downtown Bellevue.

So currently, office space -- even Class C office space, like we offer -- there's a lot of interest in space here in Bellevue. So we're feeling fairly optimistic about the lease [up].

[Trade more] government workers and attorneys in your building, huh?

Yes. We figure government workers, attorneys and probably bail-bondsmen, because they also moved the jail over here.

Lovely.

And then -- maybe I won't come visit you guys as much anymore. Last thing for me is -- and hopefully, you can answer it -- what's the yield on the income property loans that's coming off, compared to sort of where the current market is? How would you characterize the difference there?

Not good.

Yes. More than 200 basis points?

I won't -- well, I won't be real specific. But generally, as you're aware I'm sure, Jim, there's margin compression going on right now -- not margin compression; wrong phrase -- but a reduction in margins on perm loans for things like income property, whether it's owner-occupied, or just your typical classical income property. And we historically used to look at margins of 3 and a quarter to 3 and a half. We're just not seeing those anymore.

So it's -- in a slightly evasive, roundabout way of answering your question -- I can't give you the yields off the top of my head -- but we're not -- we're seeing margins below 300 basis points today in that market. And other lenders in this market have been extremely aggressive with those levels below 300 basis points in terms of margin. And frankly, it's -- one of the reasons why that portfolio for us is declining is that we tend to focus on what we view are niche products in niche marketplaces. And that product, rightly or wrongly, is in the -- in the eyes of the market, has really turned into a commodity. People are treating it -- all sorts of income property, whether it's multifamily or a strip shopping center or a mini-storage facility, they're treating it like a residential loan.

And at those low rates, the duration's probably stretching out, too, huh?

I would expect.

OK, perfect. Appreciate it.

Thanks for your time.

[Thank you].

[Operator Instructions] Louis Feldman.

Yes.

Scott, can you -- can you talk about what your credit experience in the sales finance portfolio is? Just looking at the chart -- despite what you were claiming in previous quarters as more stringent underwriting standards, the charge-offs in Q1 went up, certainly on the percentage basis; and -- while the delinquent loans were down. What is changing, or what are you seeing there?

Two words -- the bankruptcy law.

Okay.

We are not seeing any deterioration in the overall credit volume portfolio, when you look at it historically in terms of delinquency, [most] 30, 60 and 90. But we just -- like every other consumer lender out there, had the -- the effect of the bankruptcy law hit us in fourth and first quarters.

So as I mentally picture the delinquency charts -- and we track them by our own portfolio and investor portfolios, and every single slice of the portfolio that would be material, I can say that there's not a -- there's not a decline in that. There's not an adverse trend that I'm -- that we're seeing in that portfolio.

Lou, I would just add a comment to that.

It's my understanding that if people got their initial paperwork in before the law expired in October, then they would be eligible for the more favorable treatment before the change in the bankruptcy laws.

Yes.

And so they got the application in. Then it's taken awhile for all of that to actually wind through the court, because all the courts were slammed with that. So we've seen this sort of unwinding process of all the folks that were still stacked up. And I think it's -- I think we're taking the assumption that after six months, most of that surely has worked its way through the system. And so whatever the losses are going to be in second or third and fourth quarter of this year would be whatever the normal run rate is.

Okay.

And then second, on the 2002-2003 pool, and the necessity to bring on the secondary insurance -- because you'd maxed out -- are you expecting a similar situation for the '03-'04 portfolio, possibly?

Possibly, certainly. I don't -- I think it's too early to tell on that pool. But it's something we're keeping an eye on.

Okay.

And then, I guess, you know, while Jim's been around a long time, I am, I guess, kind of the old man on this, having been on this call, or following the name longer.

John, can you comment on the overall expansion of the efficiency ratio? Back when I first started paying attention to you, it was in the low 50s. And while you talk about depreciation expense being the significant portion of that, there was an article that talked about the fact that overall bank efficiency ratios have been trending up, as expenses continue to rise. Can you comment on that, and what you see as your objectives for getting that under control over the next few quarters?

Sure.

As you pointed out, the added depreciation expense -- and Roger commented on that earlier in the call -- started to hit last year. That has driven the efficiency ratio up somewhat. We essentially, about three years ago, started -- although we've been in business banking now for -- we've been in business banking now for seven, eight years -- really started to ramp that up about three or four years ago. And we added some fairly expensive staffing, very good staff, to that business line. And by the way, they are doing extremely well. We're very, very pleased with the growth in business banking. But it doesn't come cheaply, and it takes awhile to build your assets there. So that has, I would say, been one of the primary drivers on the staffing expense side.

Where do we want to go, and what's our target? Well, if you throw out the insurance -- our credit insurance charges, as we pointed out in the release, we're at about 60% -- would nice to be hovering more in the high 50s. I don't think we're ever going to be lower than the high 50s.

We are currently doing a number of things internally to cut our expenses during the course of this year. We had some realignments a few weeks ago. Some of our organization eliminated three or four positions -- four positions, I guess -- which sounds small, but in the context of 240 employees is not really small -- and have curtailed the use of temporary office help.

So we're looking at all sorts of means to save a dollar here and there. Primarily, though, I think you'll see less growth in the rate of growth of expenses, especially with facilities, with the exception of adding that new West Seattle facility here in May.

OK.

All righty. Thank you.

Management, there do not appear to be any further questions at this time. Please continue with any closing comments.

All right.

Thank you all for listening in. We look forward to talking to you next quarter.

All right, thank you.

Ladies and gentlemen, this does conclude the First Mutual Bancshares first quarter earnings Conference Call. You may now disconnect.

Thank you for using ACT Teleconferencing. Have a very pleasant day.