Columbia Banking System Inc (COLB) 2016 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Columbia Banking System's First Quarter 2016 earnings 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 System.

Thank you, Cheryl. Good afternoon everyone, and thank you for joining us on today's call to discuss our 1st Quarter 2016 results which we released before the market opened this morning. The release is available on our website ColumbiaBank.com As we outlined in the release, our financial results were negatively impacted by an increased provision expense and the last of the expense from our recent acquisition of Intermountain as well as lower accretion income.

On the plus side, our loan production was the highest we've ever achieved in a first quarter of the year, over $250 million. And we've remained confident in the overall quality of our loans. I think it's important to remember that even with the uptick in nonperforming assets to 0.55% compared to 0.39% at the end of last year, we still operate at a very low level of NPAs in comparison to our peer group. I'll share with you that our credit portfolio doesn't keep me up at night.

The things that do worry me are the effect of the prolonged low interest rate environment on both our industry and the national economy. I'm also concerned about cyber and other fraud threats that are evolving, continually posing new risks to the financial services industry and general commerce, and the ever-increasing expense related to regulatory environment.

I'm very confident in our own performance fundamentals, including the quality of our loan portfolio, the relative long-term resiliency of our net interest margin, as you've seen for a long time. And the year-over-year improvement we have made with our fee and expense basis. Although the first quarter of the year has customarily been the slowest for gathering deposits, we were pleasantly surprised to see good growth in deposits, including core deposits. Our priorities going forward continue to be growing quality loans and proving operating leverage and effective utilization of capital.

On the call with me today are Clint Stein, Columbia's Chief Financial Officer, who will begin our call by providing details of our earnings performance. Andy McDonald, our Chief Credit Officer, will review our credit quality information, and Hadley Robbins, our Chief Operating Officer, who will cover our production areas this afternoon. I'll conclude by providing a brief outline of the economy as we see it here in the Northwest, including Washington, Oregon and Idaho, and then we'll be happy to answer any questions you might have.

Of course, I need to remind you that we will be making some forward-looking statements today, which are subject to economic and other factors. For a full discussion of the risks and uncertainties associated with the forward-looking statements, please refer to our securities filings and in particular our Form 10K filed with SEC for the year 2015.

At this point, I'll turn the call over to Clint to talk about our financial performance.

Good afternoon, everyone. After two consecutive quarters of record earnings, our first quarter performance wasn't what we had hoped it would be. We reported earnings of $0.37 per diluted common share, which was impacted by both acquisition and provision expenses. Acquisition expense of $2.4 million lowered our reported earnings per share by $0.03. Our provision expense of $5.2 million had a $0.06 per share impact on a diluted EPS.

Our reported net interest income was down $1.6 million from the prior quarter. The linked quarter decline was the result of one less day for interest accruals, combined with the reduction in incremental accretion income of $1.3 million.

Noninterest income before the change in the FDIC loss-sharing asset was $21.7 million in the current quarter, down from $25.8 million in the prior quarter. The decrease was driven by the $3.1 million mortgage repurchase liability adjustment recorded in the prior quarter, as well as declines in interest rate swap income which were a record in the fourth quarter, and miscellaneous volume-sensitive line items.

Reported non-interest expense was $65.1 million for the current quarter, a decrease of $1.8 million from the prior quarter. We achieved the linked quarter decline in expense despite a $564,000 increase in acquisition-related expense. After removing the effect of acquisition-related expenses, OREO activity and FDIC clawback liability expense, our noninterest expense run rate for the quarter was $62.3 million. This is a $1.9 million decrease from $64.2 million on the same basis during the prior quarter and is primarily attributed to lower occupancy and advertising expenses as well as reduced legal and professional fees.

Last quarter I discussed the financial impact of shuttered branch facilities working their way off our balance sheet. In this quarter we are seeing the improved run rate materialize. Our reported occupancy expense of $10.2 million includes $2.4 million of acquisition-related expense. After removing the effect of acquisition-related expense, our occupancy run rate for the first quarter was $7.8 million, down from $9.2 million on the same basis in the prior quarter.

Excluding acquisition-related expense, OREO activity, and FDIC clawback liability expense, our noninterest expense to average assets ratio declined by ten basis points to 2.79% during the first quarter. We are pleased to see this ratio trend downward, even as we continue to make infrastructure investments in areas we believe will further enhance our long term competitiveness and profitability.

However, some of the reduced expense and corresponding improvement in the NIE ratio is in line items that can fluctuate from period to period because of volumes, seasonality and discretion. As a result, this ratio will likely bounce off the bottom and move within the 2.79% to 2.89% range we have experienced the last two quarters which currently is a quarterly expense run rate of roughly $62 million to $64 million.

The level of acquisition expense for the quarter was in line with our expectations. As I mentioned on our fourth quarter call, this is the last quarter that will be impacted by expenses stemming from the Intermountain acquisition. Total transaction costs were $18.2 million, which was basically in line with our announced estimate of $18 million. With respect to cost savings, we achieved $10.3 million which compares favorably to our merger model estimate of $8.6 million. The resulting expense reductions exceeded our goal by $1.7 million or nearly 20%.

The operating net interest margin compressed 6 basis points during the quarter, declining to 4.03%; 4 basis points of the linked quarter decline was the result of one less day in the current quarter. The remaining two basis points was primarily the result of increased amortization of premiums within the investment portfolio.

Now I'll turn the call over to Andy to discuss our credit metrics.

Thanks, Clint. For the quarter we had a provision for loan loss of $5.3 million. As you know, we maintain separate allowance accounts for the different portfolios. The breakout of the provision expense by portfolio is as follows --

The originated portfolio had a provision of $5 million. The discounted portfolio had a release of $400,000. And the purchase credit impaired portfolio had a provision of $654,000.

The provisions were driven by chargeoffs and impairments in the originated portfolio, net recoveries in the discounted portfolio and a change in expected cash flows in the purchase credit impaired portfolio.

We had net chargeoffs of $4.1 million for the quarter, split between the originated portfolio which had net chargeoffs of $3.3 million and the purchase credit impaired portfolio which had net chargeoffs of $1.3 million. The discounted portfolios had mixed results with the consolidated net recovery of $443,000. So when you put it all together for the quarter, net chargeoffs amounted to about 28 basis points on an annualized basis, up slightly from last quarter's 22 basis points. These metrics reflect a more normalized credit environment.

I would like to give you a little more color concerning our provision for the quarter. In aggregate as detailed in our press release, total chargeoffs were about even with what we have been experiencing for several quarters now. The change in the current quarter's net chargeoffs had more to do with recoveries. Much like our OREO portfolio, which is now down to $12 million, there are not a lot of recoveries left coming out of the great recession.

So when we look at the originated reserve where we had a provision of $5 million, that portfolio had chargeoffs of $3.9 million but recoveries were only $694,000 leaving us with net chargeoffs of $3.3 million. So while the provision was clearly impacted by this, the originated portfolio also experienced $131 million in loan growth. So growth in the portfolio also necessitated about $1.4 million in provision as we kept the reserve level relative to total loans essentially unchanged.

The purchase credit impaired portfolio had $2.9 million in total chargeoffs, offset by $1.6 million recoveries for net chargeoffs of $1.3 million for the quarter. Unlike the originated portfolio, though, this is a liquidating portfolio which has been steadily declining over the past several years. As such, there is no need to increase the provision for loan growth, thus it only required a provision of $654,000.

So the dynamics of our loan provision really vary from portfolio to portfolio. I think it's also important to note that a year ago we had an exceptional quarter benefitting from several large recoveries that originated from write downs that occurred during the great recession. This greatly benefitted the originated allowance for loan losses. As a result, annualized net chargeoffs amounted to only 4 basis points in that quarter, clearly a level not sustainable through the normal course of business.

Throughout 2015 and into 2016 we have migrated back to a more normalized level of activity relative to chargeoffs and provisioning. As for the two credits mentioned in our press release, both are associated with relationships that predate the great recession. The largest was in the originated commercial portfolio and is associated with a commercial contractor which is in liquidation. We anticipate the liquidation will be essentially complete by the end of the second quarter.

The other was a commercial real estate loan housed in our purchase credit impaired portfolio in which we accepted the proceeds from a short sale. So, as of March 31, 2016, our allowance of total loans was 1.18% compared to 1.17% as of December 31, 2015. The modest increase in the provision to total loans continues to reflect the overall credit quality of our loan portfolio. This quality can be seen in our impaired asset quality ration which remains extremely low at 15.7%, our reserves still cover nonperforming assets by a margin of 1.9x and OREO is a modest $12 million.

In addition, as you will note from our call report, criticized and classified assets remain relatively unchanged from the prior quarter at around $199 million. As such, we are very comfortable with how our loan portfolio is behaving.

For the quarter, nonperforming assets increased $14 million, primarily due to an increase in nonperforming loans. The increase is attributed to one credit which has been impacted by the decline in commodity prices. Obviously the same credit impacted our provision. At quarter end thirty loans or more past due and not on nonaccrual were about $8.4 million or less than 15 basis points. This is down from last quarter, when past dues were around $11 million or 19 basis points.

With that, I'll turn the call over to Hadley to discuss our production results.

Thank you, Andy. Total deposits at March 31, 2016, were at $7.6 billion, an increase of $158 million from $7.44 billion at December 31, 2015. About $46 million of this increase was in noninterest bearing DDA. Core deposits were $7.29 billion, holding steady at 96% of total deposits. The average rate on interest bearing deposits was unchanged from the prior quarter at 7 basis points. The average rate on total deposits also remained unchanged, at 4 basis points.

Loans were $5.88 billion at March 31, 2016, representing a net increase of about $62 million over the fourth quarter of 2015. The first quarter increase was largely driven by solid levels of new production in the amount of $254 million, exceeding first quarter 2015 production volume of $217 million. Line utilization was essentially flat during the first quarter at 52.5% as compared to fourth quarter line utilization of 52.6%.

During the second quarter, we expect to see line usage begin to increase as seasonal borrowings become more active, most notably in agriculture. New production was largely centered in C&I, commercial real estate and construction loans. The weighted average tax adjusted coupon rate for new production during the quarter was 4.14%. New production volume continues to be priced at lower coupon rates than the overall loan portfolio, which was 4.39% at the end of the quarter. Term loans accounted for $184 million of total new production during the quarter while new lines represented approximately $70 million.

The mix in new production was fairly granular in terms of size. 13% of new production was over $5 million, 34% was in the range of $1 million to $5 million, and 53% was under a million. In terms of geography, 56% of new production was generated in Washington, 34% in Oregon and 10% in Idaho and a few other states.

First quarter net loan growth mirrored new production with growth concentrated in C&I, commercial real estate and construction. C&I loans ended the first quarter at $2.4 billion up about $39 million from the previous quarter. Industry segments with the highest loan growth first quarter include finance and insurance, real estate, rental and leasing and health care. Commercial real estate, including multi-family residential and construction loans, ended the first quarter at $2.7 billion up about $45 million from year-end 2015.

Net loan growth is well-diversified across real estate asset types. For the quarter, asset types with the most significant increase were multi-family, office and warehouse.

The bank's deal flow remains active and the loan pipeline volumes are very comparable to levels seen in recent quarters and we believe this will help fuel continued loan growth in the second quarter.

This concludes my comments. I'll now turn the call over to Melanie.

Thanks, Hadley. Our Northwest economy is such an important factor in our success and in the health of the communities we serve. I'll just briefly give an overview of the major economic trends we're seeing.

It's important to note that we cover a very large geographic area and our three states feature many diverse economies. We're closely watching market conditions in our leading economic indicators in light of concerns about international economic conditions, particularly in China, as well as more regional concerns such as upcoming job cuts expected for Boeing and Intel.

Most economists see positive economic trends in the Northwest with slower but continued and steady improvement. Our major metropolitan areas are leading the way and our three-state region continues to do well. During the first quarter, Washington, Idaho and Oregon were respectively listed first, eleventh and thirteenth in the ranking for best state economies by Business Insider based on measures such as GDP, wages, job growth, housing prices and unemployment rates.

Speaking of unemployment rates, the rate here in Washington is a bit misleading. It held steady at 5.8% in March for the fourth consecutive month. However, steady and significant job gains have continued across most sectors, with almost 11,000 jobs added just last month. Washington has gained nearly 100,000 jobs in the past year, but a fresh influx of approximately 10,000 job seekers every month is keeping the unemployment rate from decreasing. A robust and healthy economy, not to mention beautiful surroundings, is also the primary driver of population growth in Oregon.

Oregon's population hit 4 million last year. The state currently leads the nation for in-migration. Their unemployment rate is at the lowest level in over twenty years falling to a record low of 4.5% in March, half of a percentage point lower than the national rate. This is the case, despite rapid growth in the labor force. Oregon tied for the second in the nation for year-over-year job growth, with a 3.4% gain.

Idaho's economic indicators continue to be healthy as well. The state's unemployment rate was 3.8% in March, declining another 0.10% from February. Over the year, new jobs in virtually every sector grew by 24,000 or 3.6%, the largest increase since 2006.

We regularly survey our business customers throughout our market are to better understand economic conditions and identify their challenges and opportunities. A recently completed first quarter survey revealed that almost 90% of those responding are confident about their future and they continue to be optimistic about general business conditions. However, we noted real concerns about the political climate, which was the second most frequently cited reason to postpone expanding their business. While there was a bit more optimism about the economy, business owners remain reluctant to make capital investments.

Government regulations and taxes continue to be the top issues most of our customers face in their businesses. To summarize, while some economic indicators have slowed somewhat, the economy in our area continues to perform better than the country as a whole and along with our business customers, we are very optimistic about the future of the Northwest.

We continue to feel optimistic about our opportunities in the Northwest, which helps us to support our decision to increase our regular dividend from the prior quarter by 6% to $0.19 per common share and to pay a special cash dividend of $0.18. The dividends will be paid on May 25th to shareholders of record as of May 11, 2016. The total dividend payout of $0.37 is a 9% increase from the $0.34 paid during the same quarter a year ago, and constitutes a payout ratio of 100% for the quarter and a dividend yield of 4.67%, based on yesterday's closing price.

With that, this concludes our prepared comments this afternoon. As a reminder, Clint Stein, Andy McDonald and Hadley Robbins are with me to answer your questions.

And now Cheryl will open the call for questions.

Thank you very much. If you would like to ask a question at this time, simply press * then the number 1 on your telephone handset. Our first question comes from Joe Morford, RBC Capital Markets. Your line is open.

Hi, Joe.

Thanks, good afternoon everyone. I guess my first question would be on the margin. Clint, you mentioned that, well I guess I'd be curious did the Fed rate hike in December help your margin that much and given that the day count cost you 4 basis points, are you expecting a more stable margin in the second quarter or is there still some steady pressure from reinvestment rates and securities portfolio on competitive loan pricing, et cetera?

I'd say all of the above. So, what we got from the Fed hike was about two basis points of bump in our coupons for things that repriced, so that obviously helped. The flattening of the yield curve, you know, caused our prepayment speeds in the investment portfolio to kick up, you know, from roughly [16%] to [18%]. You know, that drove about $450,000 of additional premium amortization which impacted the margin.

You know, so, I guess all things being equal, you know, depending on what happens with the yield curve relative to the investment portfolio you know, if ten year were to go up a little bit, slow the prepayment speeds down a little bit, we could get some tailwind in the margin from that. The extra day count would be beneficial.

And then it comes down to our deposit growth and how does that compare to loan production? You know, I think Hadley's got some thoughts on you know, the outlook. Can't get into a lot of that because we don't give guidance, but you know, if, I guess, in short if deposits continue to grow at very strong levels that we've seen the past few quarters, and we put that to work in the investment portfolio, that does create pressure on the margin, but if we can grow, you know, net interest income and revenue as a result of that, then I would take that tradeoff.

Right. Understand. Okay. That's helpful. Then the other question was just on credit. Would you consider the two commercial credit problems that you talked about more kind of one off type of situations or are you indeed starting to see some broader systemic deterioration, given where we are in the cycle that may cause you to start building, boosting reserves again?

Joe, I don't see anything that's systemic. You know, as I mentioned, these are both credits that we've had on the books for a long time. One is a commercial contractor, it's kind of a unique situation. As you can imagine with a contractor, when that doesn't go well, nobody really wants to pay for half of anything that's built. And so that causes a lot of problems. The commercial real estate one really was a large office building. It had a single tenant. The tenant moved out. It had to do with deferred maintenance and some issues with the building. So, lack of tenant and then the increased expenses associated with getting the building back to a condition in which you could attract a tenant, you know, just was, we didn't want to deal with that so we were happy to take the short sale. So, you know, you can call them one off, but it certainly was not systemic.

Right. Okay. Understand. Thanks so much.

Thanks, Joe.

Thank you. Our next question is from Aaron Deer, Sandler O'Neill & Partners. Your line is open.

Hi, Aaron.

Hi, good afternoon everyone. I just, to follow up on Joe's question regarding the, some of the margin thoughts. You guys have mentioned the new loans coming on at 4.14% versus the average portfolio at 4.39%. I was wondering if you could also maybe share to what extent or like, maybe what, first, what volume of pay downs you had in the quarter, and then of the loans that paid down in the quarter what was the average rate on those, if you have that? I'm just trying to figure out what's the spread differential between new loans coming on versus loans that are paying off?

Well, I can speak to prepaids and payoff loans. Prepaids were $81 million and loans paying off are $43 million. And that's not too different from what happened in the fourth quarter, but I don't have the spreads to respond to the second half of your question.

I'd just add, Aaron, that you know, as we've talked about in prior quarters, sometimes there, you kind of have to peel back the layers of the onion for new production, you know, based on, especially given our, you know, focus on C&I lending and you know, loans that are tied to LIBOR and other variable rate loans that we originate that come in at a lower rate today, but we feel you know, help maintain our asset sensitivity in the long term. About 50% of our production in the first quarter was in those types of loans that are variable rate.

We also had one loan that you know, was cash secured, you know, and it was a, you know, a fairly good size loan and that impacts the overall number on new production. So I guess when we look at taking out and just looking at where we're, you know, where we're at, say, on the variable rate loans, you know, those came in I think a little higher than what we've seen in the previous quarters and that's, you know, probably a result of the rate hike we had in December.

When we look at the fixed rate loans, you know, those I'd say, broadly, are coming in a little higher, but then we have the noise created by you know, a cash secured loan. So with the information I have in front of me, I can't get that granular and I don't know that Hadley has any more information, either, but I kind of feel like we're at a point where all things being equal, you know, we're not really seeing a significant decline, you know, in, say, what we're getting on LIBOR, three-month LIBOR loans or if we do a five-year pay, you know, and so how that factors into additional pricing pressure or margin pressure, I really view our ability to maintain the margin more from the liability standpoint and the deposit growth that we've had and how that impacts out earning asset mix.

Thank you, Clint. And then switching to the, also to credit. I was just curious, Andy mentioned the commodity prices as having an impact. Was that decline, is that the timber industry, or where, or what is it that drove that?

The commodity prices are associated with the fishing industry.

Okay.

So predominantly the salmon.

Okay. I was just, it was just curiosity. But, and then, if I recall correctly, there was also an uptick in losses in the consumer book. What drove that?

One of the banks that we purchased originated a bunch of HELOCs. They were interest only and that portfolio began converting to a P&I payment and that started in the first quarter of this year, so it basically revolves around that HELOC portfolio. Most of that repayment activity will be done by the time we get to the end of the third quarter.

Okay. Great. Thanks guys for taking my questions.

Thanks, Aaron.

Thanks, Aaron.

Thank you. Our next question is from Matthew Clark, Piper Jaffray. Your line is open.

Hi, Matt.

Hey, good afternoon all. Question on the, on your reserve coverage, kind of going forward, you know, with the uptick in the reserve ratio going from 1.17% to 1.18%. Just, I guess first can you remind us of the mark that exists so we can just double check the adjusted reserve ratio, but also just curious, you know, whether or not you think we're going to stabilize here at that 1.18% or whether or not there might be some additional relief going forward?

What's the mark? The mark in the purchase credit of impaired, that is--

the PCI portfolio, we've got still about $15 million in discount -

Okay, I was going to say $14 million.

Yeah, and then we've got you know, reserves set aside of about $13 million so those two combined are about $28 million.

And then the discounted book?

The discounted book, we've got roughly $29 million of net discount remaining, so -

And I would, yes, Matt, I think you're probably right. We're probably just going to bump around at this level for the next couple of quarters, you know, hopefully all the way through 2016. The economy seems to be, you know, it's not like, totally robust, but it's not going the wrong direction, either. So, you know, that would be my expectation, you know, in general, you know, our level of problem loans really hasn't changed much in the last six months.

Yep. Okay. And then just, Hadley, maybe I missed your comments on the pipeline, but can you just update us on how the pipeline looks, kind of year to year, and linked quarter, and then going into Q2 here?

Pipeline is over last year at the same time. And pipeline is over last quarter. And it's not materially larger, but it's, remains well diversified between C&I and real estate and it's holding fairly steady in a range that is just driving the changes in loans that you're seeing on our balance sheet. So I'm feeling pretty good about it.

Okay. And then, just on fees, and some of the activity, you know, sounds like there was some seasonality here in the first quarter overall, just miscellaneous fees and also the interest rate SWAP income I think was down, too. Is there, I guess, is there some sense that some of that will bounce back here in the second quarter or not?

Well, I think that, you know, the [SWAP] income is a function of really kind of the loans we were booking at the time and I feel that you know, we're going to be seeing increase SWAP fees throughout the year. Last year in the fourth quarter it was a record and so we had probably the highest level of SWAP income that we've ever had in that fourth quarter, so comparing it to the first quarter you're going to notice the difference.

I do feel that a number of the components in noninterest income are doing just fine. We have year-over-year gains in a number of categories and we have a few of those outliers that have been an issue, one of which has been, you know, financial investments and trusts. We've had some volatility in the market in the first quarter early on that impacted you know, fee generation and bringing people back into the market. Some of that has kicked back up. And our trust business was off a little bit. We've got plans to try to keep moving those forward in op, but I remain fairly confident that we'll see you know, the core levels of our business have continual upward movement. It's just I can't predict some of these changes that are coming through.

Yep. Okay, thank you.

Thanks, Matt.

Thank you. Our next question comes from Jackie Chimera, KBW. Your line is open.

Hi, Jackie.

Jackie Chimera, your line is open.

Sorry. I keep doing that. Muting myself. Can you hear me now?

Yes.

Sorry. Second time today. If I look at the level of growth chargeoffs that you've had over the last three years or so, it's been right around that $24 million to $25 million level. Is that kind of just a steady good economy level that we should look at and then obviously the net level has fluctuated based on your recoveries, but given your comments that the pool of recoveries available is declining, should we look for chargeoffs to move more towards that level?

Yeah, I think the chargeoffs are going to be close to the number that you're talking about and it is really more the recoveries. I didn't quite come up with the same math that you did, because I guess I haven't calculated that, but the fourth quarter of 2014 and the first quarter of 2015 were extremely low in terms of net chargeoffs. So, I would simply take the last four quarters that we've experienced and use that as a guide post for looking forward.

Okay. So it's very -

Does that help?

Yeah, it does. Thank you. And just to clarify, was any of the tick ups in the NPLs in the quarter, did that have anything to do with the two credits that were referenced? I'm assuming the CRE loan that was a short sale is now gone, but maybe the commercial contractor, does that drive part of the increase or were they separate loans that were added?

No, we had-- the commercial contractor had some residual exposure. We believe we've got that charged down so that we won't have any further loss. And then the other one has to do with the fish business I alluded to.

Okay. So pretty much it's those two.

Yep.

And then, just lastly, Melanie, I wonder if you could give us an update on some of the M&A conversations that you've been having and kind of what you're seeing in the market? We had two small deals announced for the first time in really almost a year now, so just kind of how conversations are going, what you're seeing, and what it looks like between buyers and sellers and the disconnect there?

Well, I think the level of conversations continues to you know, they're really steady and I think that, you know, pricing is still an area where there's a little bit of difference between buyers and sellers and you know, I'm not just talking about us, I'm just, you know, in talking with others that are acquirers, it just seems like you know, pricing continues to be a little bit of a challenge. But I don't see any difference in the level of conversations that are going on. I think that they're healthy. And I think we also have to remember that banks, for the most part, are pretty healthy right now, so you know, they're just really normal conversations.

Okay. And do others share your concerns in terms of low rates, cyber security and everything else? Or do they -

Absolutely.

- think that - okay. And does that, does it weight more heavily on them now, especially you know, now that it looks like rates are not going to do what maybe people thought they were a year ago?

Uh-huh. No, and I think that you know, that there are probably three things that are driving conversations and it would be the rising cost of technology and regulation, and then the third thing is just you know, you have to work really, really hard to increase your revenue in this interest rate environment. I don't think that anybody thinks that we're going to see material increases in rates this year. So, you know, just getting your revenue up and you know, your net income up is just going to be challenging for a lot of banks.

Okay. Thank you very much.

Thanks, Jackie.

Thank you. Our last question in the queue at this time is from Jeff Rulis, D. A. Davidson. Your line is open.

Hi, Jeff.

Thanks, good afternoon. Hi. Andy, back to just the mechanics of the, all we've talked about on the, I guess the reserve levels and bouncing along, kind of this reserve coverage, I guess in the comments of higher net chargeoffs, can we equate the same amount of growth essentially that the provision would be more elevated given that net number being larger on losses?

Well, the losses are about-- the total chargeoffs have been relatively steady. The recoveries have declined. So -

Meaning, yeah, and the net number I guess drawing on the reserve, you've got to put more in to maintain at the coverage level?

Right, so, if you think about the originated portfolio, you've basically got $3.5 million for losses and $1.5 million for growth. So, you know, you're probably somewhere in that range going forward in aggregate.

Okay. Fair enough. And then, maybe just last, one last one on the, again, on the loan yields and how it's matching up with the legacy book. Maybe one comment on just the competition out there on the loan yield front and if you're seeing a lot of pass through from the rate hike and I guess how competitive up or down is the environment sequentially for year-over-year?

You know, I think that, it hasn't changed that much in my view. It's just been very competitive for quite a while and particularly around those pieces of business that offer an opportunity to grow loans with high a quality client. A lot of the operating lines for good clients are based on LIBOR and we're seeing you know, spreads anywhere, typically around two hundred but they can drop down below. And be one seventy-five. And we've seen them go lower than that. So, you know, I just, I would say that it's remained competitive and it looks like it's going to remain competitive in the future and that my expectation is is that you know, our coupon rates for new production are probably going to bounce around, but in the range they have been over the last quarter, of a couple quarters and that we'll continue to see the book move more towards new production throughout the year.

I do think that one thing that has been working in our favor is, because obviously we're putting on our fair share of loans, so we have to be competitive. But I really think when it comes down to it, that just the quality of people that we have as resources for our customers really allows us to continue to grow business and rate isn't always the most important factor.

Okay. Thank you.

Okay, thanks, Jeff.

Thank you very much. That concludes the questions in the queue at this time. I'll turn the call back over to the presenters.

Thank you so much for joining us today and we'll talk to you again in July.

Thank you very much, ladies and gentlemen. This concludes today's conference call. You may now disconnect.