Columbia Banking System, Inc.
Q2 2014 Earnings Call Transcript

Published: 24 Jul 2014

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to Columbia Banking System's joint conference call. [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 Systems.

[Melanie J. Dressel:]

Thank you, Kateena. Good morning, everyone, and thank you for joining us today to discuss our exciting news. Last evening, we announced that we have entered into a definitive agreement with Intermountain Community Bancorp located in the state Idaho. Joining me initially on the call today are Curt Hecker, President and CEO of Intermountain; and Clint Stein, Chief Financial Officer here at Columbia. We'll also be addressing our second quarter results towards the end of the call, and we'll be happy to take questions regarding both the merger and the earnings following our remarks. Then at that time, Andy McDonald, our Chief Credit Officer; and Hadley Robbins, our Chief Operating Officer, will also join the call. Before we begin, I'd like to note that the press release and slide presentation detailing yesterday's announcement are available online at columbiabank.com on the lower right-hand corner of our homepage, if you'd like to follow along. As always, I need to mention that we'll be making some forward-looking statements. They're, of course, subject to economic and other factors, and you can find a more complete Safe Harbor explanation in our Form 10-K filed with the SEC for the year 2013. I can't tell you how pleased and excited we are to be able to announce this transaction. As you've heard me say many times, the criteria we consider in any acquisition are that it makes financial sense for shareholders, that it generally extends our geographic footprint and that it be culturally compatible. With that in mind, please turn to the transaction highlights on Slide 3 of the presentation. With last night's announcement, we enter the state of Idaho with the acquisition of the third largest community bank headquartered in Idaho. Idaho is an important state in the Pacific Northwest. And prior to this acquisition, we had no presence there. We now can truly claim that we are the premier regional community bank serving the entire Pacific Northwest. We're very excited that we found a partner that has built a similar community-focused bank with a strong core deposit base. 1/3 of their deposits are noninterest-bearing accounts. This partnership also helps us expand into Boise, Idaho, which is the third largest MSA in the Pacific Northwest. On a combined basis, we will have more than $8 billion in assets and over 150 branches, and we'll continue with strong capital levels as well. The transaction is immediately accretive to earnings. However, given the smaller relative size of the transaction, the earnings accretion is less impactful at about 2%. However, it's worth noting that on an incremental basis, earnings accretion is 22%. In other words, the earnings contributed by this transaction would add 22% more earnings per share on the shares we actually issue to Intermountain shareholders. The IRR in this transactions meets our financial hurdle of 15%. Tangible book value dilution is approximately 1%, and it takes just under 3 years to earn back that initial dilution. Slide 4 provides an overview of the terms of the transaction. The consideration offered is 0.6426 Columbia shares and $2.29 of cash per share. At our stock price as of yesterday, the transaction is valued at $18.22 per share or $121.5 million in total. Intermountain shareholders will have the option to elect Columbia shares, cash or a combination of the 2. In total, we will issue 4.2 million shares and cash of $16.7 million. As Columbia's stock price moves, the value of the stock component will fluctuate. The pricing represents 1.23x Intermountain's stated tangible book value as of March 31 and is an 11.7% premium to yesterday's closing price of $16.31 per share In consideration of our partnership, we will be adding one of Intermountain's independent community-based directors to Columbia's board. And in addition, Curt Hecker, Intermountain's current CEO, will be joining Columbia to assist with our Idaho expansion and integration of Intermountain into Columbia. We're targeting a fourth quarter completion date, pending customary closing conditions, which include regulatory approval and the approval of Intermountain shareholders. It's important to note that we conducted a comprehensive due diligence review over many weeks. Our diligence process included numerous meetings between members of the executive management of both banks and a thorough review of Intermountain's loan portfolio, their business activities and operations. Slide 5 provides an overview of Intermountain, and I think now would be a good time to turn the call over to Curt to review this slide and to share his thoughts on the transaction. Curt?

[Curt Hecker:]

Thank you, Melanie. I'd like to take a few minutes to say how pleased I am and really excited about the merger with Columbia. Our board, executive management team and I all agree that the transaction makes for sense for our shareholders, customers and employees. As you could see on Slide 5, we operate primarily in Idaho, which complements Columbia's current Pacific Northwest footprint very well. Idaho is a diversified vibrant market with current unemployment rates below 5% and growth rates anticipated to exceed national averages over the next 10 years. Through their strong reputation and combined resources of Columbia and Intermountain, we can more aggressively pursue market opportunities in the state, including further expansion in the Boise area. From a financial perspective, we've built a very strong, loyal and local deposit base, the cost of which has been lower than our peers' for many, many years. Retaining customer loyalties at this pivotal point is key to future success as we'd marry our extensive local knowledge and relationships with Columbia's considerable expertise in this area. On the lending side, the combination with Columbia will enhance the ability of our lenders to build customer value and increase portfolio sizes. Noninterest income has always been a strength for us, and our trust, investment, cash management and deposit services will integrate very well with Columbia's. We've been pushing efficiency strategies for several years now, and this merger will provide the scale to accelerate this process, thereby unlocking significant additional value for our combined shareholders in the coming years. And with that, I'd like to turn it back to you, Melanie.

[Melanie J. Dressel:]

Thanks, Curt. Now Slide 6 illustrates the extension of our footprint into Idaho. As Curt mentioned, Intermountain has 19 branches. We have only one planned branch consolidation, and that would be in the downtown Spokane market where we are -- we have 2 locations that are in very close proximity to one another. On Slide 7, you can see that Intermountain's deposit market share ranks them 10th in the state. But it is the third largest bank headquartered in Idaho. We believe that Idaho is an exciting market with a growing population. Idaho's economy is rapidly improving with an unemployment rate of 4.7% as of June. And we're particularly excited about the opportunities to serve the Boise market, which is the third largest MSA in the Pacific Northwest. Slide 8 gives you a better feel for the employment base of Idaho with service industries making up a majority of the economy. The bottom slide shows the vast improvement in the employment figures for Idaho. And at this point, I'd like to turn the call over to Clint Stein, our Chief Financial Officer, to discuss more of the transaction details.

[Clint E. Stein:]

Thank you, Melanie. Good morning, everyone. Turning to Slide 9. The charts illustrate a loan portfolio and core deposit profile that is similar to ours, but adds some additional geographic diversity. As Curt mentioned, much like Columbia, Intermountain has a solid low-cost core deposit base with the constant or non-maturity deposits at just 8 basis points in the March quarter. On the lending front, our capital base and product offerings will allow us to pursue select larger lending relationships in the Idaho market that previously were unavailable to Intermountain. On Slide 11, I'll go over our key transaction assumptions. As you know, we do not provide earnings guidance. For our analysis, we have used analysts' consensus estimates for us and reasonable projections for Intermountain to generate our estimated earnings accretion. For Intermountain, we have assumed that recent financial performance continues to marginally improve with modest loan and asset growth in the 2% to 3% per year range. We expect to realize approximately $8.6 million in cost savings from the acquisition, or 27% of Intermountain's noninterest expense. We forecast about 50% of the cost savings to be realized in 2015 and then the full amount in 2016. We anticipate approximately $18 million in pretax deal-related expenses, and we are estimating a mark on the loan portfolio of 3.63%. In addition, our estimated day 1 fair value marks include a premium of $5 million for investment securities, an estimated $13.7 million discount on fixed assets and an estimated deposit write-up of roughly $1.5 million. We will redeem the $16.5 million of trust preferred securities at or shortly after closing. Our estimated core deposit intangible assumption is based on 1.5% of Intermountain's core deposits. We did not assume any revenue enhancements for our modeling purposes, but do believe that our larger lending limit and our product set will provide the opportunities to enhance earnings over a longer period. Finally, subject to regulatory approval, we expect the acquisition to close sometime in the fourth quarter. But for modeling purposes, we assumed a December 31, 2014 close. On Slide 12, it details our cost savings estimate of $8.6 million, which, as I previously stated, is about 27% of Intermountain's noninterest expense base. As we have demonstrated with prior acquisitions, we are committed to achieving our model for savings and will provide you with periodic updates on our progress. Slide 13 illustrates the transaction metrics and pro forma capital ratios. As Melanie mentioned, at closing, Columbia will issue 4.2 million shares of stock and pay $16.7 million in cash. At yesterday's closing price of $24.79, the aggregate consideration would have been approximately $121.5 million or $18.22 per share for Intermountain shareholders. As Columbia's stock price fluctuates, the value of the stock consideration moves. So the resulting deal price per share moves as well. There are no collars in this structure, but the deal is subject to a 17.5% double-trigger walkaway on the downside. The shareholders of Intermountain will get the opportunity to elect stock, cash or a combination of stock and cash, which will be subject to proration. We've provided a chart in the appendix on Slide 16, which illustrates what Intermountain shareholders receive at different Columbia stock prices. We believe that the transaction multiples compare favorably with other deals in today's environment. In terms of financial metrics, in the first full year of cost save realization, earnings per share increase approximately 2%, while earnings on shares issued on an incremental basis is approximately 22% accretive. The IRR is greater than 15%, which is a measure of the return on capital utilized or allocated to the transaction. Last, the tangible book value dilution at close is approximately 1%, and the estimated tangible book value earn-back period is less than 3 years. We maintain strong pro forma capital ratios as demonstrated by a tangible common equity ratio of 9.82% (sic) [9.83%] and a total risk-based ratio of 14.4%. To wrap up our prepared remarks, I'll turn the call back over to Melanie.

[Melanie J. Dressel:]

Thanks, Clint. Page 14 of the slide deck provides a summary of the investment opportunities this merger creates. We truly believe it's compelling. This acquisition is in line with our strategic plan and meets our investment criteria. We're excited to serve the Idaho market with plans on expanding Intermountain's current solid foothold. Having completed 5 FDIC transactions since 2009, in addition to 7 open bank acquisitions in our history, we have a well-tested and successful track record for integrating community banks, and we feel very confident that this integration will go smoothly as well. Thank you for allowing us the opportunity to share our thoughts on this transaction. And now I'd like to shift gears and talk about our second quarter. And then following our comments about our second quarter earnings release, we will open the call for questions. In addition to Curt and Clint, we also have Hadley Robbins, Columbia's Chief Operating Officer; and Andy McDonald, Columbia's Chief Credit Officer, available to answer questions. First of all, I'd like to just very briefly cover some important points about our economy here in the Pacific Northwest. Looking at the big picture, the pace of the economy is picking up speed and continues to improve over a wide range of indicators. For example, unemployment rates, which have lagged other recovery indicators, have significantly improved in Washington, Oregon and Idaho. Other good news is that Boeing's Washington payroll rose for the first time in 19 months and is up to over 81,000 people. Sales are brisk and the company now has 783 firm orders for the year so far. On the other hand, Microsoft recently announced 18,000 job cuts worldwide. However, we're looking at about 1,300 cuts in the Puget Sound region, and the consensus is that they shouldn't have too much of an impact on the local economy. In short, the economy is continuing a steady improvement here in the Pacific Northwest, and we're pleased with our second quarter results. I think our second quarter results reflect record loan production of just over $250 million, and this is the third consecutive quarter with more than $200 million in new loans. The quarter was also the 1 year anniversary of our acquisition of West Coast, and it's worth noting that we achieved the expected earnings accretion and cost saves. At this point, I'd like to turn the call over to Clint to talk about our financial performance.

[Clint E. Stein:]

Well, it certainly was a busy quarter for us, but we did have a good quarter, and we reported second quarter earnings of $21.2 million or $0.40 per diluted common share. Our reported earnings per share were negatively impacted by roughly $0.02 due to $672,000 in pretax acquisition-related expense and $635,000 of expense resulting from the accounting impact of our acquired FDIC loan portfolios. Net interest income increased $1.2 million over the prior quarter to $75.1 million. As a result of portfolio growth, interest income on loans increased $1.5 million on a linked-quarter basis despite a $1 million decline in incremental accretion income. Noninterest income before the change in FDIC loss-sharing asset was $19.7 million in the current quarter, up $850,000 from the prior quarter. Total revenue before the change in FDIC loss-sharing asset increased $2 million over the prior quarter. Total noninterest expense was $57.8 million for the current quarter, up $378,000 from the first quarter. After taking into consideration the clawback liability accrual, acquisition-related expense, net cost of OREO and a $430,000 loss on the sale of a former branch building we inherited from one of our FDIC-assisted acquisitions, our core noninterest expense run rate for the quarter was $56.9 million. That's up from $56.1 million on the same basis during the first quarter. The increase was in areas such as advertising, data processing, legal and professional services and operating losses, which are all categories susceptible to timing differences. Despite the uptick in the current quarter, we remain focused on the continued improvement in our noninterest expense run rate. The operating net interest margin expanded 8 basis points from the prior quarter to 4.27%. The NIM benefited in the second quarter from the loan growth that occurred at the end of the first quarter, as well as the current period growth. Our average cost of interest-bearing deposits for the quarter held steady at 8 basis points, and our cost of total deposits also remained unchanged at 5 basis points. Our effective tax rate for the quarter was 29%. It's down slightly from our prior year rate of 31%, but in line with our expectations for the remainder of 2014. Last, tangible book value per common share increased from $13.38 at the end of the first quarter to $13.74 at the end of the second quarter. And our tangible common equity-to-tangible assets ratio was 10.43%. Now I'll turn the call over to Hadley, to discuss our production results.

[Hadley S. Robbins:]

Thank you, Clint. Non-covered loans were $4.45 billion at June 30, 2014, up $156 million, or 4%, from $4.3 billion at March 31. The increase in non-covered loans was driven by strong levels of new loan production, which was over $252 million during the quarter. Term loans accounted for roughly $155 million of total new production, and new lines represented about $97 million. The mix of new production largely consisted of commercial business loans and commercial real estate term loans. Funded loan balances associated with new production were nicely distributed in terms of size. 26% of new production was over $5 million, 31% in the range of $1 million to $5 million and 43% was under $1 million. In terms of geography, Washington generated about 70% of new production and Oregon 30%. The low interest rate environment, coupled with competitive market conditions for big quality loans continued to put pressure on pricing for both new and existing relationships. The bank's tax-adjusted weighted average coupon rate for all non -- on non-covered loans, excluding nonaccrual, was 4.55% at year-end 2013, 4.50% at March 31 and 4.44% as of June 30, 2014. Commercial business loans ended the quarter at $1.73 billion, up $134 million or about 8% from the first quarter. The increase in the second quarter outstanding commercial loans is largely due to new production. However, more active line utilization also contributed to higher commercial loan levels during the quarter. Line utilization increased from 53% of total commitments as of March 31, 2014, to 55.8% at June 30. During the quarter, loan growth occurred across a number of business sectors. Those with the highest level of activity included finance, contractors, transportation and warehouse and agriculture. Seasonal borrowing activity in the agricultural sector was most pronounced in wheat, potato and fruit farming operations. We also observed increased activity in the public administration sector. Commercial real estate term loans, which includes owner-occupied and investor properties, ended the quarter at $2.1 billion, up about $13.9 million overall. Growth was centered in owner-occupied projects, which increased $27 million. Owner-occupied property types experiencing the most significant growth were office, manufacturing, recreation and health care. Our commercial real estate investor portfolio declined about $13 million. The investor property type with the largest quarterly decline was in the hotel/motel property type. The reduction in this category was largely controlled and related to problem loan resolution efforts. Looking forward, the level of our current C&I and commercial real estate pipeline is comparable to the level and mix of loan types experienced during the second quarter. Deal flow is fluid and subject to delays and competitive conditions, so it's difficult to speak with precision. But at this point, we expect the pipeline to fuel third quarter production at comparable levels we've seen in the first and second quarter of this year. However, it's important to note that third quarter net loan growth is likely to be impacted by higher-than-normal payoffs. A few of our borrowers have alerted us to potential property sales that will trigger payoff. These appear to be active in our footprint and are targeting properties with credit tenants. We also have a number of multifamily construction loans that are nearing stabilization and will pay off as they move to the secondary market for permanent funding. We continue to fund new multifamily construction loans, but we remain very selective and are purposeful in managing our exposure level in this category. In terms of deposits, total deposits at June 30 were $5.99 billion, a decrease of $59.3 million, or 1%, from $6.04 billion at March 31, 2014. The decrease was largely due to seasonal deposit fluctuations. Compared to year-end 2013, total deposits have actually increased $25.6 million. Core deposits comprised about 96% of total deposits and were $5.74 billion at June 30, 2014. That concludes my comments. At this point, I'd like to turn the call over to Andy McDonald.

[Andrew L. McDonald:]

Thanks, Hadley. I'll be brief. Nonperforming assets continued their decline this quarter and now represent 65 basis points of our non-covered assets. The decline in nonperforming assets was centered in reduction in nonaccrual assets as OREO balances remained relatively unchanged from the prior quarter. As of the end of the quarter, we had approximately $13.7 million in reported investment in TDRs, of which about $1.7 million is included in the NPA category, leaving $12 million in performing TDRs. For the quarter, the company had a provision of $600,000 for non-covered loans. The modest level of provision was primarily due to charge-offs associated with the West Coast Bank portfolio. There was no provision associated with the originated portfolio as growth in loans was offset by improving credit quality, thus leaving the allowance in absolute terms even with last quarter at around $46 million. We also enjoyed a small recapture out of the Bank of Whitman portfolio during the quarter. FAS 2 loans at quarter end were 23 basis points compared to 43 basis points last quarter. With that, I'll turn the call back over to Melanie.

[Melanie J. Dressel:]

Thank you, Andy. We shared some other good news yesterday. We also announced a quarterly cash dividend of $0.14 per common share as well as a special dividend of $0.14. Both dividends will be paid on August 20, 2014, to shareholders of record as of the close of business on August 6, 2014. This constitutes a payout ratio of 70% for the quarter and a dividend yield of 4.52% based on yesterday's closing price. We're very pleased to be in a position to both increase our regular dividend from $0.12 for the first quarter as well as pay another special dividend. A major focus for the last half of 2014 and beyond, will, of course, be to move forward with the closing of the Intermountain acquisition and the integration of our 2 companies. We want to maintain our external focus on building market share, continuing our high-quality loan growth and expand our relationships with our customers to improve our noninterest income opportunities. We feel very positive about our future as we make big strides toward our mission to become the best Pacific Northwest regional community bank. And with that, this concludes our prepared comments this morning. As a reminder, Curt Hecker, Clint Stein, Hadley Robbins and Andy McDonald are with me to answer your questions about the merger agreement and our second quarter financial results. And now Kateena, you can open the call for questions.

[Operator:]

[Operator Instructions] Your first question is from Brett Rabatin with Sterne Agee.

[Brett D. Rabatin:]

Maybe if you could talk a little bit about -- you're obviously not going to be closing many branches, just one. Could you talk a little more about maybe the 27% expense saves in the deal? And then I think you mentioned that there were no revenue enhancements assumed with the transaction, but that you had opportunities for some of those. If you could kind of talk about those 2 things, I guess, first.

[Melanie J. Dressel:]

Sure. And you're right, Brett, we did not include revenue enhancements. But we did a very, very thorough due diligence process. And as I mentioned before, we spent quite a bit of time with Intermountain's executive team really talking about what cost saves we could really implement in the combined company, and I think that we came up with a really good forecast. And obviously, the biggest area of expense saves comes from the compensation and benefits area, which is always or generally the case. The other 2 areas -- well, technology and communications is also another area that we feel that we can get some real efficiencies. And then there is a normal -- the -- more of the marketing and promotion activities, occupancy, equipment, those kind of things. So it's pretty generic. But I believe that because of the close relationship that we had in coming up with these numbers, that they're pretty reliable.

[Brett D. Rabatin:]

Okay. And then thoughts on just any potential -- you said you might have some revenue enhancement potential with the combination. Any thoughts on that?

[Melanie J. Dressel:]

Yes. Curt, maybe you'd like to chime in on this or Hadley?

[Hadley S. Robbins:]

Curt?

[Curt Hecker:]

Sure. This is Curt. I'll jump in on that. I felt that we were cautious, I think, in not wanting to rely right out of the chute on revenue enhancements. But I do think we have the ability to continue to expand noninterest income with the combination of the 2 institutions, in particular in the trust investment services area where I think we complement one another and have expansion opportunities. The loan growth estimates yield can be another opportunity for us as well, too, as we can definitely have that additional growth within the market, but we've wanted to be conservative with that and not overstate that at this point in time.

[Hadley S. Robbins:]

And Brett, a few things that I'm -- a few of the things I'm looking at, Curt has mentioned we do see opportunities to marry up some of the existing areas that we have revenue streams in. Investment area, we can bring wealth management to the table. We've got a strong ag running position, and the depth of the bank allows for larger relationships, so we could expand some of those relationships potentially. And that we have a product set that's fairly compatible, but maybe we can do some cross-selling as well. So those are areas we're looking at. Payment solutions, in general, offer a great opportunity for us to look into deeper. But again, we didn't want to take an overly optimistic view of this. We wanted to proceed with more information and diligence. So thank you.

[Brett D. Rabatin:]

Okay, that's great color. And then I guess the other thing I was just curious about was related to earnings and just the big [ph] commentary around expecting some payoffs in the third quarter. I was hoping maybe if you could give us an idea of the magnitude, if you had some thoughts around that. And then just you mentioned growth in C&I and commercial real estate this quarter. I was just curious what you're seeing on pricing in those areas.

[Hadley S. Robbins:]

Yes, with regard to payoffs, it's difficult to say with certainty that they will actually occur, but there are discussions that are going under way. So I wanted to alert everybody to that. The activity that's multifamily is much a carryover of activity that was booked at West Coast Bank. And with the combined bank, we have concentration levels that come into play. And we manage our concentration levels very carefully, but not so that it interrupts our ability to serve existing clients. With that, we are stabilized projects in the multifamily area, and they're moving to the secondary market. And they will go to the secondary market. The magnitude of the multifamily is in the range of $30 million, $40 million, and that I at this point don't want to put a dollar amount on what may go as a result of property sales because I'm not certain those will come into play.

[Operator:]

Your next question comes from Jeff Rulis with D.A. Davidson.

[Jeffrey Rulis:]

I guess I'd be interested in just sort of the genesis of the deal and either from Curt or Melanie, just who approached who on the transaction. And then was this a competitive bid process?

[Melanie J. Dressel:]

Well, I'll let Curt chime in, but I believe that I was the one that picked up the phone first and called. But Curt and I have known each other professionally for a long time. And certainly, I've watched with a great deal of admiration in terms of how Curt has operated the bank and -- even during very challenging times and continues to do that. And we're really happy that Curt's staying on with us to help us continue to grow the Idaho market. Do you want to add anything, Curt?

[Curt Hecker:]

Sure Yes, Melanie did get in contact with me. And then I can reciprocate to Melanie's comments that I've known her and I've watched the progress of Columbia and have always been very impressed and we had very good discussions early on. That said, the board has continued to follow up with normal fiduciary processes, and we completed that. And as we get to -- we will be putting out a proxy that will describe the process all in detail at that time.

[Jeffrey Rulis:]

Great. I guess moving on to the quarterly results. I'm just interested in the loan production. Was that fairly uniform throughout the quarter? Late or early, you seemed to indicate that kind of you had some activity late in Q1, but I just wanted to confirm that, how the flow came.

[Curt Hecker:]

It was back-end loaded. The month of June was pretty heavy. And the amount of production in June was about $120 million.

[Melanie J. Dressel:]

And then the line of credit is -- has also improved during the quarter, a lot of which is seasonal.

[Clint E. Stein:]

On -- and this is Clint, Jeff. I think you're referring to maybe the comment I made in my prepared remarks. We had about half of our first quarter loan growth occurred in March. And I believe last quarter, we spoke about that we didn't get the full benefit of that, but we would in the second quarter. And so I was just kind of following up and helping to connect the dots from our prior discussions on this call last quarter.

[Jeffrey Rulis:]

No, that's helpful. I guess on that note, I guess over a broader maybe 4 quarters, I guess the core margin, the discussion has been kind of guarded or sort of a negative tone or some pressure there. Now that you've seen a pickup in loan growth, I guess your thoughts on -- have you moved more to a neutral core margin or possibly positive outlook?

[Melanie J. Dressel:]

Clint?

[Clint E. Stein:]

Well, on the -- with the core margin, it's -- year-over-year, we're down 5 basis points for the 6 months ended June 2014 versus the 6 months in 2013. I guess the reason that I tend to sound guarded about that is that we're still facing the same rate environment that we've been in over the last year or 2 or longer. We started to get some relief with the investment portfolio and those yields trending up. But now the 10-year is down, and so it comes down to asset mix, and we have a great loan production. So I guess if we were sitting at the median of our peer group with a margin, I would feel pretty optimistic that it would expand. But given that we're kind of on the high end of what we see with our peers and competitors for margin, it just still leaves me to be cautiously optimistic about what the margin will do. But it has been very resilient, and we've talked about that with a lot of investor conferences and calls that over the history of the company, the margin's hung in there between 4.25% and 4.5% through a lot of different rate and business cycles. And so I do think that we will continue to have a very resilient margin. But it just comes down to what happens with the rate environment and when and competitive pressures.

[Operator:]

Your next question comes from Joe Morford with RBC Capital Markets.

[Joe Morford:]

First question, just on that, I was curious about the expected timing for the systems conversion. And will you be integrating Intermountain into Columbia? Or will it be run as a separate subsidiary?

[Melanie J. Dressel:]

No, it will be integrated into Columbia, and we're expecting to do the conversion probably sometime in May.

[Joe Morford:]

May of '15, okay. And then just following up on the increased commercial loan growth and line utilization rates. I recognize some of that is seasonal. But just in general, are you seeing any increased confidence among business customers in their willingness to invest and hire and things like that?

[Curt Hecker:]

I think so, and I think a comment I'd make, that people are still very cautiously optimistic about how things will evolve over the coming year or 2. But many do see increased business activity and it's fairly uniform across industry sectors. But I would caution that it's just cautiously optimistic in terms of the viewpoints. Talking to a few business leaders not too long ago, everything was looking well, and then the unrest that's taking place in Middle East and elsewhere, Ukraine, factor into thought processes and slow things down. But I think that most view things in a positive light.

[Operator:]

Your next question comes from Jackie Chimera with KBW.

[Jacquelynne Chimera:]

A quick question for you on the special dividend policy. In the past, I know that you've utilized that absent acquisitions. And then, at least to me, it felt like it sent a pretty clear message when you had the announcement concurrently alongside the deal. How do you look at that going forward?

[Melanie J. Dressel:]

Well, it is a quarter-by-quarter decision, and we discuss it with the board and we look at what we have that we know in front of us that might be a good utilization of capital. And we literally make the decision in that fashion. But what we always want of a regular dividend is that we want it to be sustainable and so we view them separately. We want to make sure that people understand, particularly with this dividend, that we are -- we feel very confident in our earnings and it's reflected in our increased regular dividend as well.

[Jacquelynne Chimera:]

So is it a safe assumption then to say that it'll be a quarterly decision and the board will discuss whether a special dividend will happen or not? But just based on the fact that you announced the deal and the special dividend, it's not completely off the table for the November payment?

[Melanie J. Dressel:]

Yes, that's correct. We -- it will just be decided at that time.

[Jacquelynne Chimera:]

Okay. And as I look at the accretion, I want to make sure that I'm understanding how you're calculating that. The 22%, that's not off of a base Columbia earnings, that's off of the new issuance of the 4.2 million shares?

[Clint E. Stein:]

That's correct.

[Jacquelynne Chimera:]

Okay. Okay. And then just lastly, on the -- the TruPS that you'll be paying off, will there be any other marks? I know there wasn't anything mentioned in the presentation, but would there be any marks on the existing borrowings outside of the TruPS?

[Clint E. Stein:]

I'm sorry, I didn't catch the first part of that.

[Jacquelynne Chimera:]

So understanding that you're paying off the $16.5 million in TruPS, the additional small amount in borrowings that Intermountain has, we -- will there be any meaningful marks on that portfolio?

[Clint E. Stein:]

No, I think those are very short term in nature. And probably, most of those will be gone by the time that we get to the closing.

[Operator:]

At this time, there are no further questions.

[Melanie J. Dressel:]

All right. Well, once again, thank you for joining us this morning. We really appreciate your questions, and we'll talk to you next quarter. Thank you. Bye.

[Operator:]

Thank you for participating in today's conference. You may now disconnect.