Columbia Banking System Inc (COLB) 2005 Q4 法說會逐字稿

Good afternoon. My name is Diana and I will be your conference operator today. At this time, I would like to welcome everyone to the discussion of fourth quarter and year 2005 earnings for Columbia Banking System. (Operator Instructions.) At this time, I would like to turn the call over to Ms. Melanie Dressel, President and CEO of Columbia Banking System. Ms. Dressel, you may begin.

Thank you very much, Diana. Good afternoon, everyone, and welcome to Columbia’s conference call. Again, I am Melanie Dressel, President and CEO of Columbia Banking System. I am going to assume that you have all seen our earnings, which were released this morning and which are available on our website.

Today we’ll be briefly reviewing our 2005 performance. We’ll talk a bit about the economic factors driving growth in our markets, and discuss our strategies going forward to expand our franchise and build shareholder value. Joining me on the call today are Gary Schminkey, our Chief Financial Officer, Mark Nelson, Chief Banking Officer, Andy McDonald, Chief Credit Officer, and after our discussion, we’ll give you the opportunity to ask us questions.

But, before we begin, I’d just like to remind all of you that we’ll 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, I’d refer you to our securities filings, and, in particular, our Form 10K filed with the SEC for the year 2004.

2005 was a very good year for us. We generated record earnings and stronger profitability with expanding net interest margin and substantially improved credit quality. Net income grew 26% to $30 million and earnings per share grew 23% to $1.87. For the year, return on average assets improved 12 basis points to 1.29%. Return on average equity increased 68 basis points to 13.81%, and return on average tangible equity grew 261 basis points to 16.63%. The net interest margin expanded 25 basis points, and nonperforming loans dropped 47% to just under $5 million, representing just 21 basis points as a percentage of our total assets.

There were a number of factors contributing to our success last year, including a strong economy in the Puget Sound area, rising interest rates, a solid contribution from our acquisition of the Bank of Astoria, and continuing execution by our people in delivering exceptional service. Over the past 12 years, we have developed competitive advantages by building and leveraging strengths, which include our excellent reputation in the communities we serve, the experience and dedication of our people, and the infrastructures we have established to provide the broad range of products and services that compete effectively with even the largest banks in our market.

I’d like to spend just a bit of time talking about the regional economy in the Pacific Northwest, which is showing very strong growth across the board. I’ll start with Pierce County, which is our largest market, accounting for about two-thirds of our deposit base and contributing significantly to our growth. A good example of the continuing local economic recovery is the fact that unemployment in the Tacoma metropolitan area was 5.1% at the end of the year, which represents a substantial improvement from 6.3% just one year earlier.

In December, the Tacoma Pierce County Chamber of Commerce released their annual forecast and review of 2005, which they characterized as a blockbuster year. I’d like to give you just a few excerpts from the executive summary because I think it really captures what’s driving our primary market. Dr. Bruce Mann and Dr. Douglas Goodman--they are both long-time economic professors at the University of Puget Sound and seasoned Pierce County economy watchers, expect the diverse Pierce County economy to expand at an average annual rate of 4.75% from 2004 to 2006. This is the strongest performance on record over a three-year period.

For example, cargo traffic at the Port of Tacoma has doubled since 1998 and is expected to increase another 50% in the next five years. For 2005, local economic numbers were even better than those expected. One factor behind the bump is retail sales, which has risen 8.1% in 2005 over 2004. This is the largest yearly gain since the late 1980s. In 2006, sales are predicted to increase another 6.6%. The index points out particular strength in the rapidly urbanizing East County area. The moderation in 2006 will give labor markets and investors breathing room, allowing time to make beneficial adjustments since the economy has expanded at what you would think would be an unsustainable 10% over the last two years.

Along with retail sales, personal incomes have grown significantly. Total income growth in 2005 is expected to come in at 6.6%, which far exceeds the forecasted 3.8% growth. Income growth in 2006 should be about 5.2%, and approximately $1 billion in purchasing power should be added to Pierce County households in 2006. The housing and real estate sector, too, show good signs. Rents have been increasing while vacancy rates have been dropping. The attractive prices available in the Pierce County market continue to attract people and businesses from neighboring communities. In 2006, new multi-family units and industrial real estate should be absorbed with little problem, according to the index.

Two other factors I think are important in the South Sound region include the contributions from the $849 million Tacoma Narrows Bridge Project, and from Fort Lewis and McCord Air Force Bases. The recent completion of the Base Realignment and Closure Report, or BRAC, shows McCord and Fort Lewis will have net gains in personnel from consolidation in other areas. And by the way, the Washington State Office of Financial Management estimated that the net direct impact of major military bases on Pierce County was $2.2 billion in 2003, which is the most recent data available. The military contributed over 74,000 jobs to the region.

We’re seeing similar robust growth in King County, which is a huge market and an area where we see many opportunities for expansion. We have eight branches throughout King County, which account for about 18% of our deposits. According to the Puget Sound economic forecasters, the near term outlook for the Puget Sound economy is very healthy. Over the next four quarters, their forecast calls for regional employment to climb 2.7%, personal income, excluding stock option income, to rise 6.3%, and net migration to accelerate to an annual rate of nearly 30,000 new residents, which is 60% above the current pace. One of the factors driving growth in the region is the ramp up of Boeing’s airplane production and a growing backlog of deliveries.

As you know, we acquired the Bank of Astoria in the fourth quarter of 2004 and, as expected, this acquisition was accretive to 2005 earnings. I am particularly pleased to report that our market share in the Western Oregon market is actually going up, which is somewhat unusual following an acquisition. We’ve maintained a 34% share of the deposits in Clatsop County and I attribute this success to the stellar efforts of our Oregon team led by Sherry Fulk.

Clatsop County is on the north coast of Oregon, less than a two-hour drive from Portland, and it’s a very popular market for second homes. This market is west of our Southwestern Washington branches in Cowlitz County where we have three branches and about 5% of our deposits. We see strong growth opportunities in all of our Washington and Oregon markets, and I am pleased that our market share is continuing to expand as we stay focused in our efforts to be the community bank in all of the communities we serve.

At this point, I am going to ask Gary Schminkey, Executive Vice President and Chief Financial Officer, to review some additional financial highlights. Gary?

Thank you, Melanie. As Melanie said, it was a very good year for us with strong growth in loans and deposits, particularly, core deposits, a widening net interest margin, improving efficiencies, strong credit quality, and better performance ratios across the board.

Revenue growth was very strong in 2005, growing 23% to $116 million from $94 million in 2004 with a 26% increase in net interest income and an 11% increase in non-interest income. Revenues grew 15% in the fourth quarter with a 17% increase in net interest income and a 9% rise in non-interest income. The net interest margin rose to 4.44% for the year and was 4.61% in the fourth quarter, a 16 basis point rise over the third quarter of 2005, and a 35 basis point improvement from the fourth quarter a year ago.

Net interest margin expansion was primarily a factor of rising short-term rates, an increase in relatively lower cost core deposits, and growth in the loan portfolio. Over 40% of our loan portfolio is tied to the prime rate and other indices, so our yields have benefited from rising short-term interest rates. We are asset sensitive in the near-term, meaning that our assets reprice faster than our liabilities. When rates increase, our interest income will increase faster than our funding costs and vice versa. If short-term rates decline, our goal is to minimize the impact on interest income. We are currently evaluating many alternatives to protect our margin should a reduction in short-term rates occur.

Non-interest income in 2005 increased 11% over last year and 9% in the fourth quarter compared to a year ago. This increase was mostly due to increases in deposit service charges and other fees, as well as the continuing growth we’ve seen in merchant services income. Non-interest expense for 2005 increased 19% to $72 million from $61 million in 2004.

Much of the increase is due to the Bank of Astoria’s operating expenses being consolidated beginning in the fourth quarter of 2004 and thereafter. So, year-over-year comparisons are more challenging. Other increases in expenses are due to the opening of a new branch in University Place, the relocation of our downtown Puyallup office, and the general expansion of our banking franchise.

Fourth quarter operating expenses grew 9% versus last year. We generated record profits in the fourth quarter and for the year with net income rising 32% to $29.6 million, or $1.87 per diluted share in 2005, and fourth quarter net income rising 33% to $8.6 million, or $0.54 per diluted share, compared to the year ago.

With record results, our profitability ratios improved with return on equity at 15.23% and return on assets at 1.47% in the fourth quarter. Our balance sheets continued to show solid growth and improving credit quality. Total assets ended the year at $2.38 billion, an increase of 9% from the prior year. We grew core deposits by 7%, and at year-end they comprised 74% of total deposits, in line with a year ago. These core deposits have proven to be a stable source of funding at a relatively low cost. Total deposits increased 8% to $2 billion at December 31, 2005, compared to $1.86 billion a year ago.

With continued strong production from our lending team last year, we were able to shift more of our assets into loans and reduced securities portfolios, which stood at $585 million at year-end of 2005, down 9% from $643 million. This year, we will have about a quarter of our securities portfolio rollover.

Total loans were $1.56 billion at year-end, a 15% increase from December 31, 2004. The loan portfolio remains about 42% commercial real estate loans, excluding construction, and 36% commercial business loans. Much of our commercial real estate portfolio comes to us through our commercial business relationships. One interesting fact is that up until the last significant rate decline in 2001, our business customers were drawing on average about 59% of their available lines of credit. Today, that usage is in the low 40% range. Some of that shift is from business owners taking advantage of the low interest rate environment and leveraging their commercial property, and some owners will maintain their conservative posture in terms of investing in additional inventory and equipment.

Credit quality improved again this year with nonperforming assets dropping by 47% to $4.9 million, or .31% of total loans at the end of December, compared to $9.1 million, or .62% of total loans at the end of 2004. We added $1.5 million to the loan loss reserve in the year and had net charge offs of just $572,000, bringing the total allowance for loan losses to 1.33% of total loans at year-end. With the decline in nonperforming loans, the ratio of reserves to nonperforming assets jumped to 427% from 218% a year ago.

And now, I’d like to turn the conference back over to Melanie.

Thanks, Gary. Having completed our 12th year of operations, we are pleased with our progress in strengthening our balance sheets and expanding our profitability. Over the past five years, assets have grown at a compounded annual growth rate of 9.7%, equity at 14.7%, and net income at 24.1%. We could not have accomplished the results we just reviewed without our most valuable asset, our team of professionals at both Columbia Bank and the Bank of Astoria, who are committed to making a difference for our customers and our communities.

Our performance during the year directly reflects the strength of our customer relationships. I’d like to take this opportunity to acknowledge our staff’s dedication to delivering a level of service that truly differentiates us from our competition, and we know that this commitment to our customers translates into value for our shareholders.

We believe we are well positioned for success in 2006. We will remain focused on growth and earnings, increasing market share in every area we serve, and expanding our geographic footprint as we position ourselves as a Pacific Northwest regional community bank.

We look forward to our Annual Meeting, which will held at 1:00 on April 26 at the Sheraton Tacoma Hotel, and we hope that you’ll all be able to join us. And before I open this to questions, I’d just like to remind you that Mark Nelson, our Chief Banking Officer, Andy McDonald, our Chief Credit Officer, and, of course, Gary, are with me here to answer questions.

And now, Diana, will you open the call for questions?

(Operator Instructions.) Your first question comes from [Jeff Brewer], DA Davidson.

Hi, Jeff.

Hi. Good afternoon. In terms of--and this may be for Gary. Do you have monthly net interest margin averages?

We have a monthly net interest margin that we calculate each month, yes.

Okay.

The number for--I think you’re--I assume you are looking for the December number?

Sure. I’ll take them all if you’ve got them.

The December was--would you like the quarter or--?

Just the month is great.

For the fourth quarter?

No, no, no. For the month average.

Oh, okay. For the month? For the month of December, the net interest margin stood at 4.59%.

Okay.

Down a little bit from the prior two months, actually.

Okay. And in that number, did you collect any sort of back interest from the loans that were brought back on accrual status? Is there anything--I guess what my question is, is there anything artificially in that number for your margins?

No. There is nothing material that I--that we know about that would include--be included in that.

Okay. And then, turning to the loan portfolio, as far as your production in the quarter, could you break out by segment the increase in the quarter, or at least give us some guidance on what was strong in the quarter?

Off the top of my head in terms of--maybe in general--maybe we can make a general statement as to what was strong in the quarter. Maybe Mark Nelson could talk about that. But, as far as a comparison from--just a quarter-to-quarter? I do have the numbers in front of me for the year, and we could go through a comparison with the third quarter if you’d like.

Quarter-to-quarter would be most helpful.

Okay. Would it be easier to email that or--?

You could do that offline. That’s fine.

Okay. Maybe that would be easier to do, since we’re talking about a lot of data.

All right. Okay. And then, one final question, if I could. I noticed that merchant services were down in the quarter and compensation expense is also down. If you could just touch on those two items, that’s it for me.

Mark, maybe you can talk about merchant services.

We have a number of clients--we do a lot of correspondent banks as well. We have a lot of them that are very tourist-oriented. And so, we tend to see a real peak in our business in the late summer months. And then, some of those economies don’t see the holiday increase that you would normally see. And so, we tend to see a trailing down in the fourth quarter, historically.

Got it.

Astoria is a good example of that.

Okay.

We just brought all of that on since our merger with Astoria a year ago.

Jeff, in terms of compensation, are you comparing third quarter of ’05 with the fourth quarter of ’05?

That’s correct.

We’re looking at just the--and that includes employee benefits where we did have some adjustments over the course of the year. We do accrue for certain benefits over the course of the year and they do get--there is a true-up in the fourth quarter. So, as far as a decline in staff or something like that, I don’t see that at this point.

Okay. That helps. Thanks.

You’re welcome, Jeff.

Thanks, Jeff.

Your next question comes from [Louis Feldman], Hoefer and Arnett.

Hi, Lou.

Good afternoon.

Hi, Lou.

A couple of questions for you. Andy, what are you stress testing right now? What are you looking for as your biggest fear for credit quality going forward at this point in time?

Well, I focus a lot on business sentiment because I think that that’s going to be a real driver going forward. But from a pure metric standpoint, we stress test the portfolio from an interest rate scenario standpoint, with particular focus on our real estate portfolio. And then, of course, with the recent events in Iran and some of that, we continue to focus on our oil, our fuel sensitive customers. So, those would be the two particular areas right now that we have some focus on.

Yes. Well, you’re pretty large. The FDIC memo that’s out for comment right now--can you--I assume you’ve looked at that. And what--can you give us any comments on what your feelings regarding those--the capital levels and requirements and the position on your CRE portfolio is?

Well, the regulators have been talking about a lot of that stuff that they’ve now put into black and white for quite some time. Our real estate portfolio, obviously, is not geographically diversified because we do--we are a community bank. But, we do have a good diversification within the portfolio across the various product types in terms of commercial, industrial, office, multi-family, and then, of course, builder banking.

We have already set guidelines internally for ourselves and have already met a lot of the suggested best practices that the regulators are proposing. So, I think that Columbia Bank is positioned well to move forward in a positive light in terms of how the regulators are looking at it.

Okay. I’ll step back at this point.

Thanks, Lou.

Thanks, Lou.

Your next question comes from [Joe Morford], RBC Capital Markets.

Thanks. Good afternoon, everyone.

Hi, Joe.

Hi, Joe.

A couple of little questions, I guess. One, was there much pay down activity in the loan portfolio around year-end at all, or anything material that would’ve skewed balances much?

Yes. Hi, Joe. This is Mark Nelson. Yes, there was a bit of that activity in December, primarily. We had very strong loan growth and pipelines coming into the quarter, so not only did we offset that, but we continued to have good growth for the whole quarter.

Okay. And did that seem that it was primarily being driven by borrowers refinancing elsewhere at lower rates or just cashing in on projects, or do you have a sense on that at all?

It was really a mix of things. Actually, we saw a larger thrust of pay downs of commercial real estate probably mid-year than we did at the end of the year. In December--and I’m going to think of a couple of the larger ones. One was one of our companies that sold, and so, their loans paid down. And we saw a little bit lower utilization rates on lines and there may have been one or two commercial real estate projects that paid off during the month.

Okay.

We’re seeing--I’m sorry, Mark. We’re seeing commercial real estate investors turning their properties over a little bit more rapidly. They’ll take the gain and then reinvest it in another piece of commercial real estate.

Separately, I guess--maybe Gary. Would they actually--or I guess, given the rate increases we saw through the fourth quarter and perhaps another one at the end of this month and your asset sensitive balance sheet, would you still be expecting a positive bias towards the margin here in the first quarter or at least the first half of this year?

Well, we are asset sensitive and if rates continue in the direction that they have in the past, then there would be no reason to think that that would change. We haven’t seen much of a change in terms of core deposit rates in our market area. You know, interest, checking, savings account rates, and money markets and so on have actually remained fairly stable. Where there is competitive pressure is in the CD market and that’s usually a market that we compete with, but we’re not typically at the top of the market. So, that would be a true statement.

Joe Morford. Right. Okay. And then, lastly, with regard to the provision going forward, would you be expecting to--be planning to pretty much cover charge offs or actually provide for growth as well, or is there--I guess, another way of putting it, is there much upward pressure on the provision at all right now?

Andy, do you want to take that?

Well, I was very pleased with how the loan portfolio behaved in 2005. And, in general, my take on it for the year was it was pretty much stable throughout the entire year. At this point in time, again, I can’t predict the future, but I would continue to look at our portfolio as a stable portfolio.

Okay. Fair enough. Thanks so much.

Thanks, Joe.

Thanks, Joe.

Your next question comes from [Sara Hussan], [McAdams Equity].

Hi, guys.

Hi, Sara.

Hi, Sara.

I was just wondering if you could give us a little guidance on the timing of the branch opening in Lacey. Once that gets approved, maybe a best case/worst case scenario, which quarter you think it would be in?

Our best guess at this point in time would probably be very late this--in the year 2006, probably in the fourth quarter. There is some site development work and permitting that needs to go on down there, and until those things are done and our plans are drawn, etc., we won’t have a definitive timeframe.

Okay. And then, on the merchant services fees, could you break out maybe what percentage of growth--of the growth--whether it should be attributed to Astoria versus your existing branches?

Sara, I don’t have those numbers right in front of me. We certainly could give you that via an email response after the fact.

That would be wonderful.

We did have great success though in establishing merchant services accounts through existing Bank of Astoria customers and I believe it’s been a very good tool for them to add new customers as well. So, I would expect that a pretty good chunk was attributable to Bank of Astoria.

And then, your advertising levels, it looks like it dropped back just a little bit in the fourth quarter. And I know it’s kind of lump. But, is that a level that we should expect going forward on a quarterly basis, or will you--is that just a timing issue?

Well, it is more of a timing issue. During the holidays, we have a tendency to buy less advertising just because people’s focus is on other things other than banking as a typical rule. But, we have a tendency during the first quarter to have more production costs related to advertising than at other times during the year.

Thank you so much.

You’re welcome.

Great quarter.

Thanks, Sara.

Thanks, Sara.

Your next question comes from Ross Haberman, Haberman Funds.

How are you all? Very nice quarter.

Thanks, Ross.

Thanks, Ross.

I just have a couple of quick questions. Could you talk about the local competition, both on the deposit and loan side? Was it [indiscernible], I think, recently opened up some offices and [Rainier] moved to Tacoma? Give us a general flavor of anyone being more price competitive recently compared to six or nine months ago?

Mark, you want to take that one?

Yes. Ross, I can’t say that I have seen a huge change in the competitive level here locally over where we were earlier in the year or even a year ago. There’s a lot of competition out there. We feel like we’ve positioned ourselves very well to deal with competition. We’re certainly focused on taking care of our clients. We’ve got the best people and good strong resources to help serve our client base. And we haven’t felt any unusual competitive pressure over the year that we haven’t seen before.

Could you discuss--have you brought on any new lenders over the last quarter or two? And are you fully staffed on the lending side today?

We have not brought anybody on in the last quarter that--I’m fairly certain we haven’t done that. We did--we have brought on an occasional officer or two as an opportunity comes up. We would continue to look for very, very high quality people if opportunities exist either in this market or in other markets. We did bring someone on early this year, part of our commercial real estate group, with some additional King County expertise - [Dale Bargioni], who came to us from a conduit lender. So, other than that, nothing recently.

Based on what--on your pipeline and what you can see today, what kind of net growth, Gary, would you hope to see in calendar ’06 from I guess your impression today?

Well, I think--I’m not trying to give a forward-looking statement or anything, but I think all of us here would be disappointed if we couldn’t hit double-digits.

But, you’re up about 14% to 15% I think this past year.

Right. But, as Mark was talking about, it is competitive and with the new year we’ll have some new challenges. But, I think, if we don’t hit double-digits again, we would be disappointed.

And just one final question for Melanie. Melanie, you out there looking for other banks, branches? I saw that [Don Roach] just bought something yesterday. Were you a bidder there and are you actively looking as a mode to expand?

Yes, we are always looking for opportunities to partner with other banks that we feel not only will be accretive financially, but also, bring us resources in terms of individuals with good strong market intelligence and that sort of thing. We’re really, really disciplined about how we look at acquisition opportunities. And we’ve looked at a lot of them. And we’ll just continue to use that discipline and look for the best opportunities out there.

Could you give us just a general feel of sort of asking prices today? Are they--do you think they’ve stabilized or just--I think Don paid two and a half times book yesterday. Is that about the going--is that 20-plus times earnings about the asking prices today?

I would say so, maybe a little bit higher on the trailing earnings side. It’s still pretty expensive out there. You need to be careful about how you price the deals.

Okay. The best of luck. Thank you. Again, nice quarter and year.

Thank you so much.

Thanks, Ross.

Your next question comes from Louis Feldman, Hoefer and Arnett.

Yes. In terms of loan growth, can you talk about, Mark, what your pipeline is looking like at this point in time?

Yes. Again, without getting into forward-looking statements, we continue to see a strong market, a good balance between commercial and industrial type loans. Our lenders are out there doing the things that they normally do. So, I would just say at this point we’re pretty consistent with our recent experience.

Okay. Gary, would you cc me on that breakdown of the loans, by the way?

Okay. Yes, I will.

Next question, loan growth exceeded deposit growth during the quarter. In fact, looking at it, it looks like non-interest bearing deposits actually declined slightly on a linked quarter basis. Thoughts, concerns, plans, efforts for new funding sources for the year?

During the fourth quarter, we frequently see a little bit of a run-up in deposits as people are paying taxes and those sort of things.

And buying holiday gifts.

Yes.

[Inaudible.]

Yes. And paying bonuses. It’s those sorts of things. So, not a concern. We definitely are out there all the time looking for non-interest bearing deposits in particular. And have the branch footprint that we do, it’s really been very successful in the South Sound region in particular.

Okay. And you were saying that you were not finding a tremendous amount of competition on deposits at this point in time?

For CDs. There are a lot of financial institutions in need of deposits and they are paying up on the CD side.

Okay. So, that seems to run counter to what we’re hearing in the North Sound area. And then, Gary, one last question. Could you define--you stated that you were asset sensitive in the near-term. Can you define that? And where are you a year out, two years out in terms of your outcome?

In the near-term, I guess we could define that into the five to six month range--.

--Okay--.

--As being asset sensitive. We are fairly well matched out to one year, and then, we start to turn the other direction, with the commercial real estate loans and so on.

Okay. All right. Thank you very much.

Thanks, Lou.

Thanks, Lou.

Your next question comes from Jeff Brewer, CA Davidson.

Hi. This question may be for Andy. Now that the non-performers are down under $5 million, can you give us what exactly is in that number, if you could break that out or is it just a grab bag of miscellaneous stuff?

Well, we’ve got a mix of really C&I and real estate in there. It’s not a real big number and it’s evenly split between our C&I portfolio and our real estate portfolio. There’s really nothing exciting about, I guess.

So, no big one loan that’s the bulk of that?

We do have one loan that probably accounts for about 35% of it, 35, 40, somewhere in that range. And that’s been a loan that we’ve had for awhile. It’s just a long-term workout.

And then, I don’t know if you guys monitor sort of the reserve to loans, if that’s an important number to you or it’s just sort of the loan portfolio itself. But, looking at the reserves to loans ratio, are you comfortable with that slipping down, or kind of what are your thoughts there?

My focus is really the reserves relative to the non-performing assets and the non-performing loans. We have a lot of faith in our model in terms of the tools that we use to calculate the reserve. And so, the reserve’s ability to basically cover and withstand what we have in non-performing assets is more my focus. And right now, that’s doubled where we were a year ago. So, obviously, I’m happier today than I was a year ago.

But, we do monitor the amounts to total loans, too, Jeff. It’s a little bit harder these days to maybe add as much to the allowances if someone like--somebody like myself that’s very, very conservative. But, we do feel that it’s appropriate for our level of risk in the portfolio today.

But, not feeling as if you have to pack away any additional for growth going forward?

We can’t--.

--Yes.

We would not be allowed to do that.

Got it.

But, our model does allow us to provision appropriately as we do see growth in our portfolio. I think if you look back on the nature of how the loan losses behave relative to our loan growth, it’s fair to say that in quarters where we’ve had more dramatic loan growth, we’ve been able to put an appropriate amount into the reserve. And I wouldn’t expect our behavior necessarily to be different than that going forward.

All right. Thanks.

Thanks, Jeff.

(Operator Instructions.) At this time, there are no further questions.

Okay. Well, thank you very much for joining us today.

Thank you for participating in today’s fourth quarter end of year 2005 earnings for Columbia Banking Systems. This concludes today’s conference. You may now disconnect.