Columbia Banking System, Inc.
Q3 2015 Earnings Call Transcript

Published: 30 Oct 2015

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Columbia Banking System's Third Quarter 2015 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 your call over to our host, Melanie Dressel, President and Chief Executive Officer of Columbia Banking System. Please go ahead.

[Melanie Dressel:]

Thank you. Good afternoon, everyone. And thank you for joining us on today's call to discuss our third quarter 2015 results, which we released this morning. The release is available on our website, columbiabank.com. As we outlined in our earnings release, we had a record new loan production during the quarter growing 348 million, our highest quarterly total in our history with just under 850 million for the first nine months of 2015. This was the eighth consecutive quarter our bankers have achieve well over 200 million in new loan originations. And along with increases non-interest income and careful management of expense, this helped us achieve our record earnings with net income of 25.8 million and diluted earnings per share of $0.45. Clint Stein, Columbia’s Chief Financial Officer is on the call with me today. He will begin our call by providing details of our earnings performance. Hadley Robbins, our Chief Operating Officer will be covering our production areas this afternoon. And Andy McDonald, our Chief Credit Officer will review our credit quality information. I will then conclude by giving you a little bit of an update on the economy here in Pacific Northwest, including Washington, Oregon and Idaho. We’ll then be happy to answer your questions. But as always, I need to remind you that we will be making some forward-looking statements today, which are subject to economic and other factors. And 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 Form 10-K filed with the SEC for the year 2014. At this point, I'd like turn the call over to Clint to talk about our financial performance.

[Clint Stein:]

Thank you, Melanie. This morning, we reported third quarter earnings of $25.8 million or $0.45 per diluted common share. We had many other same items that have created noise in our numbers during previous quarters. But this quarter, they didn’t materially influence our reported results. We had $428,000 of pretax acquisition expense and OREO expense of $240,000 which were offset by an $826,000 benefit from the accounting impact of our acquired FDIC loan portfolios. The combination of these items resulted in an increase to net income of approximately $100,000. Our reported net interest income increased $684,000 over the prior quarter to $81.7 million. The increase was driven by additional interest income on loan of $1.4 million after excluding the change in acquired load accretion income. Non-interest income before the change in the FDIC loss share asset was $24.1 million in the current quarter, up from $23 million in the prior quarter. The change was primarily due to increased gain on loan sales which were up $1.1 million from the prior quarter. On a core operating basis, revenue increased $2.7 million over the prior quarter and $3.9 or 4% over the first quarter of this year. Reported non-interest expense was $64.1 million for the current quarter, down $4.4 million from the second quarter. The decline was largely driven by acquisition expenses which were $5.2 million lower in the third quarter. After removing the effect of acquisition related expenses, OREO activity and FDIC callback liability expense, our core non-interest run rate for the quarter was $63.2 million, down slightly from $63.4 million on the same basis during the second quarter, but down nearly 3% from $65 million during the first quarter. Most expense categories are modest improvement with declines over the prior quarter. However, some of the informant was diluted by higher than usually fraud losses during the current quarter, which increased $546,000 when compared to the second quarter. As a result of both stable operating expenses and asset growth, our core non-interest expense to assets ratio declined 5 basis points to 2.92% during the third quarter achieving our target one quarter ahead of schedule. We will work diligently to reduce this ratio further. However, there are expense headwinds as we continue to make infrastructure investments in areas we believe will enhance our long term profitability. Sunday is the one year anniversary of the closing of the Intermountain acquisition and we are pleased to report that during the third quarter, we met our goal of $8.6 million in cost savings expected with this transaction. Our bankers continue to do an amazing job delivering another quarter of record loan production and very strong deposit growth. Our cost to deposits and average cost of interest bearing deposits continued to hold steady at 4 and 8 basis points respectively. As a result, the operating net interest margin regained the 1 basis point has lost in the second quarter to match the first quarter ratio of 4.18%. Tangible book value per common share ended the quarter at $14.62, up from $14.29 at the end of the second quarter. And our tangible common equity to tangible assets ratio was 10.1%. Now, I’ll turn the call over to Hadley to discuss our production results.

[Hadley Robbins:]

Thank you, Clint. Total deposits at September 30, 2015 were $7.31 billion, an increase of $270 million from $7.04 billion at June 30, 2015. About a $180 million of this increase was in non-interest bearing DVA [ph]. On a year-to-day basis, total deposits increased $390 million or about 5.6%. Core deposits were $6.99 billion, holding steady at 96% of total deposits. Loans were $5.75 billion at September 30, 2015 representing net increase of about $135 million or 2.4% over the second quarter. Year-to-date loans were up $301 million or about 5.5%. Third quarter increase was largely driven by strong levels of new production at $348 million. Line utilization played less of a factor in driving loan growth during the third quarter, remaining essentially flat at 52.8%. Historically patterns hold, we are likely to see line utilization to start drifting down. Line activity in our C&I portfolio typically pulls back in the fourth quarter. In this part, this is linked to the pattern of borrowing activity related to our cultural borrowers look like crop proceeds to reduce operating line balances during this part of the year. New production was predominantly standard in C&I and commercial real estate and construction loans. Term loans accounted for roughly $225 million of new production, while lines represented about $122 million. The mix in new production was fairly granular in terms of size, 25% of new production was over $5 million, 36 was in the range of $1 million to $5 million and 39% was under $1 million. In terms of geography, 69% of new production was generated by lending teams in Washington, 28% in Oregon and 3% in Idaho. Following the pattern of new production, net loan growth in the third quarter was concentrated in C&I and commercial real estate. C&I loans end of the third quarter at $2.35 billion of about a $100 million. Industry segments with a highest loan growth include agriculture, finance and insurance and public administration. Commercial real estate and construction loans ended the third quarter at $2.89 billion, up $53 million. The commercial real estate asset types with a largest increase were office, warehouse and multifamily. The lower interest rate environment combined with competitive market conditions continues to put downward pressure on load coupon rates. The average tax adjusted coupon rate were quarterly new load production declined from 4.08% in the second quarter to 4.02% in the third quarter. The average tax adjusted coupon rate for the overall loan portfolio trended down as well from 4.44% at June 30th to 4.39% at quarter end. Our market conditions across our footprint are highly competitive, our deal flow remains active and I expect to see positive net loan growth in the fourth quarter. That concludes my comments. I’ll now turn the call over to Andy.

[Andy McDonald:]

Thanks. For the quarter, the company had a provision of $2.8 million which was once again driven by the originated portfolio which required a provision of $5.250 million. The provision was again driven by loan growth, net charge-offs and modest migration trend experienced during the quarter. Offsetting the provision for the originated portfolio, we were able to release 520,000 from the purchase credit impaired allowance and 1.9 million from the discounted allowance provisions. We had net charge-offs of 3 million for the quarter evenly split between the originated portfolio which had 1.6 million and the purchase credit impaired portfolio which had 1.7 million. The discounted portfolio had modest recoveries for the quarter. In total, all equate to about 5 basis points for the quarter. So as of September 30th, our allowance to total loans was about 1.2%, down from 1.23% at June 30th and 1.28% at year-end 2014. Our allowance to non-performing loans as of September 30th is 362%, up from 269% last quarter. Key to the improvement in this ratio was the decline in non-performing loans during the quarter. For the quarter, non-performing assets declined 7.8 million or 17%, thanks to declines in both non-performing loans and OREO. Non-performing loans now represents 33 basis points of period in loan, while non-performing assets represents 44 basis points. Past due loans at quarter end were 20 basis points compared to last quarter when they were 23 basis points. With that, I will turn the call back over to Melanie.

[Melanie Dressel:]

Thanks, Andy. While economic indicators have been somewhat mixed over the past quarter both for the United States and internationally. It appears that forward momentum is still very strong in the Pacific Northwest. Some other was carefully monitoring global economic conditions in the potential fact on our trade to tenant companies. The newsletter is forecasting that Oregon, Idaho and Washington will be in the top ten states with the fastest growing job growth for this year and looking forward to the end of 2016. The pace of retail sales grew faster in our two largest metropolitan areas than anywhere else in the nation in the part quarter. That would be Portland, Oregon growing over 9% and Seattle taking second in 6%. In comparison, sales increased 1.8% nationally. That NAIOP, which is a National Real Estate Development Association brings Washington that it’s most active state for real estate development. This is notable since were the 13 largest state by population. The development of office building, warehouses and retail space generated more than $5 billion in direct expenditures and supported nearly 80,000 jobs. With our population, and as our population continues to grow and Washington is the tenth fastest growing state primarily due to the Seattle found area. The state claim passed to $7 million mark last year, adding 90,000 in a single year and increasing its population by 1.29%. This Seattle is to come as deeper area, which is responsible for almost 70% of the added Washington residence. For yield history, the Seattle Times recently reported that the city’s population is approaching gold rush growth level. They find a time when Seattle grew faster than it has in the past few years, it have to go back to the first decade of the 20th century and the period right after declined a gold rush. Driven by tech hiring particularly by Amazon, Seattle’s growth is as fast as it’s ever been. Washington’s jobless rates continue to drop, hitting 70 or low. However, hiring across the state slipped a bit in September as the labor force shrunk as the labor force drag and the number of jobs fell by around 2,000. The state September unemployment rate was 5.2%, down from 5.3% to prior month, just higher than the U.S. rate of 5.1% and a 12 point lower than 6.2% in September a year ago. The Seattle metro area unemployment in September was just 3.7%. Washington state’s labor economy state expect to see workforce participation of nation and state to decline over the long term as more people move into retirement. The Northwest Seaport Alliance reports that overall continue volumes have improved 5% through the third quarter of this year were actually driven by full containerized imports. Year-over-year, imported full continues increased over 9%, thanks to retailers who are increasing inventories and preparing for the holiday shopping season. However, exports headed to international destinations dropped almost 11% through the third quarter, reflecting the stronger U.S. dollar and decreasing demand from China and weaker economies overseas. Indicators are just mixed in Origen as well despite strong payroll job gains in incent months, Origen’s unemployment rates edged up slightly to 6.2% in September that improved from 6.9% a year ago. The state also had 5,300 workers the first decline in 36 months. The sector is showing the most decline were in construction, retail, professional and business services as well as lesson hospitality. The region however has regained more than twice the job slots during your recession and per capital personal income in approaching the pre-recession high as experience in 2007. Origen is continuing to outpace the nation in economic growth. The state exported nearly $21billion worth of products last year and it’s on pace to match that to year by the end of 2015. Agriculture production accounts for 5.4 billion in the Origen economy led by cattle production, greenhouse and nursery, paying now grounding up to top five. And it’s also been a great year for tourism in Origen. So watching occupancy rate was over 90% in July and 2015 is shaping up to be a record breaking year. The number of visitors to the state outdoor attractions is in paced to be highest ever. In Idaho, the unemployment rates held steady at 4.2% in September, while the state’s labor force reached to record high of 800,000 people. September saw an increase of 5,000 jobs which offset general seasonal declines across Idaho’s economy. Idaho is one of the strongest population and employment growth in the country. According to the U.S. Bureau of Labor Statistics, in the last year, Idaho jumped to eight in the nation an employment up from 31st and ranked sixth the nation for personal income growth. Much of these upward trends is attributed to the state’s economic stability, particularly agriculture which has been a strong and consistent economic driver. The high value agriculture industry makes up 1.2% of the nation economy. However, it makes up about 7% of Idaho’s economy. Idaho still expects agricultural exports to top a billion dollar as they did in 2014. Additionally, economic drivers such as construction, manufacturing and trade contribute significantly to the state’s economy making it significantly more stable than state’s invested in energy for example. As many of you know, we’ve regularly survey our business customers throughout our market areas to better understand their challenges, their opportunities and thoughts on their economic environment. About 94% of our customers were confident about the future of their business. This has turned on all industry survey. However, we’re still optimistic about the business conditions in general those in the construction, retail and manufacturing industries seem to be less optimistic but ratings below the average. To summarize, the economy in our area continues to perform better than the country as a whole than most economic indicators. And along with our business customers, we are very optimistic about the future of the Pacific Northwest. Our priorities going forward continuously growth loans, improving operating leverage and effected utilization capital. We continue feel very optimistic about our opportunities here on the Pacific Northwest which also support our decision depend other special dividend of $0.18 an addition to a regular dividend of $0.18. Those will be paid on November 25th to shareholders of record as of November 11. We are pleased to pay a special cash dividend for the seventh consecutive quarter, both dividends totaling $0.36 constitute as payout ratio of 80% for the quarter and a dividend yield at 4.2% based on our closing price yesterday. With that this concludes our prepared comments this afternoon. As a reminder, Clint Stein, Andy McDonald and Hadley Robbins are with me to help answer your questions. And now in the call, we will open the call up for questions.

[Operator:]

[Operator Instructions] Your first question comes from the line of Joe Morford from RBC Capital Markets. Your line is open.

[Joe Morford:]

Thanks, good afternoon, everyone. I had a question - I guess a couple of questions on expenses, I guess first Clint, you mentioned about some infrastructure investments coming up. I just wondered if you could give us a little more detail on those, what those are exactly and you know also quantify the impact and over what period we may see that?

[Clint Stein:]

Well, you know some of its related to just automation and process in the back office looking at how we can apply some automation in our customer base scenarios, you know probably in our IT shell, you know cyber securities things of that nature. I can’t really give you specific details just because I am willing to open up our playbook for everybody who’s on the call. But it’s not inconsistent with what we’ve done for many years where we’ve taken a long term view and made these types of investments whether it’s in new teams or new technologies. And I think that were some of the things that Hadley is looking to create with the production side, in the banking solutions area. There is going to some investments that we’re going to need to make over the next one to three years.

[Joe Morford:]

Okay that’s helps too in perspective I guess. And related to expenses as well as you know as the full run rate of the savings reflected in the Q3 expense levels, feel kind of a more lower in the fourth quarter from where we are?

[Clint Stein:]

No, I would say that the full run rate is reflected in there. And the reason I would say that is what we finalized those last handful of costs saves in the third quarter. Our object has always been at $63 million to $64 million range once we hit the one year mark of the transaction. And so we talked about a year ago or a year plus ago when we announced it and you know last quarter we were 63.4 million on an operating basis down a couple hundred thousand this quarter. But realistically, there is all these things you know one quarter to the next that can create a little of noise and move the needle you know few hundred thousand dollars one way or the other. So while we might have received some benefit from those last few cost saves in the third quarter. There is a lot of moving pieces and so you know I’d say that I wouldn’t necessarily look for any incremental pickup in the fourth quarter related to specifically just to cost savings.

[Joe Morford:]

Okay, understood, thanks so much.

[Melanie Dressel:]

Thanks Joe.

[Operator:]

Your next question comes from the line of Aaron Deer from Sandler O'Neill. Your line is open.

[Melanie Dressel:]

Hi Aaron.

[Aaron Deer:]

Good afternoon, everybody. Hi Melanie. Melanie you said really positive on the local markets and since you said about 99% of the stuff is all going great, I am going to focus on the 1% that some like maybe - but giving a pause, that was the export volumes exiting the port, it sound like your monitoring your trade dependent companies a little more closely. Can you give a little bit more color in terms what the - what types of borrowers you know we should be thinking about when you say that you are monitoring more closely and is there been any signs of cash flows slowing at those companies and kind of what’s the volume there?

[Melanie Dressel:]

Now, I think that my comments were more associated with you know most trade dependence states in the country of course a lot of it has to do with volumes very large export. But what we don’t a lot of color on that is the extent of the port slow down earlier this year and its long term implications particularly on agriculture. And know you because some of the products that were actually exported are exported, you know they went to other ports. And now that combines with China you just you know I really want to make sure that you are not into that optimistic on the overall except you know just continuing slowing in any kind of the exports whether its Ag or you know clothing even. You know we have companies here in Pacific Northwest have export a lot of clothing to other parts of the world.

[Aaron Deer:]

You know is that - this is client specific, it’s more just kind of general caution on your part?

[Melanie Dressel:]

Yeah. Exactly.

[Aaron Deer:]

Okay. And then following-up on Joe’s question with respect to expenses, anything beyond kind of what - you’re talking about what should - talking about response to his question that might also be added on in terms as you are preparing to pass through the 10 million mass of threshold and also Clint, maybe if you could give an update on what the amount of interchange impact would be when you eventually reach that point?

[Clint Stein:]

Sure. I guess I’ll take it in pieces. So I guess I should have made this point also when I responded to Joe is you know our non-interest expense to assets ratio is something that we’re still committed to working towards lowering in beyond the level that we achieved this quarter. So I don’t know if that will help in terms of with Joe’s question about timing and amount impact. But as we grow, our expenses will grow as well as most likely. As we cross 10 billion, we really feel like we’ve got that infrastructure in place. We’ve been working hard on that for three plus years. We’ve had a lot of dialog around it internally and we have the fast compliance stress test model, it’s operational. We have the compliance function that’s in place many of the other things. So as we cross over 10 billion, it’s really going to volume related items that would cause us to increase expense. Additional production might lead to additional folks in our own operations group for example or additional BSA analysts. So we feel pretty good about where we at there that the interchange - loss of interchange revenue is something that we would hopefully be able to replace with other revenue sources upon crossing 10 billion. But for us it’s a little over $7 million pretax right now.

[Aaron Deer:]

Okay. That’s great. Thanks for taking my questions.

[Melanie Dressel:]

Thanks Aaron.

[Operator:]

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

[Melanie Dressel:]

Hi Matt.

[Matthew Clark:]

Hey, good afternoon, Melanie. I am quite happy. Hey, Andy, how are doing? Just around out the expense discussion, the higher fraud losses this quarter I think they’re up 550,000, I guess you take to what are more normal level is and assume we can see that come back down maybe a little bit here in the fourth quarter?

[Clint Stein:]

I’ll talk a little bit you know the expenses for the quarter. You know looking at just a nature of the activity, I think there was - it was a special circumstance and the nature of the activity involving the loss was - there is also fraudsters who acquired still in debit cards from past third party breaches and then create a counter fit debit cards for the purpose of running transactions not detected by authentication. So upon detection, what we did is we instituted corrected measures which quickly contained the losses and strengthened our ongoing fraud detection capability. That’s probably important to know to that is chip based cards increasing price the existing card technology for the protection will be provided as well. And as it related to kind of the run rate, second quarter was roughly 300,000, third quarter 800,000 of numbers and the difference is largely this event that we think we’ve got isolated and contained. But the frauds case are busy.

[Matthew Clark:]

Got it, okay. Thank you. And then in terms of payoffs in the quarter, can you talk to whether or not those were down and if so, how much?

[Clint Stein:]

Payoffs in the third quarter were not as much as they were in the second quarter. What we’ve got coming down the pike and what my comments were focused on the expectations for the fourth quarter. And typically we have pullback on our lines of credit to take place about now and actually cross here and are in the first quarter. And it’s isolated largely to Ag and construction. But you know it’s a pattern that we’ve seen before and one of that is continue to expect. In terms of prepayments for the third quarter you know we’re looking at it may be about 80 million in terms of the number. And that’s an amount that is the low what we experienced in the second quarter.

[Matthew Clark:]

And your second quarter roughly maybe a 100 million or so?

[Clint Stein:]

I don’t have the number in front of me here.

[Matthew Clark:]

Okay.

[Clint Stein:]

If you like it, you are welcome to call me.

[Matthew Clark:]

That’s right. And then in terms of any hiring needs and where in specialty lines of business or is there any - you are fairly comfortable with lenders that you have and their ability to you know right in our business or you feel like there is always an opportunity to pickoff a season banker?

[Clint Stein:]

Where we - first of all I believe we have capacity within our existing team of lenders who have demonstrated the capacity to grow. And I have to always suggest them on to look out for opportunities to bring your member to our team as well. And so that’s a case by case evaluation and it’s something that it’s an ongoing initiative.

[Matthew Clark:]

Okay and then reload and fee income and you - do you have any goals for this steam like group or is there any revenue target that your penetration rates that you are trying to get to that you can share with us or was it more of a streamlining the group?

[Clint Stein:]

Are you referring to the banking solutions?

[Matthew Clark:]

Yeah.

[Clint Stein:]

Oh, okay. You know as the bank grows, we are scaling our organization accordingly. And what we’ve done essentially as we’ve taken and concentrated the management of product management in one area which is the majority of the activity for this group and there are other activities including debit card, credit card in that as well. But the concept is to give professional management over these product lines and to focus on growing on interest income. And there are plenty of complicities involved in managing products with compliance. And so we want to do that very professionally. And so this groups allows us to achieve growth of non-interest income, manage our compliance risk more proactively and go forward hopefully with growth.

[Matthew Clark:]

Great, okay and then maybe just one more Clint, remaining discount accretion, we should expect the income here in the third quarter?

[Clint Stein:]

At the end of the third quarter, we have roughly 36 million of remaining net discounts on our non-PCI portfolios on the - those you know the PCI portfolios are the one that we had loss sharing agreements under also have. And on those it’s about 17.8 million of discount. The accretion you know it will continue to wind down, I think what you saw from the third quarter or the second quarter to the third quarter in terms of reduction will continue to kind of close about one thing that we you know there is the free payments. But all things being equal, we would expect that next year accretion income will drop between $5 million and $6 million.

[Matthew Clark:]

Okay, thank you.

[Melanie Dressel:]

Thank you, Matt.

[Operator:]

Your next question comes from the line of Jeff Rulis from D.A. Davidson. Your line is open.

[Melanie Dressel:]

Hi Jeff, how are you?

[Jeff Rulis:]

Hi. Good Melanie, thank you. The question on the I guess on the C&I line utilization, I think you have mentioned that I - if I missed it, could you off that again on just sequential what was that line utilization in Q2 versus Q3?

[Hadley Robbins:]

The line utilization in Q3 was 52.8, second quarter was 52.9.

[Jeff Rulis:]

Got it and how - did you mention some indication that that was going higher or lower or something?

[Hadley Robbins:]

My expectation is that I assume that will drift down a bit. It’s hard to predict but we do have an overall pattern that hits that way in the fourth quarter and somewhat in the first quarter as well, and then dwells second and third quarter.

[Jeff Rulis:]

Okay. The more seasonality than changes in demand, okay.

[Hadley Robbins:]

Right and you know volumes are difficult to predict, but the pattern is there.

[Jeff Rulis:]

Got it, okay. And then in the - I guess this is for maybe Clint, on the 428 merger cost, just wanted to, could you break that out in expense segments, I am guessing and comp and get processing but what is that in the line items?

[Clint Stein:]

Sure. Actually comp was zero this quarter but we’d used to have some contractual things related to comp that will hit in the coming quarter. So for the third quarter 28 is broken out, there is 181,000 in occupancy, 40,000 in advertising and marketing type things, 71,000 in legal and profession service, 42,000 in data processing and then 94,000 just in miscellaneous.

[Jeff Rulis:]

And so the overall next quarter is still an half or it’s much smaller or what the expectations would left?

[Clint Stein:]

So we’re at transaction to date is 14 - roughly 14.8 million. We modeled 18 million. Contractually what I do now is that we’ll have roughly - expect roughly 800,000 in the fourth quarter. And then there is some other things that occupancy type things that will working through that may hit but I don’t have a good number for what that is. But I guess following up on the implementation of the cost saves you that was really important to us to make sure that we hit that and we put back on that. Same thing with the transaction cost will continue to make sure we have visibility around that, so that everyone knows where we ultimately end up, but we’re getting close.

[Jeff Rulis:]

Okay. And then maybe last one on maybe for Andy, on the provision, you got a lot of moving pieces in there but I guess any color you could provide on expectation they are coming you know as I guess that it is on PCI or the other impacts. Just talk about core what you can on the provision and expectations?

[Andy McDonald:]

Yeah, I mean half of the provision is really associated with just a growth in the banks, loan portfolio in the originated bucket. So thanks to Hadley and his team and you know really been doing a great job. We’ve exhibited quite a bit of growth in that arena. So that driving you know, 2.5 depending on which quarter is $2.5 million to $3 million of provision expense. You know the charge-offs in the non-PCI portfolio have really been running around 15 basis points on an annualized basis. I would - you know I would expect that would continue. So you are really looking at activity levels in the provision consistent with the second and third quarter.

[Jeff Rulis:]

Okay that’s very helpful. That’s it from me. Thanks.

[Operator:]

[Operator Instructions] Your next question comes from the Jacquie Chimera from KBW. Your line is open.

[Melanie Dressel:]

Hi Jacquie.

[Jacquie Chimera:]

Hi Melanie. Good afternoon, everyone. Alright, the press release mentioned two branch closure and I was just wondering if you could remind us how many have been closed in 2015 and kind of where you at on your rationalization that you do. I know it’s not something big that you usually comment on that to say update you have that?

[Melanie Dressel:]

Oh, I am trying to remember. Well, I am trying to remember. We believe that is four this year.

[Jacquie Chimera:]

And it’s had something where you think there could be more coming or is it something where you are pretty much rationalized where you are able to rationalize at this point?

[Melanie Dressel:]

You know we always look for opportunities to you know become more efficient that how we are still serving our customers that servicing our customers comes first and just about all of our closures have been consolidation where we’ve had branches that we’ve acquired that are close to others. And there are somewhat redundant branches. And we really have a long term perspective on how we really determine whether or not branches are performing and we look at them in terms of kind of a hot tub and spoke situation. So it’s just an ongoing process Jacquie and I am sorry I am probably I should let Hadley answer this but you know we just continually look at it and wait against this had customer impact. The nice thing is it’s that typically just through normal attrition, we are able to find positions for those people who are being displaces by those branch consolidations. So it all seems to work pretty well.

[Jacquie Chimera:]

Okay. And then kind of looking at M&A, and it’s been very sluggish this year and that’s Pacific Northwest, maybe if you could just give your updated thoughts on conversations that you are having any and kind of how you think about the lack of activity this year?

[Melanie Dressel:]

I think that there is still a lot of conversation. One thing that I think may have slowed down some of the actual mergers is that people’s earnings are coming back and you know I am just trying to reach our consensus on where company should be trading at or you know really looking at earnings as a multiple. And you know I just think that this is really been when companies have setback and thought you know where are our earnings going, where are our expenses going. I don’t think that the conversation is any less at all, it’s just that people are being very thoughtful about mergers and acquisitions.

[Jacquie Chimera:]

So it’s - in essence it’s the pricing gap almost lightening because of earnings returning?

[Melanie Dressel:]

It’s fairly a case specific I think. You know I still believe that we are going to see more consolidation in this smaller banks just because it’s very evidenced that unless we get an interest rate hike that is going to be harder for a lot of companies to be able to improve their earnings just because you know they are not going to have much of a lift in terms of you know interest and you know - so I think that there is probably going to more at the lower end than the larger size banks.

[Jacquie Chimera:]

Okay that’s good color and I am sure it’ll be an interesting conversation next quarter depending on what’s effect that December.

[Melanie Dressel:]

Yeah, yeah.

[Jacquie Chimera:]

Okay. Thanks Melanie.

[Melanie Dressel:]

Thanks Jacquie

[Operator:]

There are no further questions at this time. I’ll turn the call back over to the presenter.

[Clint Stein:]

Matt if you are still out there, I found the second quarter information that you were looking for pre-pace and it was 135 million.

[Melanie Dressel:]

Alright, well thanks everyone for joining us on the call. Happy holidays ahead and we’ll talk to you as early part of 2016. Bye.

[Operator:]

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