Boston Private Financial Holdings, Inc.
Q1 2013 Earnings Call Transcript

Published: 17 Apr 2013

[Operator:]

Good morning, and welcome to the Boston Private Financial Holdings First Quarter 2013 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Clayton Deutsch. Please go ahead, sir.

[Clayton G. Deutsch:]

Good morning, everyone. This is Clay Deutsch, Chief Executive Officer and President of Boston Private Financial Holdings. Welcome to our First Quarter 2013 Earnings Conference Call. Joining me this morning are Dave Kaye, our Chief Financial Officer; Mark Thompson, Chief Executive Officer of Boston Private Bank & Trust Company; and Jeanne Hess, our Vice President for Investor Relations. At this time, I'll ask Jeanne to read the Safe Harbor provisions before we make additional comments. Jeanne?

[Jeanne Hess:]

Good morning. This call contains forward-looking statements regarding strategic objectives and expectations for future results of operations and financial prospects. They are based upon the current belief and expectations of Boston Private's management and are subject to certain risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. I refer you also to the forward-looking statements contained in our earnings release, which identified a number of factors that could cause material differences between actual and anticipated results or other expectations expressed. Additional factors that could cause Boston Private's results to differ materially from those described in the forward-looking statements can be found in the company's filings submitted to the SEC. All subsequent written and oral forward-looking communication -- I'm sorry, statements attributable to Boston Private or any person acting on our behalf are expressly qualified by these cautionary statements. Boston Private does not undertake any obligation to update any forward-looking statements to reflect circumstances or events that occur after the forward-looking statements are made.

[Clayton G. Deutsch:]

Thank you for joining our call this morning. For the first quarter of 2013, our company reported GAAP net income of $13.2 million or $0.15 per share. Dave and Mark will walk you through the financials in a moment. But first, I'd like to share my thoughts on our performance in the quarter. Our Wealth Management business has produced strong results with core fees increasing 3% linked quarter and 14% year-over-year. Assets under management also increased by 7% to $22 billion on both a linked quarter and year-over-year basis. Our revenue mix continues to develop as we re-weight the company towards more fee-based revenue. Non-spread driven revenue now accounts for over 40% of our total revenue mix. In the first quarter, our Private Bank continued to face loan pricing pressure. The lending environment is unfavorable with unattractive pricing in our opinion. Despite an increasingly selective approach to lending, net interest margin continued to compress. Having said this, our Private Bank is continuing to build profit contribution across our California and New England markets. Profit from our West Coast markets continues to grow. Overall, we are pleased with first quarter growth in Wealth Management, gains in our market-by-market profit contribution in Private Banking, and our continued capital build up. Now I'd like to turn it over to Dave and Mark for more detail on our first quarter financial performance. Dave?

[David J. Kaye:]

Thanks, Clay, and good morning, everyone. My comments will begin with Slide 3 of the earnings presentation and that can be found in the Investor Relations section of our website, bostonprivate.com. On Slide 3, we showed the consolidated P&L highlights for the linked quarter. Net interest income declined 3% in the quarter, while core fees increased 3%. Within the core fee line, we had increases in Investment Management and Trust fees at our Private Bank, wealth advisory fees and other banking fee income. Overall revenue did decrease 1% for the quarter. Total expenses decreased 10% during the quarter, but remain elevated due to seasonal compensation expenses such as an increased 401(k), employee match and FICA. We also had a SERP valuation update of $1.5 million that adversely affected our expenses. This quarter did include roughly $1.2 million of compensation savings from the executives who left the company at the end of 2012. We expect to see additional cost saves in the second and third quarters. Moving on to Slide 4, our spread and fee-based revenues. The core fees increased for the fifth straight quarter and represent about $30 million of our first quarter revenue. Within core fees, we're beginning to see traction in our mortgage throughput business, which recorded $1.2 million of fees in the quarter. On Slide 5, you can see our revenue mix development. This slide showed the year-over-year comparison of our revenue breakout. You'll see on the left-hand side that core fees represented 36% of our revenue in Q1 of 2012. In Q1 of 2013, core fees grew to 40% of revenue. We are pleased with this movement, and the re-weighting of our revenue toward the fee-based businesses remains a priority for us. On Slide 6, we show our net interest margin which decreased 6 basis points in the quarter to 313 basis points. Loan yields continued to contract and deposit cost remain fairly steady. We further lowered our money market rates in March, which will be reflected going forward. On Slide 7, we show our provision for loan losses. The company recorded no provision in the quarter, and that's due to a decline in our criticized loans and also continued improvement in our overall credit quality. Net charge-offs remained low and were less than $2 million or 15 basis points on an annualized basis. On Slide 8, we show our criticized loans. Our nonaccrual loans did increase in the quarter due to a deterioration of 2 relationships, but 1 of those is already paid off in full in April. Our overall pool of problem loans declined in the quarter, and we continue to be pleased with the progress there. Criticized loans declined 5% on a linked-quarter basis and they are down 27% year-over-year. Slide 9 highlights our capital position. All of our regulatory risk-based capital ratios and tangible common equity ratios increased on a linked-quarter and a year-over-year basis. Looking specifically at our TCE-to-TA and our TCE-to-risk-weighted assets, both of these ratios have grown at about 100 basis points year-over-year. On a linked-quarter basis, these ratios are up roughly 50 and 30 basis points, respectively. With that, I'll turn it over to Mark.

[Mark D. Thompson:]

Thanks, Dave. Good morning. My comments will begin on Slide 10 where I will highlight the performance of our Private Bank. In the first quarter, net interest income declined 3% due primarily to lower asset yields. Core fees increased by 5% on a linked-quarter basis driven by bank Investment Management and Trust fees, residential mortgage sales and core banking fees. Slide 11 shows the past 5 quarters of loans by type. Total loans were flat on a linked-quarter basis due to mortgage repayment speeds and Commercial pay downs. Total loans increased 4% year-over-year when normalizing for the pending sale of the Pacific Northwest offices. Average loans were also flat in the quarter, but were up 6% year-over-year. On a linked-quarter basis, total loans declined 2% in New England and were flat in the San Francisco Bay Area. Total loans in Southern California increased 2% on a linked-quarter basis. On a year-over-year basis, total loans in New England declined 1% year-over-year, and total loan growth in the San Francisco Bay Area was 2%, and 35% in Southern California. I will now address the liability side of the balance sheet on Slide 12. Total deposits decreased 8% to $4.5 billion in the first quarter. When normalizing for the pending sale of the Pacific Northwest offices, total deposits increased 2% year-over-year. This was driven by higher-than-normal balances at year end and known seasonal distributions that occurred in the final weeks of this past March. It is important to note that average deposit balances were up 7% year-over-year and 2% on a linked-quarter basis. Before turning it over to Clay, I wanted to announce that Boston Private Bank opened its San Jose office during the first quarter. The San Jose office represents an exciting growth opportunity for the bank as it is strategically located in the southern tip of Silicon Valley. San Jose is also the 10th largest city in the United States. In addition, we doubled our office space in downtown San Francisco to support this important market. Now I will turn it over to Clay for a discussion on our Wealth Management business and closing comments for the quarter.

[Clayton G. Deutsch:]

Thanks, Mark. Let's go to Slide 13 which outlines our Investment Management performance. In the Investment Management business, assets under management increased 10% to $9.3 billion for the quarter. However, Investment Management fees were flat in the quarter as stable pricing was offset by a lack of positive market action during the fourth quarter of 2012. Recall that Anchor Capital, our largest investment manager, bills on a one quarter lag. As a result, the Investment Management segment fees and revenue shown here reflects AUM balances as of 12/31/12. Expenses decreased 3% in the quarter to $7.7 million. EBITDA and pretax margins both improved by 2 points and continue to be strong at 31% and 23%, respectively, reflecting positive operating leverage. The segment overall reported net outflows of $11 million for the quarter. Slide 14 shows our linked-quarter wealth advisory performance highlights. Our wealth advisory revenue increased by 3% quarter-to-quarter to $10.1 million. Operating expenses decreased 1% to $7.6 million, and remain a bit elevated due to professional fees in the quarter. The segment's first quarter EBITDA and pretax margins both strengthened to 27% and 25%, respectively, again reflecting positive operating leverage. Segment assets under management increased 5% in the quarter, and net inflows were a positive $168 million. More detail on AUM net flows can be seen on Slide 15. We recorded our fifth straight quarter of positive net flows. In the first quarter, net inflows were $181 million. Net inflows at our Private Bank and our Wealth Advisors were down a bit compared to the fourth quarter, but on a year-over-year basis, net inflows have increased 115%. We remain committed to building client AUM across all of our Wealth Management businesses. Holding Company costs for the quarter are found on Slide 16. Operating expenses increased 16% in the quarter due primarily to the SERP valuation update of $1.5 million, that Dave referred to earlier. Finally, before taking your questions, I'd like to briefly comment on an important capital management initiative. Our return on equity for the quarter came in at just under 9%, which is below our short-term target of 11% and our long-term target of 12%. As the year unfolds, we will continue to focus on revenue mix management, expense discipline, and capital efficiency, capital management to build our return on equity toward our declared targets. With respect to capital management, there is an important capital transaction with the Carlyle Group that I would like to discuss. Last night, we announced that we have entered into an agreement with the Carlyle Group to repurchase all of the Boston Private Financial Holdings' preferred stock held by an investment fund managed by the Carlyle Group. The price will be based on the 5-day, weighted-average closing price of Boston Private Financial Holdings' common stock, ending at the close of the market today, April 17. This is aligned with the mechanism originally used to price the Carlyle Group's initial investment in Boston Private Financial Holdings. Carlyle originally invested in our company in 2008. This transaction allows Carlyle to realize a substantial return on their original investment. It also gives them the flexibility to maintain a significant stake in Boston Private as a large common equity investor and shareholder. The agreement is positive for us. This transaction will allow us to simultaneously secure a lower-cost form of permanent capital, deliver immediate stated and tangible return-on-equity accretion and boost our earnings per share by the third quarter of 2013. Carlyle has been a very supportive partner for these past 5 years, and we're pleased that, as our largest shareholder, they remain enthused about our prospects. The closing of the stock repurchase is conditioned on the closing of an offering of depository shares representing fractional interest in a new series of company preferred stock. I really can't say more than that now, though I appreciate that you have great interest in this topic. Upon the successful closing of the deal, we'll provide more details on the anatomy of the transaction and the financial impacts that we expect. With that, we're happy now to take your questions. I do ask that you understand the limits, the strict limits, on what we're allowed to say regarding this transaction. Thank you. Let's open it up.

[Operator:]

[Operator Instructions] Our first question comes from Bob Ramsey of FBR.

[Bob Ramsey:]

I was curious with the ROE. I think last quarter when we talked about the ROE targets in 2013, I had asked if you expected to earn the 11% return on $600 million of stated equity entering the year, and the answer was, that yes, that was the goal. And this morning, you talked a little bit about capital efficiency and the Carlyle transaction, which may take that equity down as sort of helping. I'm just curious whether you still expect to earn an 11% return on $600 million of equities stated entering 2013? Or whether -- as you look forward at the world as it is today, whether a lower capital base sort of affects how you get to that number?

[David J. Kaye:]

Well, Bob, a lower capital base does affect how we get to that number. I think we have undertaken a significant amount of improvement in our risk profile over the past couple of years. And in terms of resolving our problem loans and also just the remixing of our balance sheet. So we feel comfortable with having a lower common equity ratios, and so that would allow us to boost our return in equity.

[Bob Ramsey:]

Okay. And -- not to belabor the point. But 11%, is that by year end or is that a full year return target?

[David J. Kaye:]

That is by the end of the year. And largely, Bob, that's because we have the cost initiative that we talked about back in the fourth quarter which is key to us improving our profitability. The cost initiative of $10 million will be fully realized in the second half of the year. So we've started to see some of that in the first quarter, and we'll continue to build on that, but it's not fully realized for the entire year.

[Bob Ramsey:]

Okay. And then last question, and I'll hop back out. But I know you all highlighted in the introductory comments that the lending environment today is not as attractive as maybe it has been and that's a bit of pressure on the bank. What is sort of the outlook for net interest income? Is it seasonally a little bit stronger next quarter from this, and then is it more or less flat through the year? Can you actually grow net interest income through the year? Sort of how are you thinking about that piece of the puzzle?

[Mark D. Thompson:]

Bob, maybe I can comment a little bit on the volumes. While Q1, we did see a slight decline in our total lending business, our pipelines remained very healthy. The dynamic in Q1 was really a function of residential mortgage prepayment speeds, remaining stubbornly high. And then two, on our Commercial book, we had some pay downs. I will say probably about 1/3 of the pay downs were legacy CRE loans that were purposefully worked down. And that does -- typical private partnerships paying down lines of credit at the beginning of the year that were drawn down towards the end of the year.

[David J. Kaye:]

So in the NIM question, Bob, you asked about how that looks going forward. And I think it's pretty consistent with our outlook as it has been in the past. Obviously, the new loans that we're putting on are coming it at a lower rate than what the book is at. And so that's putting pressure on our net interest margin. We're trying to do the best we can to offset that with liability management and pricing there. And -- but we expect the net effect to be a slight drag on our net interest margin going forward.

[Bob Ramsey:]

And as sort of volume and NIM come together with net interest income, does that stay more or less flat where we are as volume is a little bit better and margin has a little bit of a drag? Or is there a bias up or down?

[David J. Kaye:]

Bias up or down on which part, Bob?

[Bob Ramsey:]

On net interest income, I guess, the sum together.

[David J. Kaye:]

I mean, I think that we'd like to see our net interest income grow, and that's with the increased volume set.

[Operator:]

Our next question comes from Casey Haire of Jefferies.

[Casey Haire:]

So just a question, I guess, on the expense outlook over the next couple of quarters here. It sounds like there's still some more cost saves on the -- the SERP charge, you also have the divestiture. Just wondering, where are we in terms of that $10 million, how much of that has been achieved? And what is to be gained from the Seattle divestiture? And the quantification of the SERP charge this quarter.

[David J. Kaye:]

Sure. The SERP charge was $1.5 million this quarter, that was a one time, not to be repeated. In the quarter, we also had about $1.5 million worth of seasonal charges, again the 401(k), the FICO, stuff like that, that is -- won't be there in 2Q, but it will be there in 1Q of 2014, so it's a seasonal impact. In terms of the expense initiative, the $10 million expense initiative that we had announced, I'd say we've captured about half of that, and that's reflected in the first quarter. And then in the second and third quarters, we should realize that full impact of the $10 million, but we're on track there.

[Casey Haire:]

Okay. And the Seattle divestiture expense that -- I know that's neutral of pretax income, what is the expense tie there?

[David J. Kaye:]

Yes, I mean, that should bring down expenses. I think on an annualized basis, it's probably in the $7 million range. But again, we're going to have a reduction in the revenues because it's pretty much of the -- a lot of the -- it's a little bit more than a breakeven business. It's some profit contribution, but not much.

[Casey Haire:]

Okay. And then the idea of capital efficiency. I know you guys look at TCE to RWA. I was just curious, if TCE ratio goes -- by my math, goes lower to about 7% pro forma for this transaction, I was just wondering, is there a limit? I know, Clay, you've mentioned you want to earn the right to live at the bottom end of the stack. I was just wondering, is there a limit that you don't want to violate there?

[David J. Kaye:]

Not that there's a hard limit that we have, but we have -- we evaluate our capital position in terms of our risk. And we look at stress testing and running at capital levels, not only with the stress test results will give us and then maintaining a certain capital level, but also what the industry and the peer group is running at. So it's not -- to answer question, certainly, there's not a hard limit of where we're at. But we're comfortable in the range that we've been at.

[Clayton G. Deutsch:]

Casey, the only thing I'd add is, you go back to Slide 9, which Dave covered on that capital build trajectory. We have a lot of confidence in our earnings and capital build rate. We think we are headed toward an excess position. We think the transaction we described is a very good use of capital right now. And we think we'll resume that same kind of build profile and, in effect, replenish in a relatively predictable period of time.

[Casey Haire:]

Okay, great. And then just lastly, the tax rate of 32%, is that the go-forward rate?

[David J. Kaye:]

Yes, I mean, that's what we project. We use that because that's our projection for the full year. So I think somewhere in the 31%, 32% range is probably good.

[Operator:]

Our next question comes from Dave Rochester of Deutsche Bank.

[David Rochester:]

I know you can't comment on the preferred issuance, but you mentioned you are looking for a little bit of a boost in EPS in Q3. Can you just give us a really rough sense on how accretive you think those moves will be?

[David J. Kaye:]

Well, it is contingent on the closing of the transaction. But assuming that, that all settles out, I mean, I think, that it should be accretive on a quarterly basis, the EPS, by about $0.01 a share.

[David Rochester:]

Okay. And can you give us a sense for where your loan production yield was all in for the quarter? I'm just trying to understand where that sits versus the loan book yield today?

[Clayton G. Deutsch:]

Well, I think we look at the loan yields depending on the category. So if you look at that Commercial loans, I mean, they're more in the sort of low 4s, 4 20-ish [ph] type pricing for the new stock that we're putting on. On the residential mortgage side, you're just below 3%, so -- but right around that.

[David Rochester:]

Okay. And were spreads generally stable versus last quarter?

[David J. Kaye:]

Spreads for the new stock, it's been pretty consistent. So the new loans that we're putting on, yes, over the last several quarters, I would say had been consistent. It's obviously bringing down our overall yield at book. But yes, they're consistent from the new stuff.

[David Rochester:]

Great. And just one last one. As you guys are trying to drive greater revenue growth in the spread business, have there been any changes in incentive structures, and even in the Investment Management business or the Wealth Management business, to help drive inflows? Are you planning any other steps coming up here the next couple of quarters?

[Clayton G. Deutsch:]

Well, I'll comment on Wealth Management and, Mark, maybe you want to speak to the Private Bank. I'm very comfortable that we have high integrity compensation arrangements in our Wealth Management firms broadly. There has been an increased emphasis on growth in new business development. But we've stopped short of commissions on steroids, if you will. We have, I think, a very nicely balanced compensation approach that rewards performance. But also emphasizes growth in business building. So we like where we now are on that side of the house. Mark, do you want to speak about that?

[Mark D. Thompson:]

Sure, sure. I'll comment on the, first, the Private Banking model, which ties into our growth strategy. We are taking a good hard look at some of the cross-sale incentives that we have in place today to place a higher priority on moving some of our Private Banking relationships into Wealth Management opportunities and Investment Management and Trust opportunities. So what we think, as we expand, particularly on the West Coast, we have very strong Private Banking relationships. We have a less-developed Investment Management business on the West Coast. We feel that's a very significant opportunity and we will tie incentives to help drive growth.

[Operator:]

Our next question comes from Chris McGratty of KBW.

[Christopher McGratty:]

Dave, on the balance sheet, your cash position changed considerably, sequentially down about $250 million and securities grew a little bit. Can you just help me with the size of the -- kind of the balance sheet going forward? The loan growth, I think you've been pretty clear about your expectations, but just comment on kind of the outlook for the rest of earning assets.

[David J. Kaye:]

Yes, I mean, I think that our -- the size of our cash and investments relative to our loan book is about where we want it to be. And so I would say that, going forward, you can expect that kind of position. Again, we focus a lot on the average basis rather than just point to point, quarter ends, which can fluctuate a little bit. But I think we're good there.

[Christopher McGratty:]

Okay. And then last one, on the Holding Company, how much cash does Hold Co has [ph]?

[David J. Kaye:]

I think we reported in our 10-K that we had about $60 million of cash at year end. And I don't think there's been any material changes to that, really, in the first quarter, maybe it's up a little slightly, but...

[Christopher McGratty:]

And how does that compare to your -- kind of what's your coverage of an annual expense that you're comfortable with and what are your annual cost of Hold Co today?

[David J. Kaye:]

We have annual costs, probably cash cost of around -- in the $15 million to $20 million range. We think we have ample cash at the Holding Company.

[Operator:]

Our next question comes from Christopher Marinac of FIG Partners.

[Christopher W. Marinac:]

I just wanted to ask a little bit about the provision expense going forward. Is the charge-off still stay low where they are? Does that give you cover to either have 0 provisions or simply to have the reserve ratio just incrementally decline over time?

[David J. Kaye:]

Yes, again, it's a -- the biggest influence on our provision is the movement in our criticized portfolio, Chris. So we saw it again, the criticized portfolio come down a little bit during the quarter, and that enabled us to have that flat provision. And again, the net charge-offs, they remained steady yet. You could look to see the Triple L [ph] the percent of loans come down a little bit over time.

[Christopher McGratty:]

Okay. And then I guess, Clay, you'd mentioned the capital build going forward, and I think we all see that as well. So beyond the third quarter and beyond getting through the Carlyle transaction, is it possible for you to consider additional share buybacks late this year or sometime in 2014?

[Clayton G. Deutsch:]

Well, Chris, we're looking at everything. I mean, our focus obviously has been on the transaction we just described. That would have been top of our list as a good trade and a good use of capital. I think when the dust settles on this one and we go back in the capital build, there's a full spectrum of options at our disposal, and we're going to continue to look at it.

[Operator:]

Our next question comes from Mac Hodgson of SunTrust Robinson Humphrey.

[Mac Hodgson:]

Just following up on Chris' question on buyback. Is the Carlyle transaction -- does that affect your buyback authorization or is it unrelated?

[David J. Kaye:]

Well, we look at it as a buyback of the $7.3 million of our comp shares. So that's a pretty significant buyback. And as Clay said, we're -- given the size of that, we're not looking to be doing anything in the near term.

[Mac Hodgson:]

Okay, got you. And then I was curious if you could give some color on AUM flows. I know there's good flows in the banks. Just curious, geographically, is that just coming out of Boston? Or are you seeing some progress on the West Coast?

[Mark D. Thompson:]

I'll comment on that, and it's Mark. In Q1, we certainly saw a significant new business in New England, but we also have continued to see a steady build of AUM growth in Southern California. And in San Francisco, our trust business continues to show some positive momentum.

[Mac Hodgson:]

And what about the outlook for flows in the Investment Managers, any sort of comments there? I know it was just a slight, I think, slight outflows in the quarter.

[Clayton G. Deutsch:]

Well, let me give you 2-part answer. I've learned to never make predictions for outflows. I will say this, I can safely make a macro comment. For the first time, environmentally, there are signs that domestic equities are back in favor, active domestic equities seen back in favor. At the industry level, we've seen positive flows since the second half of last year. So I think we're finally beginning to swim a little bit with the tide, rather than against the tide. Both of our investment managers have strong investment performance. And I would expect us to continue to participate in what's been happening environmentally. We've done a lot to fortify our marketing sales distribution efforts at Anchor, as well as at Dalton, Greiner, and I think we're pretty optimistic about where we stand right now.

[Mac Hodgson:]

Okay, great. And just a quick expense question. Professional services, you may have mentioned this in your prepared remarks, the professional services, relatively low. Is that seasonal or is it something that builds throughout the year, typically?

[David J. Kaye:]

It's not seasonal, and it has a higher degree of volatility. Just sometimes, there is legal fees associated with loan workouts or we have particular projects on the accounting side or something like that. So it can be seasonal.

[Clayton G. Deutsch:]

We have pointed out though for several years that we thought our professional fees were elevated due to the credit workout. We have expected those expenses to decline. And that's very much at work, we are blessedly free of consultants right now, and we have very few litigation matters. So I think it's kind of all the above.

[Christopher W. Marinac:]

Okay, great. And just one last one. I know you're limited a little bit on what you'd say. But David, can you just help clarify generally as far as the calculation of kind of share count and EPS going forward, should we use the 77.8 million shares, weighted-average diluted shares and will they be offset on some of the adjustment to the net income line?

[David J. Kaye:]

Yes. We have a -- or a complicated calculation on our EPS due to the fact that these Carlyle preferred securities are considered participating securities. And so if you look at, in the earnings release, we have a couple lines where we start with our net income available to the company, which is $13 million, and then we do have some adjustments to net income. We also do a less the amount allocated to participating securities. Both of those numbers would be expected to come down probably in the 80% to 85% range upon the retirement of the -- or the repurchase of the Carlyle securities. And then you would continue to use that same weighted-average diluted shares of the 77.8, because the way we'd get to that is we have our overall weighted average basic shares, including the participated securities is 85.6, obviously that's going to come down by 7.2, but then we back out the participating securities at 8.8. Again, that backout will come down by 7.2, and so you'll end up at the same place.

[Operator:]

[Operator Instructions] Our next question comes from Jake Civiello of RBC Capital.

[Jake Civiello:]

I apologize if I misinterpreted your comments on the quarter-over-quarter increase in New England non-accruals. But I think you said that it was related to 2 individual loans and 1 of those 2 loans paid off in April. Was that -- what was the size of that loan that paid off?

[David J. Kaye:]

It was 2 -- I would say 2 relationships that were each about $6 million, and one of them is paid off already.

[Jake Civiello:]

Okay, great. That's helpful. And then, I know Mark highlighted the difference end of period and average deposits, but can you give us any further details on what led to the difference at the end of the quarter?

[Mark D. Thompson:]

Sure, 2 factors. Q4, we really had a significant increase in total deposits, which we typically see at the end of the year. Quarter end, window dressing, year end, window dressing -- and in the first quarter, typically, you'll see a fair amount of that money work off the balance sheet, anywhere from private partnerships, making partnership distributions, corporate balance sheets paying out in the first quarter. We do have a strong pipeline as we look ahead in Q2 and Q3. And we feel confident that our deposit flows will remain positive.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Clayton Deutsche for any closing remarks.

[Clayton G. Deutsch:]

Well, thank you, all, for calling in this morning. We appreciate your interest in us, and we look forward to being able to talk more about this upcoming transaction. Thanks, all.

[Operator:]

Thank you. The conference is now concluded, and we thank you all for attending today's presentation. You may now disconnect and have a wonderful day.