Webster Financial Corp (WBS) 2003 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen.

And welcome to the Webster Financial Corporation's first quarter conference call.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question and answer session, and instructions will follow at that time.

If anyone should require assistance during the call, please press the star, followed by the zero on your touch tone phone.

As a reminder, ladies and gentlemen, this conference is being recorded.

Also, this presentation includes forward-looking statements within the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995, with respect to Webster's financial condition, results of operations, business and financial performance.

Webster has based these forward-looking statements on current expectations and projections about future events.

These forward-looking statements are subject to risks, uncertainties, and assumptions as described in Webster's financial public filings with the Security and Exchange Commission, which could cause future results in differing -- differ materially from historical performance or future expectations.

I would now like to introduce your host for today's conference Mr. James C. Smith, chairman and Chief Executive Officer.

Please ahead, sir.

Good afternoon.

Welcome to Webster's earnings call.

Joining me today are Bill Bromage president, our Chief Financial Officer, Bill Healy, and Terry Mangan, Investor Relations who recently joined us from J.P.

Morgan Chase.

Other officers are also here to respond to questions.

We expect our formal remarks will take about 20 to 25 minutes and we look forward to your questions and comments.

Webster is successfully implementing the strategic plan for growth we initiated in 2001 and today I'm pleased to review with you the progress carried over from last year and propels us toward our goals.

Our strategic plan is geared to four primary objectives to grow loans and deposits faster than the market, complete the transformation of the balance sheet to commercial bank profile in terms of the loan and deposit mix, increase income from fee-based services, and make strategic acquisitions that broaden and deepen our product lines.

Each of these objectives is pursued in the context of discipline risk management and expense control.

Bill Healy will comment about the particulars of our progress during the first quarter against each of these objectives, but I will briefly summarize the highlights.

Webster's average earning assets grew by 16% from a year ago and loans grew 19% in part due to the acquisition of Whitehall, our asset based lending subsidiary in August of 2002.

This asset growth helped to offset net interest margin compression of about 20 basis points over the past year and contributed to 8% growth in net interest income.

Stable earnings combined with a 7% decline in shares outstanding boosted diluted earnings on a per share basis by 8% year over year.

Return on equity was 15.2% in the quarter and cash return equity was 16.2%, these comparsions to last year excluded $7.3m in aftertax transition cost in the '02 period that related to FAS-142 for good will and other intangible assets.

Looking at the balance sheet, our goal is for commercial, including commercial real estate loans and consumer loans to comprise 75% of total loans by 2006.

We've made considerable progress toward that goal, as commercial and consumer loans now account for 57% of the total loan portfolio, up from 50% a year ago.

Recent growth has been led by our expanded consumer finance origination network and on the commercial side by our asset based lending and equipment financed capabilities.

An eventual increase in economic activity will serve to benefit our commercial C&I lending effort as well.

We believe our deposit mix already exhibits the characteristics of the typical commercial bank of similar size to Webster.

Core deposits were 66% of total deposits in March 31, ’03 compared to 59% a year ago.

Our high performance checking initiative for consumers and small businesses is boosting core deposit growth, as is our successful and ongoing denovo branch expansion in Fairfield county, Connecticut We see attractive opportunity to expand our growing presence in Westchester county and adjacent New York counties as well.

Given our success with denovo branching we're planning to accelerate the success over the next several quarters to as mean as four new branches per quarter.

We intend to fund it by taking a portion of the significant gains in our securities portfolio to offset incremental denovo costs.

Turning to our objective to increase income from fee-based services, can you see our fee-based services accounted for one-third of total revenues in the first quarter.

This compares to 28% a year ago, and puts us right on par with the typical commercial bank of similar size to Webster.

Our Whitehall and our [inaudible] Monieloo (ph) insurance agency acquisition contributed to the increase.

As the fourth primary objective of our strategic plan, let me comment on how four strategic acquisitions have broadened and deepened our product lines, driven growth and revenue and profit, and contributed to our strategic goals.

Whitehall asset-based lending and budget installment corps which finances insurance premiums for 8,000 customers broadened and increased our commercial loan portfolio.

Fleming, Perry and Cox is helping us create a financial planning investment management approach throughout our now consolidated investment management platforms and Maythog and Monieloo (ph) rounded out our insurance agency offerings by giving us the expertise to provide risk management services to self-funded insurance customers especially in the areas of worker's compensation and group insurance.

While any one of these acquisitions must stand on its financial merit, each one assists us in growing our core franchise, deepening relationship with our customers and expanding our geographic reach and product mix.

In other words, they help to build franchise value and shareholder value.

The bedrock principal of Webster particularly as our risk profile looks more and more like a commercial bank is to maintain our strong credit culture.

All of our credit loss and coverage indicators remain within our performance tarlts.

Compared to a year ago our classified loans are declined by 11%, our allowance for loan losses increased 20%, our. a ratio of nonperforming loans to total loans has improved and our loan loss represents about 220% of nonperforming loans.

Looking at our expense discipline, Webster has a demonstrated track record of consolidation of acquisitions.

This has enabled us to maintain a competitive efficiency ratio even as we invest through the P&L in our strategic initiative.

Regarding shareholder returns you probably know already that Webster has performed well against a peer group of similar-sized commercial banks to which we primarily compare ourselves.

We're pleased to say that we believe that our success in executing our strategic plan may be having an impact on our relative PE valuation which is near the bottom of our commercial bank peer group.

Since the end of 2000, our PE discount against our bank peer group has gradually narrowed to where the discount is now about 15%.

The discount is also visible in our relative price-to-book value, price-to-tangible book value, and price to revenue per share.

The narrowing of the discount can be seen in our relative returns which outbased the peer group over the last quarter and over most recent measurement returns.

Our efforts to get the message out about who Webster is today is resonating.

More bank stock buyers are looking at Webster and we know from research we have done that we have a great opportunity to attract investment from the large number of institutions who own banks but don't yet know Webster.

I now ask Bill Healy to present the details of our first quarter financial performance.

After that, I'll speak briefly about our upcoming investor day presentation in June.

Thank you, Jim.

Good afternoon all of you joining us on the telephone and webcast today.

We are please to announce another quarter of solid growth and operating performance in this fluid economic environment.

Net income of $40m in the first quarter corresponds to earnings per share growth of almost [inaudible] 8% over the first quarter of 2002, which has been adjusted to exclude a write down of $7.3m net of taxes of transitional good will impairment related to the implementation of FAS-142.

Measured against a backdrop of economic and geopolitical uncertainty that we all witnessed in the first quarter, here are the main components that contributed to our earnings per share growth.

We registered continued growth and earning assets which averaged $12.8b in the quarter, and grew by 16% over a year ago.

This growth offset margin compression and resulted in $105m of net interest income.

Fee-based revenues totaled over $50m in the quarter, which reflects the benefit of recent acquisitions and underlying business momentum.

These revenues now comprise about one-third of total revenues compared to 28% a year ago.

Expense growth, particularly year over year, was led by the cost of compensation and benefits in connection with recent acquisitions, and strategic business initiatives directed at achieving long-term earnings growth.

Credit quality measures were well within our recent historical levels, and the provision of $5m supported the increase of almost $2m in the allowance for loan losses.

The increase of $11.9m in nonperforming assets during the quarter was attributable to a single credit within our bank commercial loan portfolio.

As Jim commented earlier, Webster's performance in the first quarter fits nicely within the context of our strategic plan to grow assets, revenues, and earnings, while transforming the balance sheet.

I now will expand upon the financial particulars of our first quarter performance.

Total revenues excluding security gains were $155m in the first quarter.

This represents a 15% increase over a year ago, and a 4% increase over the fourth quarter.

Assisted by the Whitehall and Mathog & Moniello acquisitions in particular, fee-based revenues grew by 33%, compared to the first quarter of a year ago, and now represent one-third of total revenues, compared to 28% a year ago.

Net interest income grew by 8%, compared to a year ago, and 1% on a quarter basis.

Average earning asset growth of 16% over a year ago, and 3% over the fourth quarter was able to offset net interest margin declines of 21 basis points from the first quarter of 2002, and nine basis points from the fourth quarter.

Most of this margin compression is being caused by declining long-term mortgage rates, which is causing an acceleration of our prepayments in the mortgage-backed investments and the residential loan portfolio.

These funds are being reinvested at substantially lower yields.

With that said, volume growth in our consumer and commercial loan portfolios have been the primary factor contributing to the increase in the net interest income over the past year.

Consumer growth has been led by home equity originations, while the acquisition of Whitehall in August of last year has contributed most to the growth in commercial loans.

Turning to non-interest income, fee-based revenues grew by $12.5m or 33% over the first quarter of last year, and $6m or 14% over the fourth quarter, reflecting business momentum in addition to contributions from recent acquisitions.

While Mathog & Moniello, Whitehall and business installment contributed $5.5m to fee-based revenue growth over the first quarter of last year, another $7.5m of growth came from deposit service fees, loan fees and gains on sale of loans in connection with our national wholesale origination of first mortgages for distribution into the secondary market.

Comparing to the fourth quarter, $3.3m of fee-based revenue growth related to the Mathog & Moniello and budget installment acquisition.

The remaining growth of $2.7m largely reflects the benefits of new business activity in our wealth management segment, gains on the sale of loans, and an increase in our financial advisory revenues at Duff & Phelps relating to their valuation services.

Included in fee income in the first quarter is a $750,000 writedown of mortgage serviceng rights.

The book value of our mortgage servicing right was. $10m in March 31st, 2003.

Non-interest expense growth over both the first and fourth quarters of 2002 also reflect the effects of recent acquisitions and underlying business growth.

Comparing to the first quarter of 2002, the Whitehall, Mathog & Moniello budget installment and Fleming Perry and Cox acquisitions represented $5.4m of the total expense growth of $16.6m.

Salaries and benefits expense represents the majority of the remaining $11.2m of growth.

This largely reflects the effects of annual salary increases and strategic growth investments made to support the expansion of our mortgage origination business with four new regional offices added last year.

The addition of four new denovo branches, and an increase in our equipment finance lending staff.

Comparing to the fourth quarter, the Mathog & Moniello and budget installment acquisitions represented $2.6m out of the total non-interest expense increase of $3.6m.

The remaining million of growth reflects an increase in salaries and benefits in our core business.

Turning to credit quality, our net chargeoffs in the first quarter were $3.4m, which represented a chargeoff ratio of 16 basis points.

This compares to a chargeoff ratio of 14 basis points in both the first and fourth quarters of 2002.

Nonperforming assets increased to $61.9m on March 31st, 2003, compared to $54.3m a year ago, and $50m at year-end.

As I noted earlier, the increase from December 31st, 2002 is entirely attributable to a single credit.

This loan was originated three years ago in the bank's Hartford asset-based lending group and is not related to our recent Whitehall acquisition.

It does not reflect the trend in the overall loan portfolio, and we believe our reserves are adequate to cover the exposure.

Relative to Whitehall, there are no Whitehall originated nonperforming loans.

Despite the increase in nonperforming assets, Whitehall's -- excuse me, Webster's asset quality remains well within recent historical levels.

As Jim mentioned earlier, our asset quality ratios are strong.

Our ratio of nonperforming assets to total assets is 43 basis points, which is slightly lower than a year ago, though an increase from the 37 basis points at year-end.

Our ratio of classified loans to total loans was 1.5% at March 31st this year.

This compares favorably to 2% a year ago, and 1.4% at December 31st, 2002.

Our allowance for loan losses has increased by 20% over the past year, and now represents 219% of nonperforming loans, compared to 197% at March 31st, 2002.

Tax expense for the first quarter totaled $20.1m and represented an effective tax rate of 33.5%.

The increase in the effective tax rate from the mid 31% level that we reported during 2002 reflects tax benefits that have been fully utilized as well as increased expense for our new acquisitions.

The increased tax write in the first quarter amounted to an additional cost of almost $0.02 per share.

We expect the effect -- we expect the effective tax rate for the year to be slightly lower than the rate for the first quarter.

Common shares outstanding at March 31st an average diluted shares for the first quarter of 2003 each declined by 7%, compared to a year ago, and we're essentially flat on a link quarter basis.

The decline was due to our buyback activity last year.

In the first quarter we repurchased about 133,000 shares.

In March 31, 700,000 shares remain available for repurchase under the 2.4m share buyback program announced on July 23rd, 2002.

Turning it our review of Webster's balance sheet, total assets March 31st, 2003 were $14.4b.

This represents growth of 16%, compared to a year ago in 7% from December 31st.

In each instance, the majority of growth came from the loan portfolio.

Looking at loan trends on a year over year basis, total loans increased by almost $1.4b or 19%.

Commercial loans increased by $563m, reflecting growth of $527m from the Whitehall acquisition and $100m in equipment finance.

This growth helped to offset some weakness in middle market and small business loans, as well as a planned reduction in our specialized portfolio of about $60m.

Substantially all of our consumer growth of $604m continues to come from floating rate home equity loans.

Over 70% of these loans are two customers in Connecticut.

Customers with strong credit scores, generally between 725 to 750.

To date, our delinquency and chargeoff experience has been low.

On a link quarter basis, total loans increased by almost $600m or 8%.

Residential loans increased 8%, a reflection of our decision to maintain for now the portfolio at 43% of total loans.

An increase of 8% in commercial loans reflected in part a pickup in Whitehall's loan portfolio after seasonal paydowns in the fourth quarter, as well as growth in the equipment finance portfolio.

Continued strength in home equity originations supported consumer loan growth of almost $140m or 8% from year-end.

The health for sale portfolio totaled $322m at March 31st, down from $405m at December 31st.

The vast majority of this portfolio was comprised of first mortgages originated by our national wholesale business and are awaiting delivery against forward contracts in the second quarter.

Originations during the first quarter of this year totaled $974m, compared to $449m a year ago, and $900m in the fourth quarter of last year.

Gains on sale from this portfolio contributed $2.8m to fee-based revenues in the first quarter, compared to $400,000 a year ago, and $2.3m in the fourth quarter.

On the liability side of the balance sheet, we maintained our momentum in growing our deposits and changing the mix away from CDs.

Total deposits grew by $615m or 9% from March 31st, a year ago, and totaled $7.8b at March 31st, 2003.

Core deposits grew by 21% during this period and now represent 66% of total deposits compared to 59% a year ago, and 65% at December 31st.

This growth continued on a link quarter basis as deposits were up over 2% from December 31st.

Few words about our investment portfolio, the increase at March 31st, 2003 represents the investment of proceeds from our subordinated debt offering earlier in the quarter, as well as some prefunding activity of our April portfolio maturities.

In closing, let me comment on our interest sensitivity position.

There has not been any major change since December 31st, 2002.

We remain asset sensitive, poised to benefit from rising rates.

An immediate and sustained 100 basis-point increase in interest rates would result in a $0.20 improvement in earnings per share for the subsequent 12 months beginning March 31st, 2003.

Conversely, a 100-basis point decrease would result in a $0.40 decline in earnings per share.

At year end, a 100 basis point increase in rates would have resulted in a $0.25 improvement in earnings, while a 100 basis point decline would have resulted in a $0.45 decrease in earnings per share.

Now, let me turn the program back to Jim for closing remarks.

Thanks, Bill.

We hope that all of you have seen by now the announcement Webster will be holding an investor day presentation on Wednesday, June 11 in the Waterbury area.

During our investor day agenda, you'll hear direct presentations by each of Webster's principal line of business managers.

The entire day will provide you with the ability to learn how Webster's management team is implementing our strategic plan for growth in competing with the mark place.

These managers are responsible for articulating and executing our strategic plan.

They are the individuals behind our tag line, “we find a way.”

I could take up too much of your time talking to you about the strength and depth of Webster's management team, our inaugural investor day event will provide with you the opportunity to see, hear and test them firsthand.

We believe that the more you know us and the more of us you know, the more you'll understand that we have the resources and the motivation to deliver on our strategic plan.

Many of you have kindly shared your thoughts with us over recent months about how we can provide the most useful information to the investment community.

We appreciate the input and your support and we encourage to you let us know of any additional thoughts you may have prior to June 11.

We now welcome your comments and questions.

Thank you, Mr. Smith.

If have you a question at this time, please press the one key on your touch tone telephone.

If your question has been answered or you wish to remove yourself from the queue, please press the pound key.

Our first question is from Laurie Hunsicker of FBR Investments.

Good afternoon.

Several questions.

I just wondered for starters, the increase in goodwill link quarter, the $20m increase is that solely related to the acquisitions you completed that quarter?

Yes, Laurie, $23m relates both to the BIC acquisition and the Mathog & Moniello acquisition.

And then your loan service for others portfolio, how big is that?

I think it's about $1b and a half.

$1b and a half, okay.

Lastly on this commercial asset base, nonperformer, the increase that we're seeing here straight up, this $12m increase in the business banking that's the amount of the loan or can you give us a little bit more color on that loan?

Well, the increase of $11.9m, Laurie, is entirely attributable to that one credit.

As we said, of it an asset-based lending loan that was made by the bank three years ago, not at all related to the Whitehall acquisition.

Great, and I mean, I guess any more color on possible resolution or specific reserves against it or anything else you can tell us?

Well, at this point, Laurie, it was a new credit that popped up right around the end of the quarter, and you know, we believe that the reserve is more than adequate to cover any exposure we may have.

Great, and then one last question.

Do you, by chance, have the actual balance breakdown?

I know you gave the nonperformers by type within the C&I but the actual business banking, share credit and the leasing breakdown?

I don't have that handy.

Okay, we'll circle back.

Thank you.

Okay, thanks.

Thank you.

And our next question is from Bill McCrystal from McConnell, Bud and Roman.

Going back to the one credit.

I get the sense from your comments, Bill, this was one that was not problematic prior to this, either in your substandard or watch list?

Bill, this came up at the end of the quarter, and we think there may be some fraud related to this.

Okay.

We simply haven't had the opportunity yet to complete the thorough review.

Okay, that's understandable.

Going back to the branch program the four a quarter, is that just maybe an acceleration of the previously announced branch expansion, or are there any new opportunities that you've come across?

It's an acceleration of the previously announced program.

It would be up to four.

It may not be four every quarter, and I think it really demonstrates the success that we've had beyond or expectations in the early phase of the denovo program.

Okay, and one final question.

On the insurance revenue, is there any seasonality to that?

You've said, I believe, last quarter, about $40m from insurance going for 2003 and just slightly ahead of that.

Is that any seasonality or just a better performance?

I think that there's a little bit of seasonality, Bill.

It peaks in the first quarter and trailed down a little bit and then probably comes up again at the end of the year.

So your original estimates are still valid?

Yes.

Okay, thanks very much.

You're welcome.

Thank you.

Our next question is from Jared Shaw of KBW.

Good afternoon.

Hi, Jared.

Actually, Bill, when you were talking about the HELOC, the home equity loans, was most of that growth due to origination or was that due to pulling down additional capacity under current loans?

I think most of it could be due, to you know, the new originations, Jared.

Okay, and then --.

We don't have the exact breakdown for you but I would assume most of that is the new originations.

Okay, great, and then the shared national credit portfolio.

What is the balance as of March 31st?

The balance as of the 31st is $282m, which is down about $18m from where we were at year-end, which was about $300m, and this excludes the CLOs, of course.

Okay, great.

And then during comments, you mentioned the asset quality numbers were within targets.

What would be the high end of your internal target on what you consider acceptable as far as quality numbers?

Well, we'd say our performance really has been relatively quite good.

We like to be at or below the median for our peer group.

So we'd say somewhere between 60 and 75 would be the high end of what we would anticipate.

60 to 75 basis points of MPLs to assets?

Yes.

And finally, if you could comment --.

Jared, I want to say we're not aiming for it though.

Right.

You didn't really mention anything about the acquisition environment right now in Connecticut and New England, if you could just make some comments on that?

Sure.

There has been some activity over the last several quarters in the M&A market.

Clearly, prices for the selling institutions have been relatively high.

We haven't been able to find our way to be able to compete in that environment.

We do continue to look at opportunities for partnerships that we can create with institutions that may decide to take a partner, and we expect that bank acquisitions, as well as other acquisitions in our primary lines of business will continue to contribute to our growth.

Thank you very much.

Thank you.

Our next question from Kevin Timmons of CL King & Associates.

Hi, guys.

I have a couple things.

First of all, I see your borrowings are up.

Do you have a goal in mind as far as the level of total borrowings to assets, what your maximum comfort level is?

We're probably in a range of comfort zone right now right now.

We shouldn't expect much more growth on the balance sheet funded that way?

It would come from deposits?

We wouldn't say you'd get significant growth from here.

Okay, going back to that one credit that went bad, again, is the roughly $12m the gross amount of the loan or were there some writedowns taken?

And then I have a follow-up.

That's pretty close to the gross amount.

Okay, could you tell us a little bit in general terms about the concentrations in terms of size to one borrower or one relationship both in the C&I area and in the asset-based lending?

I think we know what the syndicated portfolio is like but in the core business banks, do you have any other significant concentrations?

I'm going to ask Jo Keeler, who is with us, our chief risk officer that also has responsibility for credit policy to comment.

Good afternoon.

Good question.

We do have a formalized house limit policy in place at Webster which, dependent upon the perception of risk of the particular credit, is a sliding scale, but in general, our house limits top out at about $15m.

That's not to say that we, on occasion, will have a credit exposure of -- we will not have a credit exposure above that level, but in general we manage our portfolio at a limit of $15m, and we target our exposures at below that level.

Okay, in terms of what you got today, do you have many relationships that exceed, say $10m?

Less than a dozen.

Good.

And then --.

Ten, to be exact.

Sorry, did you say --.

He said relationships exceeding $10m.

Oh, we have a number of relationships exceeding $10m.

I would give you a rough estimate that it is about two dozen.

But of those two dozen, there's less than ten that would exceed $15m.

Okay.

And then finally, in terms of the securities that were added during the quarter, and also the residential loan portfolio, can you just give us a general characterization of the types of assets that were going in there?

What's going into the securities portfolio, Kevin, are generally, you know, mortgage-backed securities with an average duration of about three years, and what's going into the residential portfolio, most of that is 15-year type mortgages.

Okay, on the three-year duration measurement, what kind of prepayment rates are typically being used in the calculation?

I think right now, we're experiencing prepayments in the mid to upper 20s.

Okay, thanks a lot.

Again, ladies and gentlemen, if you have a question that the time, please press the one key.

Our next question is from Ari Soshe of Millennium.

Good morning.

How are you?

Hello, Ari.

I want to be clear.

It's been asked like three times and I'm not sure I understand the answer.

What is the gross amount of the credit?

I mean, can you just tell us that?

Yes, the credit --.

I understand you haven't done the full work but we need to know what the total exposure is.

The ABO credit, the gross amount is about $14m

Okay, and of that, $11.9m has been reserved for, and then the rest is, is there collateral behind it?

It's a nonaccrual asset that is covered by the very significant reserve position that we have overall.

Okay.

Well, I mean, asking about that, the ratio of the allowance to nonperforming loans, went down, you know, the coverage ratio went down significantly from year-end.

Where do you target that number?

We target is probably around where it is now, somewhere in the 135 to 145 range.

I think have you to remember, if you look at the loan portfolio and you look at the residential plus consumer exposure, it is very significant relative to the total.

Which makes the coverage ratio quite adequate.

Okay, terrific.

Thank you.

Thank you.

And our next question is from Christopher Buonafede of Fox-Pitt, Kelton.

Can you give us an update on the branches you have open in terms of deposit growth, profitability maybe loan activity, that kind of thing?

At the Fairfield county thus far?

Sure.

In Fairfield county, we started this denovo branching program, we already had 12 branches, most of them located in the northern and eastern portions of the county.

The idea was to move down toward the southwestern end of the state through Stamford, into Greenwich, New Canaan, and other prime locations, prime for consumer banking.

As far as the proveability of a branch, we think it takes between somewhere 15 and 18 months generally to turn the corner on profitability.

If you looked at a cumulative impact of all of the branches we're opening and you said how long would it take for them to be cumulatively profitable, it would be up to somewhere in the five-year area.

We had originally expected that within a year or so we could achieve $20m or so in total deposits in these branches and we are easily meeting that target.

We have deployed our business bankers there, our insurance team, our private bankers and investment managers, and we have seen there's very significant cross-selling opportunity, partly because of the way we've been marketing these new openings, and also, because of the work that we're doing directly from the branch.

So we're anticipating that we will generate significant small business banking and some commercial banking activity out of those branches.

The four branches combined have deposits over $120m, which is easily half, again, what we had originally anticipated that we would have, and that's part of the reason that we're so highly motivated to continue and accelerate the program.

When you mention that you're going to be using securities gains, I guess in each quarter to pay for the rest of the branch openings, what can we expect in terms of that?

Obviously, I would guess we're going to see securities gains more than the typical run rate we've seen.

The run rate is generally a couple million dollars a quarter and that would probably move up by a million or too two.

That should do it, thanks.

Thank you.

Thank you, our next question is from Jim Aker of RBC Capital Markets.

Got a couple of questions, I guess, maybe for Bill.

Have you guys done any sensitivity with regard to the impact of the value of the securities portfolio and the rising rate environment?

I know you had some pretty good data on the impact on net income but I was wondering if you'd done anything from a value of the asset perspective?

The average duration, I think on that portfolio, Jim, as I mentioned, is, you know, three years, and I guess it all depends upon, you know, what your assumption would be as to how, you know, fast rates would go up, but we would see there would be some extension in that portfolio.

I don't have any specific numbers by year for you, as to what those, what that extension would be.

Although, we will say we do have board limits that we have adopted for the maximum amount of move that would be acceptable in rising rate environments, up to 200 basis points we've modeled it and we're well within those guidelines.

We spent a lot of time marking look the at the equity and in addition on net interest income.

With regard to the securities that were added in the quarter, were these just plain old pass-throughs or are we looking at CMO crunches?

Can you characterize just a little bit in more detail what we're putting on the balance sheet here?

They were mostly pass-throughs.

The hybrid nature?

Just regular pass-throughs.

Okay.

Fair enough.

That's all I have for you.

Thanks very much.

Once again, if have you a question at this time, please press the one key.

Mr. Smith, I show no more questions at this time.

Thank you.

I'd like to thank everyone for joining us today.

We look forward to seeing you in person on June 11th at investor day.

Good-bye.

Ladies and gentlemen, this concludes today's conference.

Thank you for your participation.

You may disconnect at this time.

Have a nice day.--- 0