Columbia Banking System, Inc.
Q4 2016 Earnings Call Transcript

Published: 27 Jan 2017

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Columbia Banking System Fourth Quarter 2016 Earnings Conference Call. At this time all participants are in a listen only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. [Operator Instructions] As a reminder this conference is being recorded. I would now like to turn the call over to your host, Melanie Dressel, President and Chief Executive Officer of Columbia Banking System.

[Melanie Dressel:]

Thank you, Nicole. Good afternoon, everyone, and thank you for joining us on today’s call as we review our fourth quarter and full year 2016 results, which we released before the market opened this morning. The release is available on our website, columbiabank.com. This was another very good quarter for us. We achieved record fourth quarter net income as we improved operating leverage and continued to build on the strong results from the second the third quarters of 2016. Our bankers achieved the highest loan production in our history in addition to maintaining very good credit quality. And I’m sure you aware of a recent major highlight for us as we announced a definitive agreement to merge Columbia Bank -- to merge Pacific Continental Corporation into Colombia. Pacific Continental will add over $2.5 billion in assets to Colombia’s balance sheet. As we move forward our priorities will be a smooth integration of Pacific Continental which we expect to close in mid-2017. We’ll cross the $10 billion asset threshold by more than $2 billion. However we’re confident that we are well prepared and have made the appropriate infrastructure investment to navigate this change. Of course we will continue to focus on growing quality loans and improving our operating leverage. On the call with me today are, Clint Stein, Columbia's Chief Financial Officer, who will begin our call by providing details of our earnings performance; Hadley Robbins, our Chief Operating Officer, who will cover our production areas; and Andy McDonald, our Chief Credit Officer, who will review our credit quality information this afternoon. I’ll conclude by providing our take on the economy here in the Northwest including Washington Oregon and Idaho and we’ll then be happy to answer your questions. Of course, I need to remind you that we will be making some forward-looking statements today which are subject to economic and other factors. For a full discussion of the risks and uncertainties associated with the forward-looking statements, please refer to our securities filings, and in particular our Form10-K filed with the SEC for the year 2015. At this point I’ll turn the call over to Clint, to talk about our financial performance.

[Clint Stein:]

Good afternoon, everyone. Earlier today we reported fourth quarter earnings of $0.53 per diluted common share. The $0.06 increase from $0.47 per share we reported in the prior quarter resulted from the following items; $0.03 was due to decreased non-interest expense. $0.02 was related to lower linked quarter provision for credit losses. And another $0.02 stems from a lower effective tax rate during the quarter. These increases over the prior quarter were partially offset by lower non-interest income, which reduced EPS by $0.01. Our reported net interest income of $85.7 million was relatively flat, increasing $165,000 from the prior quarter. The linked quarter change was muted by higher average balances in overnight funds. Non-interest income before the change in the FDIC loss sharing asset was $22.7 million in the current quarter, down slightly from $23.3 million in the prior quarter. The decrease was due mostly to lower investment securities gains, which were down $565,000 from the prior quarter. Merchant processing and card revenues were also lower by $347,000 and $311,000 respectively. These declines were partially offset by a reversal of $391,000 from the mortgage repurchase liability we established in conjunction with our 2013 acquisition. Our revenue before incremental accretion income and the change in FDIC loss sharing asset was a $104.2 million in the fourth quarter, essentially unchanged from the $104.3 million realized in the prior quarter. However, when compared to the fourth quarter of 2015, our revenue on this basis increased $5.7 million or roughly 6%. Reported non-interest expense was $65 million for the current quarter, a decrease of $2.3 million from the prior quarter. After removing the effect of OREO activity, FDIC claw back liability expense and acquisition-related expense our non-interest expense run rate for the fourth quarter was $64.1 million. This is a $3.4 million decrease from $67.5 million on the same basis during the third quarter. There were decreases in nearly every line item of non-interest expense with the main driver being lower advertising expense which was down $1.3 million due to the timing of our production and air time expense which peaked during the third quarter [ph]. Occupancy decreased $529,000 from the prior quarter but if you recall the third quarter included branch closure expense of $849,000. Compensation and benefits were down $280,000 primarily as a result of year-end accrual true-ups for our various benefit programs. Notably, our full year 2016 non-interest expense run rate on this basis was essentially flat with 2015, only increasing roughly 0.6% even as we continue to make infrastructure and other long-term investments to enhance our customer experience and grow our business. Excluding OREO activity, FDIC claw back liability expense and acquisition-related expense, our non-interest expense to average assets ratio of 2.68% surpassed the lower end of the range that we have discussed over the past couple of quarters. In the near term we believe for modeling purposes an expense ratio in the mid 2.7% range is reasonable, given that in the first quarter of each year we generally see a bump up in expenses resulting from items, such as annual compensation adjustments, the reset of payroll taxes and key tactical projects which are typically started in the first quarter. The operating net interest margin declined four basis points to 3.99% during the fourth quarter, as a result of a higher level of overnight funds. Had overnight funds been consistent with the prior quarter, the margin would have been 4.02%. We held higher levels of overnight funds throughout most of the fourth quarter, to provide us with several balance sheet options in the event we approach the $10 billion asset threshold. Our effective tax rate for the fourth quarter was 28.6% compared to 30.6% in the prior quarter. As I mentioned at the beginning of my remarks the reduced tax rate accounted for $0.02 of the linked quarter increase in earnings per share and was the result of finalizing our full year tax provision. Our effective tax rate for the full year 2016 was 30%, which compared favorably to our estimate throughout the year of 30.6% and the prior year rate of 30.2%. We still believe a reasonable assumption for the effective tax rate is a range of 30% to 31%. Now I'll turn the call over to Hadley to discuss our production results.

[Hadley Robbins:]

Thank you, Clint. Total deposits at December 31, 2016 were $8.06 billion, an increase of about $2 million from December 30, 2016. On a full year basis, total deposits have increased $621 million or about 8.3%. About $437 million of this increase was in non-interest-bearing DDA, which grew 12.5%. At year-end, core deposits were $7.7 billion, holding steady at 96% of total deposits. The average rate on interest-bearing deposits was 8 basis points, similar to the previous quarter. The average rate on total deposits remained unchanged at 4 basis points. Loans were $6.2 billion at December 31, 2016, representing a net increase of $398 million or about 6.9% for the year, compared to the net increase of $369 million in 2015. Loan production for the full year was $1.3 billion, 12.8% above production levels for 2015. Despite solid fourth quarter production of $294 million, loans in the fourth quarter decreased by about $46 million. The decrease was largely due to lower levels of line utilization and higher than normal payoff activity. Line utilization declined from 53.1% at September 30, 2016, to 50.4% at December 31, 2016. The drop in line utilization largely reflects the seasonal pay downs of Ag lines and lower levels of line activity under mortgage warehouse facilities. The historic pattern of seasonality in our C&I portfolio starts with a pullback in line activity in the fourth quarter, that continues through the first quarter of the following year. Most active line usage is normally seen in the second and third quarters. The bulk of new production in the fourth quarter consisted largely of commercial real estate and construction loans as well as C&I loans. Terms loans accounted for roughly $223 million of total new production, while lines represented about $71 million. The mix of new production was fairly granular in terms of size. 26% of new production was over $5 million, 31% was in the range of $1 million to $5 million and 43% was under $1 million. In terms of geography, 55% of new production was in Washington, 37% in Oregon and 8% Idaho and a few other states. Commercial real estate and construction loans ended the year at $2.9 billion, up $270 million for the year or 10%. For the fourth quarter, these loans were up $40 million, with the largest increases in farm land, hotel/motel and warehouse. C&I loans ended the year at $2.6 billion, up about a $188 million for the year or 8%. For the fourth quarter C&I loans were down about $79 million due to lower line utilization and higher pay-offs as previously mentioned. Industry segments with the largest declines were finance and insurance and agriculture. Industry segments with the highest quarterly loan growth were public administration and manufacturing. During the fourth quarter the tax adjusted weighted average coupon rate for the portfolio increased from 4.32% to 4.37%. Quarterly average tax adjusted rate for new production increase from 3.86% in the third quarter to 4.02%, yet remains well below the loan portfolio coupon rate. Under the current market and competitive conditions this gap is unlikely to continue -- or this gap is likely to continue however we’ve seen the pace of decline in the tax adjusted portfolio coupon rate begin to diminish. The pace of the decline is expected to diminish even further with increases in market interest rates. The tax adjusted coupon rate of 4.37% as of December 31, 2016 declined from 4.40% as of December 31, 2015 and 4.54% as of December 31, 2014. In closing assuming historical patterns hold we’re likely to see line utilization drift down further in the first quarter of 2017. Should that occur, generating meaningful loan growth in the first quarter will be bit more challenging. That concludes my comments. I’ll now turn the call over to Andy.

[Andy McDonald:]

Thanks Hadley. For the quarter ended December 31st, the provision for loan losses was only $18,000. We were very fortunate this past quarter thanks to net charge-offs across all portfolios amounting to only $239,000. This combined with declining loss rates and continued contraction in the discounted and purchase credit impaired portfolios allowed us to release $750,000 from the West Coast portfolio and an additional release of $583,000 from the purchase credit impaired portfolio. This helped offset a provision of a $1.250 million for the originated portfolio plus a modest provision of $100,000 for the Intermountain portfolio. I would like to add a little more color concerning the change in our loan portfolio. For the quarter across all portfolios loan totals declined approximately $46 million as Hadley pointed out. However we continue to enjoy loan growth within the originated portfolio as it grew $36 million in the quarter despite the decline in line utilization and pay-off activities that Hadley discussed. We had net charge-offs of $236,000 compared to $906,000 into the third quarter and $3.6 million and $4.1 million in the second and first quarters of the year respectively. So the last half of the year was very kind to us as the level of charge-offs declined while recoveries rose slightly. The improvement throughout the year was centered in the purchase credit impaired portfolio and the originated portfolio respectively. So as of December 31, 2016 our allowance to total loans was 1.13% compared to 1.12% as of September 30th and 1.17% as of December 31, 2015. So for the most part our allowance remained even throughout the year with loan growth being the reason for the modest decline in this metric year-over-year. For the quarter non-performing assets increased $3.4 million as increases in non-accrual loans exceeded reductions in OREO. The increase in non-performing assets was very modest at only 35 basis points when compared to total assets. Again similar to the allowance NPAs bounced around during the year but for the most part remained even year-over-year. At the quarter end loans three days are more past due and not on non-accrual were about $6.1 million or 10 basis points. This is essentially even with last quarter when past dues were around $5.3 million or 8 basis points. That concludes my comments. So I will turn the call back over to Melanie.

[Melanie Dressel:]

Thanks, Andy. I’d like to briefly comment on how very pleased and excited we are that Pacific Continental has agreed to join with Columbia. We are truly – we truly believe this is an exciting opportunity for both companies, for both teams of bankers and of course for both sets of shareholders. We expect the acquisition to close in mid-2017, pending shareholder and regulatory approval. If you like more information, it’s available on our website at www.columbiabank.com. From most of our region particularly our larger metro areas, the economy is really humming along and the economic indicators are trending upward overall. Unemployment rates continue to improve in our three state market area, consumer confidence has been rising, tourism is well ahead of last year pace and people continue to move into the Northwest. Let me give you a few specifics. There are challenges of course, the Seattle area is the hardest home market in the country, with the average home selling in just 15 days. Supply is dwindling while demand keeps rising with job and population growth. Thus Seattle-Tacoma-Bellevue metropolitan area is the second tightest in the country for homes available for sale and Portland, Oregon, Vancouver come in at number 10. We are hopeful that the new administration will be taking a look at financial regulations to ensure that they are right sized and balanced and serve the industry and country well. We also will be closely watching the developments resulting from the country's withdrawal from the Trans-Pacific partnership since Washington State is the nation's most trade dependent state, with Oregon following very closely. In fact two of every five jobs in Washington already are linked to global trade. However we note that our new President also emphasized the importance of trade and negotiating effective trade deals. So we’ll just need to wait and see how this plays out. The population and labor force of all three states continues to grow. Overall we have excellent job creation and strong GDP throughout the Northwest. In December Washington's unemployment rate dropped to 5.2, its lowest level since 2008, even after labor force grew by over 121,000 last year. It’s the fifth consecutive month of improvement after an eight month plateau. The Seattle Times noted, the home of Amazon, Microsoft and other large employers remains that state's job growth machine. Oregon's unemployment rate fell to 4.6% in December from 5% in November. Oregon employers added nearly 52,000 jobs in 2016 and the State's annual average monthly unemployment rate last year, failed to match the record low set in the economic boom at the mid-1900s. And Idaho's unemployment rate dropped again at 3.7% in December and the State ranks third in the nation for year-over-year job growth. Construction's booming across that State, especially in the treasury -- in the Treasure Valley, which has led the nation in construction job growth for more than a year. The most recent reports on gross domestic product show that Idaho's GDP growth, the third fastest rate among the states at 2.8% during the second quarter of 2016, mostly driven by the agriculture sector. Washington’s GDP grew 2.3% in the second quarter, the fifth strongest in the nation. Both states outpaced the national growth rate of 1.2%. The Northwest Seaport alliance, the consolidated container operation in the Port of Seattle and the Port of Tacoma is the fourth largest container gateway in the North America. In 2016, container volumes reached 3.6 million, the highest level since 2007. Full [ph] imports for the year were up 6% and exports increased 13%. However domestic volumes saw a slight dip this last year as Alaska's struggled with the decline in oil and gas related activity due to the low prices. Domestic volumes increased 1.5% for the year. To summarize leading economic indicators point to continuing forward momentum in the Northwest diversified economy. Our quarterly regular cash dividend of $0.22 per common share will be paid on February 22, 2017 to shareholders with record as of the close of business on February 8, 2017. In light of our fourth quarter and full year 2016 performance we’ve elected to increase our regular cash dividend by 10%. This constitutes a pay-off ratio of 42% for the quarter and a dividend yield of 2.11%, based on the closing price of our stock yesterday. In addition to our regular dividend we have paid a special dividend for the past 11 years -- last 11 quarters which has served as a capital management tool. In anticipation of closing the acquisition of Pacific Continental we’re discontinuing our special dividend. With that, this concludes our prepared comments this afternoon. As a reminder you have Clint Stein, Hadley Robbins and Andy McDonald here with me to answer your questions. And now Nicole would you please open the call for questions.

[Operator:]

[Operator Instructions] Your first question comes from the line of Jeff Rulis from D.A. Davidson. Your line is open.

[Melanie Dressel:]

Hi Jeff.

[Jeffrey Rulis:]

Thanks, hi Melanie. Just to -- getting a sense for growth expectations in 2017 I guess you mentioned the line utilization impact, sounds like it’s seasonal and you saw that last year but -- and ended with 7% growth but I guess your view of pay-offs is kind of tough to peg at this point for the next 12 months. But I guess for the full year are we in the range of expectations for what you put up in ’16?

[Clint Stein:]

I would say we’re in the range. Thinking about what’s happened in the fourth quarter, again the utilization on our lines is seasonal as I mentioned, and during the fourth quarter we saw the pullback associated primarily with, for example our mortgage warehouse facilities which was a combination of seasonal activity and pay-off of facility and the Ag industry pulls back typically at this point in time as well as into the first quarter. Comparing prepayments pay-offs and payments net of advances is kind of those items that reduce loans. So in the third quarter we had about $222 million which is annualized against loans about 14%. The same figure for the fourth quarter was $340 million which annualizes out at 22% which is a bit higher than we’ve seen in the past. So I think it was a little bit higher than normal in the fourth quarter and I would say the pattern that you would expect to see in the year of 2017 will be the same.

[Jeffrey Rulis:]

Okay but and good momentum on the production side, that (inaudible) out?

[Clint Stein:]

I don’t see anything at this point in time that would cause me to have expectations that would change quarter to quarter it may but not for the year.

[Jeffrey Rulis:]

And then could you remind us on I think you've outlined the compliance cost of crossing $10 billion in the [indiscernible] fees as I think you budget $900,000 in cost and just shy of $10 billion on the loss revenues, is that right?

[Clint Stein:]

Well, in terms of compliance cost we feel like we have the compliance management program in place. We have subject matter experts, crossing $10 billion with Pacific Continental doesn’t bring new areas to our business, new niches that we don’t already have compliance expertise in. So that would be something that would add to our compliance cost. Now take the $10 billion threshold away and just look at additional volumes and things like PSA and those types of compliance activities where it’s very much volume oriented, any amount of incremental growth and you have to look at adding additional analysts and things and we will have some expense there. Nowhere near $900,000 but the bulk of the expense is there. The Durbin impact what we’ve talked about is, it’s about $9.5 million for Columbia on a standalone basis when we add the impact of Pacific Continental, there is another $300,000. So it’s approximately $10 million of pretax revenue that we would lose under the Durbin Amendment likely beginning of third quarter 2018.

[Jeffrey Rulis:]

Okay. And then maybe one last one, quick one the tax rate guidance is that -- would the inclusion of Pacific Continental and a greater share of Oregon revenue increase that tax rate or at this point it’s immaterial to the total company tax rate?

[Clint Stein:]

We did quite a bit work around what the impact to our tax rate would be doing diligence both with major 97 I believe was the one in Oregon that I think we did in past, but would have had a pronounced impact on the pro forma company. When we look at the current tax structure that's in place it really didn’t change our overall tax rate or thinking in terms of what that would look like. So I guess that's a long way of saying I think this range is good for both before as well as post-closing.

[Jeffrey Rulis:]

Okay. Thanks.

[Operator:]

Your next question comes from the line of Jackie Bohlen from KBW. Your line is open.

[Melanie Dressel:]

Hi, Jackie.

[Jacquelynne Bohlen:]

Hi, Melanie. Question for you, Clint, kind of a housekeeping item can you just give your thoughts on the FDIC loss share asset and how you see that impacting fee income going forward specifically in 2017? I know that it’s small amount but just kind of any update you have on that?

[Clint Stein:]

Yes, there is about $3.5 million of that. So it will amortize through -- mostly through non-interest income in the coming years. I think we were about $2.6 million for the year in 2016. Our expectation is that for each quarter of 2017 it’s going to continue to walk down, not significantly each quarter but I think we were at $387,000 in the fourth quarter of 2016. We would expect that we’re going to be somewhere around $300,000 for the first couple of quarters of 2017 and then a little bit under $300,000 a quarter for the remaining. So it’s going to be less than half of what we experienced in 2016.

[Jacquelynne Bohlen:]

Okay. Thank you, that's very helpful. And now that obviously December 31 is past and you are not concern about the $10 billion mark, how are you thinking about liquidity deployment and have you started any of that yet?

[Clint Stein:]

Yes, we have started that, and if you look at actually the financials if you look at our period ending overnight funds, it’s not really materially different than what it was at the third quarter. But if you look at the average balance tables in the back of financials that's where you can see that we maintain higher balances throughout most of the quarter, as we’ve got closer to quarter end $10 billion was not a concern. So we want ahead and started investing those funds in securities primarily.

[Jacquelynne Bohlen:]

And what kind of -- just because if I look at -- I know there were fair value marks obviously in there with the balances at the end of third quarter and fourth quarter with securities, what kind of purchases were you looking at?

[Clint Stein:]

We really haven’t changed our approach in terms of the investment portfolio with our thinking around the purchases or the duration, purchases are primarily mortgage backs with very tight private predefined cash flows, much like the rest of the portfolio, you know we don’t want something that’s going to extend materially in a rising rate environment or if rates were to come back down to accelerate. So we haven’t really changed our approach there. The yield is better obviously. For the quarter I think we had 67 million of purchases and the yield on those purchases was 2.71%. The portfolio itself, yield for the quarter is probably going to be just north of 250 and duration is still less than four years.

[Jacquelynne Bohlen:]

Okay, thank you. That’s very helpful. I’ll step back now.

[Melanie Dressel:]

Thanks Jackie.

[Operator:]

Your next question comes from the line of Matthew Clark from Piper Jaffray. Your line is open.

[Matthew Clark:]

Hey good afternoon all. First one just on loan growth and Hadley you talked about utilization maybe drifting a little bit lower here in the first quarter, when you are holding on that C&I category, do you suspect that we can see balances down further here in the first, do you think similar to last year we showed some net growth?

[Hadley Robbins:]

You know 2014, I am going to go back and take a quick look, we had -- it was slightly negative in 2014. 2015 it was up 60 million net, as I recall. And it's really difficult to make a decent forecast end of the first quarter other than I do know that we have the headwinds of seasonal line usage and I believe that will play out. I don’t have any information that suggests otherwise. So we will have headwinds.

[Matthew Clark:]

Okay, and can you remind us of the pipeline, I may have missed it in your prepared comments. How that looks relative to last quarter and year-over-year?

[Hadley Robbins:]

Pipeline, our pipeline is building. We have activities similar in mix to the portfolio and the pipeline continues to be strongest in Puget Sound, Portland Vancouver and my hope is that it continues to build. I haven’t concerns on that front at this point in time, although it may be a bit softer than I would like. I do believe that the pipeline activity however the last couple weeks has been building. You know we had some snow and so that’s kind of interesting in that it did have an impact on us.

[Matthew Clark:]

Yes, okay. And then maybe shifting gears, Clint on the core margin outlook, it sounds like again hoarding some excess liquidity in the fourth quarter cost you a few basis points, assuming you guys get that back but also considering the incremental pressure that you have on just the existing portfolio with new business. Net-net do you think we can kind of hold the line here at 399 or do you think there is some incremental pressure.

[Clint Stein:]

I am optimistic that we can hold the line. If we look at -- we got 25 basis points in rate movement right at the end of the quarter. For the first quarter we’ll have a full three months of impact from that. We did see loan coupon rates increase by seven basis points associated with re-pricing that took place during the quarter of existing loans, new production and some payoffs and the other activities that Hadley talked about, tempered that seven basis points by two basis points for the net five that Hadley had in his prepared remarks, it really comes down to our asset mix. We won’t have the overnight funds as a drag. So there’s a few basis points that we will pick back up in the current quarter so it really comes down to our deposit growth is managed to relative to loan growth. And we experienced margin pressure during 2016 but it was because we had 8% deposit growth for the year and it’s favorable for net interest income which fell at the bottom line and helped our earnings per share. So all things being equal I think the margin will hang in there, but if we have outsized deposit growth again that could create pressure but I don’t know that that would be necessarily a bad form of pressure.

[Matthew Clark:]

Okay and then on the expense to asset guidance of mid-270s and does that include PCBK and the related cost saves or is that more of a near term guidance?

[Clint Stein:]

That’s more near term. Once we close PCBK then I’ll start providing some idea of what our expectations are similar to a couple of years ago with Intermountain. Once we got that closed and knew what the run rate was versus what we’ve modeled. We were able to dial into our target, our post integration target, so we’ll have for the later in the year. I just wanted to give you kind of an idea of what we were thinking over the next couple of quarters.

[Matthew Clark:]

Okay, thanks and then the tax rate did you provide guidance of 31% is that right?

[Clint Stein:]

A range of 30% to 31% would be a reasonable expectation. We were 30% for 2016, 2015 was 30.2%. So I think that right in that range if that’s what you’re modeling you’re going to be pretty close.

[Matthew Clark:]

Okay, thank you.

[Melanie Dressel:]

Thanks Matt.

[Operator:]

Your next question comes from the line of Jon Arfstrom from RBC Capital Management. Your line is open.

[Jon Arfstrom:]

Hey thanks. Good afternoon everyone. Hi Jon.

[Jon Arfstrom:]

Hi, have just one more on the loan growth numbers for the quarter, you wouldn’t say any others as surprising as the decline in the warehouse and the ag there maybe some strength in other areas this is essentially what you’d expected?

[Andy McDonald:]

Yeah I think that I saw that it would tail off in the fourth quarter. I was a bit surprised about the size of pay-offs which were out of pattern. But the seasonal pattern of line usage was expected. The pay-offs some of which we knew about going into the quarter and some occurred during the quarter and they were larger clients that basically had opportunities to sell the company and sold the company. The buyer had financing elsewhere and so we’re unable to hang on to the activity. For example three loans were paid off and the totals over $30 million. So that creates some headwind for us.

[Jon Arfstrom:]

Okay, any changes in pricing that you’re noticing in commercial real estate or commercial?

[Andy McDonald:]

It’s about the same. This has been most of the year still competitive. I think that I’ve seen out there suggests it trend one way or the other. However there has been some people talking about preserving capacity to London CRE market given concentrations to manage that capacity more carefully and that puts -- theoretically sum up the pressure potential on pricing. But we really haven’t seen that materialize yet in a meaningful way.

[Jon Arfstrom:]

Okay, good and then Melanie maybe a question for you. It’s only been a couple of weeks but I am you spent a fair amount of time on the acquisition, any early feedback or thoughts that you have on it and any feedback maybe from customers or others in the region?

[Melanie Dressel:]

Sure, Hadley and I actually visited all of Pacific Continental locations and had great conversations with people. I think that there was a lot of enthusiasm about what the two companies could do together. We really haven’t had much feedback from their customers but we have heard from our customers that they would like just having the additional locations.

[Jon Arfstrom:]

Okay, good. All right, thanks for taking my question.

[Melanie Dressel:]

Thanks Jon.

[Operator:]

[Operator Instructions] Your next question comes from the like of Aaron Deer from Sandler O’Neill. Your line is open.

[Aaron Deer:]

Hi, good afternoon everyone.

[Melanie Dressel:]

Hi Aaron.

[Aaron Deer:]

I believe all of my questions have been addressed but just had one clarification for you Melanie. On your comment or maybe was a Board comment regarding the discontinuation of the special dividend that just until the Pacific Continental deal is closed, is that correct and then at that point you would -- that comes back open for consideration?

[Melanie Dressel:]

Yes, I mean, it doesn’t mean that we will resume it, but certainly it will be open for discussion. And what we always try to give is to have as many options available to manage our capital as we can we’ve said for a quite a while that we would kind skating toward a 12% total risk based capital and nothing's changed there.

[Aaron Deer:]

Perfect, okay. Thanks very much.

[Melanie Dressel:]

Okay. Thank you.

[Operator:]

There are no further questions at this time. I will turn the call back over to the presenters.

[Melanie Dressel:]

Okay. Well, thank you everyone and here's to a great year for everyone. We’ll talk to you soon.

[Operator:]

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