CVB Financial Corp (CVBF) 2016 Q1 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the first quarter 2016 CVB Financial Corporation and its Subsidiary Citizens Business Bank earnings conference call. My name is Mike, and I am your operator for today. At this time, all participants are in a listen-only mode.

Later we will conduct a question-and-answer period. Please also note this event is being recorded.

I would now like to turn the conference call presentation over to your host for today, Miss Christina Carrabino. Miss Carrabino, the floor is yours, ma'am.

Thank you, Mike, and good morning everyone. Thank you for joining us today to review our financial results for the first quarter of 2016. Joining me this morning are Chris Myers, President and Chief Executive Officer and Rich Thomas, Executive Vice President and Chief Financial Officer.

Our comments today will refer to the financial information that was included in the earnings announcement released yesterday. To obtain a copy, please visit our website at www.cvbank.com and click on the Investors tab.

Before we get started, let me remind you that today's conference call will include some forward-looking statements. These forward looking statements relate to, among other things, current plans, expectations, events and industry trends that may affect the company's future operating results and financial position. Such statements involve risks and uncertainties and future activities and results may differ materially from these expectations. Speakers on this call claim the protection of the Safe Harbor provision contained in the Private Securities Litigation Reform Act of 1995.

For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from our forward looking statements please see the Company's annual report on form 10-K for the year ended December 31, 2015 and in particular, the information set forth in item 1a -- Risk Factors Therein. Now I will turn the call over to Chris Myers.

Thank you Christina. Good morning, everyone and thank you for joining us again this quarter. Yesterday we reported net earnings of $23.4 million, compared with $28.6 million for the fourth quarter 2015 and $15.8 million for the year ago quarter.

Earnings for first quarter of 2016 were impacted by higher than normal expenses. These expenses including $849,000 in non-recurring acquisition expenses related to the County Commerce Bank merger and about $1.7 million in additional expenses related to payroll taxes, healthcare costs, and the hiring of new employees and/or sales teams.

On February 29, we announced the completion of our acquisition of County Commerce Bank. Our financials for the first quarter of 2016 included 31 days of County Commerce Bank's operations. At close, Citizens Business Bank acquired $168 million of loans, assumed $80.6 million of non-interest bearing deposits and $224.2 million of total deposits.

Earnings per share were $0.22 for first quarter compared with $0.27 for the fourth quarter and $0.15 for the year ago quarter. The first quarter represented our 156th consecutive quarter of profitability and 106th consecutive quarter of paying a cash dividend to our shareholders.

Our tax equivalent net interest margin was 3.52% for the first quarter, compared with 3.52% for the fourth quarter and 3.59% for the year ago quarter. We continue to see competitive pressure on rates at all classes of loans, particularly commercial real estate secured loans.

Total loans grew by $156.5 million, or 3.9% for the first quarter to $4.17 billion. This included $167 million of loans acquired from County Commerce Bank.

During the first quarter, our commercial real estate loans increased by $168.7 million, our commercial and industrial loans increased by $32.5 million, construction loans increased by $21.1 million, consumer loans increased by $7.3 million and Small Business Administration loans increased by $6.8 million.

Our dairy and livestock and agribusiness loan portfolio decreased by $79 million, primarily due to seasonal pay downs which occur in the first quarter of the calendar year. Loan demand remains strong and new loan production is ahead of last year's pace. The low interest rate environment continued to put pressure on loan portfolio retention.

After eliminating the acquired County Commerce Bank loans and the dairy and livestock and agribusiness loans, loans grew by $66.9 million for the first quarter, or about 1.8%. Price competition remains challenging as the big banks are trying to preserve market share.

From a year-over-year perspective, net loans increased $45.7 million or 12.3%. Organic loan growth accounted for $290.1 million of the growth, or 7.8%, while County Commerce Bank loans accounted for $167.3 million, or 4.5%. In terms of loan quality, nonperforming assets defined as nonaccrual loans plus OREO, were $24.7 million for the first quarter of 2016 compared with $28 million for the prior quarter. The allowance for loan and lease losses was $59.3 million, or 1.42% of total loans at March 31, 2016, compared with $59.2 million or 1.47% of total loans at year end 2015. Net recoveries on loans for first quarter were $180,000.

At March 31, 2016, we had loans delinquent 30 days to 89 days of $900,000 or 0.02% of total loans. Classified loans for the first quarter were $83.4 million, a $6.5 million increase from the prior quarter.

This increase was due to a $6.6 million increase in dairy and livestock loans. We will have more detailed information on classified loans available in our first quarter form 10-Q. Now I would like to discuss deposits.

For the first quarter of 2016, our non-interest bearing deposits totaled $3.35 billion, compared with $3.25 billion for the prior quarter and $3.13 billion for the year ago quarter. This represents $102 million increase, or 3.14% quarter-over-quarter and a $225.2 million increase, or 7.2% year-over-year. Non-interest bearing deposits represented 53.93% of our total deposits at quarter end.

Our total cost of deposits and customer repurchase agreements for the quarter was 11 basis points compared to ten basis points for the prior quarter. At March 31, 2016, our total deposits and customer repurchase agreements were $6.84 billion, compared with $6.46 billion for the same period a year ago and $6.61 billion at year end. Our ongoing objective remains to maintain a low cost stable source of funding for our loans and securities.

Interest income. Interest income for the first quarter of 2016 totaled $64.5 million, compared with $65.1 million for the fourth quarter of 2015. Income from our securities portfolio was $18.1 million, down $380,000 from the prior quarter, representing the majority of the quarter-over-quarter decline. Non-interest income was $8.7 million for the first quarter of 2016, unchanged from the prior quarter.

Now, expenses. Non-interest expense for the first quarter was $34.4 million, compared with $31.9 million for the fourth quarter. The $2.5 million increase was primarily due to a $1.7 million increase in salaries and employee benefits, principally due to higher payroll costs, higher healthcare costs and new hire expenses.

Additional costs included $849,000 in expenses related to our acquisition of County Commerce Bank. These costs are nonrecurring. Non-interest expense was 1.79% of average assets for the first quarter, compared with 1.64% for the fourth quarter.

Now I would like to turn over to Rich Thomas, our CFO, to discuss our effective tax rate, investment portfolio and overall capital position. Rich?

Thank you, Chris. Good morning everyone.

Our effective tax rate was 36.50% for the first quarter, compared to 30.48% for the prior quarter, and 34.50% for 2015 as a whole. Our effective tax rate varies, depending upon tax advantaged income, as well as available tax credits.

Now our investment portfolio. During the first quarter of 2016, we sold an average of approximately $84.9 million in overnight funds to the Federal Reserve, and received a yield of approximately 50 basis points on collected balances. We also maintained an average of $52.3 million in short term CDs and Money Market accounts with other financial institutions, yielding approximately 85 basis points. The maturity of these CDs and Money Markets were acquired in the acquisition of County Commerce Bank.

At March 31, 2016, our combined available-for-sale and held-to-maturity investment securities portfolios totaled $3.11 billion, down $112.1 million from the fourth quarter of 2015. The quarter-over-quarter decrease was the result of our strategic shift of excess liquidity into loans with higher yields than currently available in investment securities.

Investment securities represented 39.23% of total assets at quarter end. This is the lowest percentage level since the second quarter of 2013. At quarter end, investment securities available-for-sale were $2.29 billion, and we had a pre-tax unrealized gain of $59 million. Virtually all of our mortgage-backed securities are issued by Freddie Mac or Fannie Mae, which have the implied guarantee of the US Government.

At March 31, 2016, our held-to-maturity investment securities totaled $812.9 million, and consisted of $313.7 million of municipal securities, $272.9 million of government agency and government-sponsored enterprises and $226.3 million of mortgage-backed securities and collateralized mortgage obligations. We continue to monitor the interest rate environment, carefully weighing current rates and overall interest rate risk.

During the first quarter, we purchased $12.3 million in municipal bonds with an average tax equivalent yield of approximately 3.14%. We did not purchase any other securities during the quarter.

Prepayment speeds in our investment portfolio have accelerated in recent months. Based on the current interest rate environment, we are presently receiving approximately $40 million to $45 million in monthly cash flow from our portfolio.

Now turning to our capital position. Shareholders' equity increased by $48.5 million to $971.9 million for the first quarter.

The quarter-over-quarter increase was due to $23.4 million in net earnings, $21.6 million for the issuance of common stock for the acquisition of County Commerce Bank, a $15.8 million increase in unrealized gain on the available-for-sale securities, and approximately $600,000 of various stock-based compensation items. This was offset by $12.9 million in cash dividends.

I will now turn the call back to Chris for some closing remarks.

Thanks, Rich. One thing I want to clarify, earlier in my discussion, I think I mentioned from a year over year perspective, net loans increased by $45.7 million. I meant to say $457.4 million and that's 12.3% from the first quarter of 2015 to the end of the first quarter 2016 -- so $457.4 million. I didn't want to short change us on that.

All right, now let's talk about economic conditions. In terms of the California drought, we continue to see little effect on the repayment of our loans. The El Nino effect had somewhat less than the drought's short-term impact but long-term issues still remain. Notwithstanding the state will continue to closely monitor water usage.

Turning to the California economy -- according to various economic reports, California's labor market continued to improve during the first quarter and hiring in the next two years is predicted to outpace hiring rates for the US as a whole. California's employment development division reported the unemployment rate was 5.5% in February 2016, compared with 5.7% in January and 6.7% back in February 2015.

Higher levels of employment and consistent job growth have led to higher incomes. The construction industry is expected to continue to post healthy job gains as builders try to meet the demand for housing and the leisure and hospitality sector is still a bright spot in job gains, and has been one of the fastest growing sectors in the state over the past year.

In terms of the dairy industry, milk prices continue to fall in the first quarter 2016, dropping below the cost of production for many dairies. The short term outlook appears somewhat challenging. However, the long term outlook appears good as the majority of industry analysts predict a steady rise in global dairy trade for the next decade, due to population growth and rising income in developing nations.

According to the California Department of Food and Agriculture, seed costs in California represented 56.7% of total milk production costs for the fourth quarter of 2015, compared to 58.1% for the third quarter of 2015 and 61% for the fourth quarter of 2014. Seed costs continue to decrease as seed supplies were abundant.

In closing, we were pleased to complete the acquisition of County Commerce Bank and are looking for other exciting opportunities to expand our geographic footprint in the California marketplace. We remain equally focused on hiring new teams of bankers to help us expand our marketing presence in new geographic areas. We continue to believe a balanced growth plan of acquisition and organic growth is the right corporate strategy for CVBI.

That concludes today's presentation. Rich and I will be happy to take any questions that you might have.

Thank you, sir. We will now begin the question and answer session.

(Operator Instructions)

The first question we have comes from Aaron Deer of Sandler O'Neill and Partners. Please go ahead.

Good morning, guys.

Good morning.

Chris, you entered your comments right where I would like to go back to, which is on the subject of the new hires and growth. In the press release you mentioned that you did some strategic hires in the quarter, and you sounded pretty optimistic with respect to the pace of new production.

With the new hires just hired, can you talk about any specific lending specialties they're in or what geographies those folks are targeting?

If you look at, really -- and let me speak to -- over the past, probably two years, and then I will speak more specifically about the recent two quarters. Over the past two years, we have added teams in Santa Barbara, Oxnard, which is Ventura County, downtown Los Angeles, San Diego, and South Orange County. Those five teams have been all added on to the acquisitions that we have done, which is American Security Bank, which is almost two years ago now and County Commerce Bank, which we just closed in February.

The most recent team acquisition was in January of this year with South Orange County, so we added a team down there. They're a CNI team, they do a lot of middle market manufacturers, distributors, that type of business, Owner-occupied real estate, a little bit investor real estate but a very relationship-focused team and we're excited. Because we've spent -- we're really putting some significant resources in South Orange County.

Remember, we bought American Security Bank. They had two offices down there. Now this team has layered on to that office and is actually going into -- has gone into the headquarters of where American Security Bank once was. So that team is really leading the charge there in South Orange County.

That's great.

As my follow up, in the past you have kind of talked about an 8% kind of annualized growth rate. is that still kind of a target for this year?

Absolutely, and I think if we can get a little more rise in the 10-year Treasury rate, I think we can even do better than that. But I want to hedge my bets and say 8%.

If you look at what I just said a little bit earlier about our quarter over quarter from 2015 to 2016, first quarter 2015, we grew organically 7.8%, so we almost made that 8% target. And I think that in 2016 I would be disappointed if we didn't grow organically by 8%, separate from the County Commerce Bank loan.

That's terrific. Thanks, Chris.

Next, we have Matthew Clark of Piper Jaffray.

Good morning, guys.

Maybe first, on your loan yields, looked like they held up well. I am just curious how much in the way of prepaid penalty income or interest income reversals are in there this quarter and last, refresh our memory here?

Last year for the full year, I think we had about $4.9 million in prepayment fee income. For the fourth quarter of 2015, we had $546,000, $547,000. The first quarter was $919,000.

So prepayment fees are still elevated. They're not running as high as they were on average for last year. I would say a normal level for us is $500,000 to $600,000. At $900,000 it definitely impacted our loan growth.

Now, the good news is we get a little bit more income on it, but the bad news is, we either refi our own loan at a cheaper rate or we lost the loan. We've got to work harder on loan production, because with real estate prices up where they are right now, some of these investors are taking their money off the table and selling properties as opposed to continuing to look to refinance them. So we've got to be on top of that.

We've done some unique things. Well, I don't know how unique they are, but we have done some things to -- when one of our customers sells a property to someone else, we usually have prepayment penalties on those. We'll offer them discounts if they introduce us to the buyer and we get that loan on their prepayment penalty.

So it's a way that we can try to keep it in there. Prepayment penalties are great, but I am more interested in keeping the loans.

Got it.

In terms of the accretion, the remaining accretion you expect with this latest deal over the life of those acquired loans. Can you update us on the accretion that you expect to pull into interest income here over the next few years?

What's kind of interesting is, we talk about it and it all relates to -- I look at this as it relates to our loan loss reserve. And our loan loss reserve at the end of the quarter was 1.42%.

If you look at the loans from our three acquisitions that we have done over the last, call it, six years, starting with the San Joaquin in 2009, the ASB in 2014, and the County Commerce Bank in 2015 -- if you just look at our legacy portfolio, our reserve is real -- we look at it as 1.57%, our reserve.

The other $400 million issued in loans, are loans that were still originated by ASB, American Security Bank, County Commerce Bank or San Joaquin Bank. There are some different accounting treatments for those by the way they're handled, so I would leave that to our accounting experts to explain in detail and you are certainly welcome to call them offline. Because I don't want to get into too much detail.

Roughly, we have a little over $6 million in discount with the American Security Bank and the County Commerce Bank acquisitions remaining and then the San Joaquin Bank gets a little trickier. I kind of look at it all in, a little over $9 million, on that $400 million in loans. I know we are not supposed to look at that as a reserve but if you did you would say that has a 2.25% reserve on it, but you have to look at interest rates in there as well.

It's not apples to apples but I hope that answers your question.

Okay.

On the securities portfolio, should we expect that portfolio in terms of dollars to continue to come down here or stabilize?

What we would really like to do, and we talk about this, is if we can take - even if we had zero deposit growth which is not our goal. We want to grow deposits, but we want to grow quality deposits that are sticky and low cost. Even if we had zero deposit growth, if we could re-engineer $1 billion of securities over time into $1 billion in loans we in general will pick up about a 2% yield on those loans.

Now we have to reserve for them, to some extent, and all that, but our recoveries are helping our reserve along the way here because we still are experiencing net recoveries. That's what's going to ultimately protect our net interest margin, is the ability to transition securities into loans. If you look at over the last year, our loans are up 12.3%.

Our securities are only up 2.6% from a year ago quarter. The concentration of investment securities, as a percentage of our total assets, is below 40% for the first time since June of 2013. While that isn't any great milestone, it's something that we are looking for because we would love to have more mix of loans. Ultimately I would like to have 80% loan to deposit ratio and we are in the low 60s right now.

Got it.

Last one for me, just the tax rate and expectations for the rest of the year here?

I will let Rich answer that one.

Okay, Matt, clearly our tax rate is dependent upon our tax advantaged interest that we recognize primarily from our municipal security portfolio. There are a few other items that are in there, but they have small impact on our tax rate. As you also probably understand, in California we had tax credits that a couple years ago Governor Brown discontinued the enterprise zone credit so those have been coming down a little bit.

We try to estimate our annual tax rate every single quarter, and I think this, without being forward looking, I think this 36.5% is reasonably close to where we can end up for the year.

I think for the year 2015 we were at 35.5% tax rate and our first quarter we have 36.5% tax rate, so there is a little bit of an adjustment there. We feel like we are conservative at the 36.5% right now, but we do think there is a little bit of move up in the tax rate, effectively. Thank you.

(Operator Instructions)

Next we have Julianna Balicka of KBW.

Good morning.

Good morning, how are you?

Good, how are you?

A couple quick questions. On the dividend, it's been stable. Now I know EPS itself is not increasing rapidly, but given your rise in capital levels, could you comment about potentials for increasing dividends, or your thoughts around that?

You know the board meets monthly, but we really talk about the dividend quarterly. We just talked about that last month. At this point, with the pay out ratio running at 50ish%, we feel it is the right level.

You're absolutely right, if capital levels build, we'll have to assess that on an ongoing basis. Again, our first priority is to use that capital to fund growth. Whether that growth is through acquisition or through organic growth, one way or the other.

That hasn't really changed from where it was a year ago. We are still optimistic that we're able to deploy that capital to grow the Bank at a more rapid rate than what we have done over the last couple years.

Is the implication of what you just said that when the EPS do start to grow faster, because maybe the gross economic conditions improve for whatever reasons, or rates rise fast enough, or whatever. Will you then plan to increase your dividend at a more rapid pace than you would have done historically to maintain a 50% pay out ratio? How should we think about that?

I don't think that 50% pay out ratio is cut in stone, and this is something, again, we've discuss quarterly and that can move. A couple years ago we talked about a 40% pay out ratio, and we have elevated that to more of a 50% pay out ratio. I think given a static universe, then, yes, I think we would look to increase our dividend over time.

Whenever we look at increasing the dividend, we want to make sure it's something that's sustainable for us. Sustainable through different economic cycles and through acquisitions and so forth. We don't want to get in the position where we have to back off on our dividend.

As you know, we have done 106 consecutive quarters of paying a cash dividend, and we want to make sure we continue that streak and don't want to downsize the dividends if at all possible.

That makes sense.

Switching gears. In your press release you remarked about shifting into loans with higher yields than what securities were offering first quarter. Does that imply that because of what the securities yield did in the first quarter, you picked up loans maybe at lower yields than like a quarter or two ago you would have picked up? Or were you picking up loans at the same yield levels you were doing for last several quarters?

The loans that we're putting on today are at a lower yield in general than the loans that we were putting on a year ago. Not significantly, but there is no question that price competition -- and when you see a 10 year Treasury rate of 1.78%, I guess it's up to 1.88% now, that's a very competitive rate environment for us, particularly since 60% of our loans are commercial real estate loans. They tend to be fixed rate loans of 5 years, or 7 years or 10 years along the way.

That 10 year Treasury is a good benchmark to look at what that does. The answer to that is, our yield on loans is going to be challenging to keep at the same level, and yield on securities will be challenging to keep at the same level. But if we can take security dollars and put those into loans, the average securities yield is 2.5%, the average portfolio loan yield is 4.5%.

Let's say for argument's sake, the new stuff we're putting on is 0.5% lower in each of those categories, I would rather have 4% loan than 2% security and that 4% loan is still higher than the 2.5% average yield we have on our securities portfolio today. That's where I think we can protect the net interest margin through loan growth, even in the absence of deposit growth. But I would say deposits will continue to grow, because we have got a lot of sales people out there.

I guess where I was going with this was that there is pricing competition and all that on loans, but have you also expanded your kind of tolerance for the lower priced loans that maybe you were holding out before hoping things would change? Or there really hasn't been that much of a significant change in your tolerance?

No, we are definitely competing, but we really haven't changed our stock rates in the bank in terms of what we present out there to our people on a daily basis. When we see the stronger credit, we see lower loan devalues that get below 60% or 50% on commercial real estate, we will compete on price on those and we'll lower our price to compete, yes. Because we are almost looking at those -- what we refer to as maybe bullet proof loans if you will, that will -- should withstand a recession with a very diminimus amount of credit problems.

We look at those as almost a replacement for our securities. The answer to that is, yes. We are competing more on a price basis but we're looking very carefully at credit quality.

When you are lending out money at 4% or 3.5%, or whatever the number is, you need to be right.

Okay, that makes sense.

Last question and I will step back, it looks like towards the end of the quarter, you had build up on cash and excess liquidity? Is that something you're going to look to redeploy in the second quarter and we should think about as a public margin lever? Or was that just a blip at the end of the quarter and its back off by now?

We're going to receive more cash flows from our investment portfolio going forward. In fact, we were talking about $35 million a month before, and now we are looking at $40 million to $45 million a month. The County Commerce Bank acquisition did provide us more cash as well.

So that was part of that blip, if you will. We didn't buy any mortgage backed securities, or collateralized mortgage obligations in the first quarter because we felt the rates were not attractive enough to us to want to go ahead and take that to get the yield. We didn't feel the yield was worth the interest rate risk we would take on those.

That remains a challenge. That even puts more importance on growing loans, because we are not getting the yield on the securities portfolio. We are trying to buy as many munis as we can, because we do get the yield on municipal bonds, but we are not seeing those on the mortgage-backed or the CMOs.

In fact, we haven't bought a mortgage backed or CMO this year, whereas we have tried to accelerate somewhat of our buying of municipal bonds. There has also been some runoff of municipal bonds too, as some of these are getting repriced in the market place.

It's a little tricky. We are trying not to accumulate too much cash. That will be a challenge going forward, and ultimately would like that cash to go into loans.

Got it. Thank you very much.

Next, we have Matthew Clark, Piper Jaffray.

I just wanted to follow up on a question on your pipeline and recoveries and reserve coverage in general. Just trying to get a sense for whether or not we can continue to see some net recoveries here throughout the year, and where you think that coverage ratio on loans might bottom? Obviously, I understand there is a mark there.

That gain will eventually end where we are getting recoveries off of loans at the pace we have been getting them. The first quarter kind of a weak quarter in terms of recoveries. I think given the pipeline we have for the rest of the year, right now I think the first quarter will probably end up being one of our weaker quarter in terms of recoveries.

It's looking good for the second quarter and third quarter. The timing of these things is not always easy to predict. But we do have some good dollar recoveries that we believe we are going to realize here in the next couple quarters.

I said on our last call, and I believe -- I think I did on the last call -- I believe this to be the case as a guess, not necessarily an iron-clad prediction that our loan growth in 2016, assuming we achieve this 8% loan growth in 2016 which is our goal, I think that we will not have to add to our reserves because I think our recoveries will be sufficient enough to provide the reserves to support that 8% growth in loans.

So if you look at that, 8% on $4 billion is $320 million and 1.5% on reserve, that's about $4.7 million. I would hope we would have $4.7 million in recoveries between now and the remainder of the year to support that.

That's a guess, it's not a prediction.

Got it, thank you.

(Operator Instructions)

Next, we have Gary Tenner of D.A. Davidson.

Good morning.

Chris, I hopped on the call a few minutes late and I don't know if you went into the detail, but you had in the press release a comment regarding improving production at the newer markets. I was just wondering if you can go into more detail there?

I think I said earlier in the call that we have hired now five or six new teams over the last year and a half, two years. Those teams are getting acclimated, they're producing good business. Our other teams in the bank are very focused on loan growth and relationship growth, and so we are seeing higher productivity levels.

In fact, last year the first quarter was by far our weakest quarter. In this quarter we were significantly ahead in terms of loan production over last year in the first quarter, so we feel good about that. Pipeline is still good going into the second quarter, and I think a lot of that is the new teams, but also our existing teams are doing a good job of producing loans and the focus is important.

We're not changing the type of loans we are going after. It really is the same credit underwriting and the same thing we've done all the way along. We simply have, I think, elevated our resources, committed more resources to it, and are very focused on how important this is for the organization to do in a very high quality way.

With regard to the folks maybe that are not part of the newer team so that they're also kind of maybe more engaged on the lending front than they have been? Is that a fair way of thinking about it? Did anything change with regard to their markets, or the kind of drive for generating new assets?

I don't know if anything's really changed there. I think our incentive programs are very focused on that loan production. In fact, that's changed in the last couple years into -- they get a greater percentage of bonus based on their loan production as a whole, than they did a few years ago.

I think that gets them more focused, as people are economically driven. Hopefully you are economically driven, right?

Working for a bank, you should be. All right, thanks very much.

Thanks.

Next, we have Julianna Balicka, KBW. Please go ahead, ma'am.

Hi, I just have one follow up. I'm sorry if I missed that in your prepared remarks, but your average deposit growth has declined linked quarter? Did you address that in your remarks? I am sorry.

I didn't address that. But seasonally, deposits are soft in January and February of every year. I don't attribute any of that deposit average-to-average softness as being anything other than seasonal.

Deposits are running well right now, there is not a concern that we're seeing runoff of deposits of any substance and deposit production is good. I think we are very attentive to the cost of deposits, which there is a little bit of pressure. We haven't seen pressure in a long time in deposit costs, and we are starting to see a little bit of pressure on deposits as the Fed funds raised, moved up 25 basis points and as pure as our deposits, we like to think they are, there are people who are watching those rates pretty closely.

Okay, that makes sense. Thank you.

(Operator Instructions)

At this time, it appears that we have no further questions. We'll go ahead and conclude today's question and answer session.

I would now like to turn the conference call back over to Chris Myers for any closing remarks. Sir?

Thank you very much. We appreciate your interest and look forward to speaking with all of you again on our second-quarter 2016 earnings conference call in July. In the meantime, feel free to contact me or Rich Thomas, our CFO.

Have a great day and thank you for being part of this call.

We thank you, sir, and also the rest of your management team for your time also today. Again, the conference call is now concluded. At this time you may disconnect your lines. Thank you, take care and have a great day, everyone.