Question-and-Answer Session
Operator
Thank you, sir. Ladies and gentlemen, our question-and-answer session will be conducted electronically. (Operator instructions) And for our first question we go to Kevin Fitzsimmons with Sandler O'Neill.
Kevin Fitzsimmons – Sandler O'Neill
Good morning everyone.
Richard Hickson
Good morning, Kevin. Thank you for calling in.
Kevin Fitzsimmons – Sandler O'Neill
I just had a couple of questions, Richard. First, I just wanted your clarify your margin guidance. You said – I think you said it was going to end the year 2009 somewhere around where you ended it year-end 2007, which I think first quarter 2007 margin was 3.93 or where you talking about a full year margin.
Richard Hickson
I believe it will be a little higher than that. What I don’t want to leave you with is an expectation that its’ going to stay at 4.20. We have remodeled our margin numerous times since the historic rate cut in mid-December. We were a little bit positive gapped. However, we’ve been able to take deposit rates down. And looking forward, I would say it will drop 10 basis points or so in the first or second quarter, but it could drop another 10 or 15 basis points in the third quarter. However, these things are manageable six months out, but we are not looking for anything precipitous in the margin compared to generally where it was throughout ’08. Buddy Wood, do you want to add anything to that?
Buddy Wood
I think the point that you made earlier regarding that our asset sensitivity was enhanced as we purchased these investment securities and we are able to fund them where we needed some funding on a short-term basis had created a very neutral position. We’ve run both the interest rate risk and our earnings value of equity in a variety of different shock scenarios and are able to achieve what Richard has described in all but the most extreme conditions.
Kevin Fitzsimmons – Sandler O'Neill
So, would we – is the way to kind of think of it that the securities might be leveled to even increasing from her but that funding is going to change over time to be more in deposits, which is going to be a higher cost relative to the source you were able to use?
Richard Hickson
Our deposit and our lending changes almost mirror one another. We have enough variable priced assets and enough long-term liabilities that when we use the short-term borrow mix in that position, we end up with a near neutral adjustment. We have not had to go after any expensive funding, which would have been an impact to this margin conversation. Fortunately, we find that our competitors are now coming in to us after having been much wider and much more costly. So, it is – with a good degree of comfort that unless we have something and it may fall into what we might call political, and therefore unknown category will be the only stress level of the margin that is unknown to us. Otherwise we feel we can manage it on a very stable basis.
- To read the full transcript on Seeking Alpha, click here »
