Heritage Financial Corp (HFWA) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to the fourth-quarter and year-end earnings conference call.

(Operator Instructions)

Also as a reminder, today's teleconference is being recorded. At this time, I would like to turn the conference over to your host, CEO, Mr. Brian Vance. Please go ahead, sir.

Thank you, Tony. I appreciate all who have called in, and those that may call in later on the recorded version. Attending with me this morning in Olympia are Don Hinson, our CFO; Jeff Deuel, our President and Chief Operating Officer; and Bryan McDonald, our Chief Lending Officer.

Our earnings press release went out this morning on a pre market release, and hopefully you've had an opportunity to review the release. As we go through our prepared remarks this morning and as well as the Q&A session that will follow, I would ask that you refer to our forward-looking statement that is embedded in the release if you would do so. I won't read it to you, but if you would do so, I would certainly appreciate it.

I will begin with some highlights of our fourth quarter and our annual 2015 results. Diluted earnings per common share were $0.32 for the quarter ended 12/31/15, compared to $0.24 for prior quarter ended December 31, 2014 and $0.32 for linked quarter ended September 30. Diluted earnings per common share increased $0.43 or 52.4% to $1.25 for the year ended 12/31/15, compared to $0.82 for the year ended 12/31/14.

The return on average asset was 1.04%, and the return on average tangible common equity was 11.04% for quarter ended 12/31. Total on receivable and net increased $148.9 million or 6.7% to $2.37 billion at the 12/31/15 from $2.22 billion at 12/31/14. Total deposits increased $202 million or 6.9% to $3.11 billion at 12/31/15 from $2.91 billion at 12/31/14.

Don will take a few minutes to provide a little bit more color to you on our financial statement results. Don?

Thanks, Brian. I will start with the balance sheet.

Total assets increased $55 million in Q4, primarily as a result of a $54 million increase in total deposits during the quarter. The deposit growth, without a corresponding growth in loans in Q4 resulted in a decrease in loans of deposit ratio to 76.6% at December 31 from 78% at the prior quarter end. Investment balances increased $76 million to $812 million at December 31 from $736 million at September 30.

During the quarter, the percentage of demand deposits to total deposits decreased slightly to 24.8% from 25% at the prior quarter end, and total non-maturity deposits to total deposits increase to 86.5% from 85.7% at the prior quarter end. We continued to experience some run off in the CD balances due to the continuing low rate environment.

Moving on to some credit quality metrics. We continued to see overall improvement in our credit quality for the loan portfolio. Non-performing assets to total assets improved to 0.32% as of December 31 from 0.33% as of September 30.

The ratio of our allowance for low loss to non-performing loans stands at a very healthy 308%. In addition, included in the carrying value of the loans are $20.4 million of net discounts, which may reduce the needs of an allowance for the loses on those related loans. Our net margin for Q4 was 3.97%, this was a 3 basis point decrease from 4% in Q3.

Pre accretion net interest margins decreased 7 basis points to 3.69% for Q4 from 3.76% in Q3. This decrease was due partly to a decrease in pre accretion loan yields of 5 basis points to 4.7% in Q4, compared to 4.75% in Q3, as new loans are being booked at rates lower than the current portfolio. In addition, the quarter-over-quarter change in the mix of average earning assets from loans to investments in overnight deposits affected net interest margin negatively by approximately 5 basis points.

Non-interest income decreased $2 million from the prior quarter, due mostly to the effects of $1.7 million gain on the termination of the [FDIC] share loss agreements which was recognized in Q3. In addition, gain on sale of loans decreased $557,000 from the prior quarter. Of the gain on sales loans in Q4, $746,000 related to mortgage loan sales and $109,000 so SBA home sales.

Finally, I will discuss non-interest expense. Non-interest expense decreased $553,000 from the prior quarter. The decrease was due mostly to decrease in data processing and marketing expenses, partially offset by increases in occupancy and equipment expense and compensation expense.

Data processing expense decreased in the prior quarter, primarily due to an incurred fee of $429,000 for the early termination of a contract that was recognized in Q3. The increase in compensation expense was due mostly to increased expenses related to the [ForEx] and basis and compensation.

Bryan McDonald will now have an update on loan production.

Thanks, Don.

During the fourth quarter, the commercial lending teams closed $149 million of new loans, compared to $210 million in the third quarter. For all of 2015, new commercial loan production was $660 million or a 20% increase over the $551 million of new commercial loans closed in 2014.

Gross loan totals decreased by $2 million during the quarter, and increased by $151 million over the past 12 months for an annual loan growth rate of 6.7%. The decline in loan balances during the quarter was due to elevated pay-off activity, some loan closings being deferred into 2016, and a decline in the utilization rate on lines of credit, especially our seasonal agricultural lines.

Large commercial relationship pay offs during the quarter totaled $57 million, and total pay offs were $83 million. This compares to prior 2015 quarterly large commercial relationships pay outs ranging from $11 million to $36 million.

The increase in pay-off activity during the quarter was due to customers selling businesses and associated real estate, in addition to several large multi-family properties being sold or refinanced by permanent lenders after reaching stabilization. We did not experience any unusual customer attrition during the quarter.

The overall loan growth rate was also impacted by the pay off of loans that were covered by the FDIC loss share prior to our buy out of these agreements during the summer. This block of loans continues to be liquidated, and declined by $36 million during 2015.

The commercial team pipelines ended the year at $336 million, up from $305.6 million at the end of the third quarter and $206 million at the end of 2014. The increase in the pipeline during the quarter was due to the delayed closing on several loans that were anticipated to close in the fourth quarter. And the overall increase in the pipeline during the year is due to consistent loan demand from our customer base, and calling efforts across the footprint.

The line utilization at the end of the quarter was 35.7%, $140.5 million on $393.8 million of commitments, verses 38.5% in the third quarter, 38.96% in the second quarter, and 39.7% at the end of 2014. The change in the line utilization rate equates to a decline in operating line balances of $11.1 million and $15.8 million during the quarter and the year respectively.

SBA 7(a) production for 2015 was $27.7 million, which is an increase of 15% over 2014. Consumer production grew $7.8 million during the fourth quarter to $43.4 million. The $43.4 million was comprised of $29.7 million of dealer volume, and $13.7 million in branch volume.

Consumer loan production for all of 2015 was $149.9 million, which was an increase of 30% over 2014. The mortgage pipeline ended the fourth quarter at $29.4 million, compared to $21.2 million in the fourth quarter of 2014. Mortgage loan production for all of 2015 was $164.2 million, which was an increase of 59% over 2014.

Our current pipeline is comprised of 50% refinanced loans, 28% purchased loans and 22% construction loans. This compares to last quarter's pipeline where refinanced business averaged 56%. The 2014 to 2015 loan production comparisons for the commercial lending teams SBA, consumer and mortgage all include the premerger loan production in each of these categories for Whidbey Island Bank prior to the May 1, 2014 merger date.

I will now pass the call to Jeff Deuel for an update on our retail strategy. Jeff?

Thanks, Bryan. I just had a few words to add about our retail strategy.

Like many of our competitors, we're focused on rationalizing our branch delivery system to accommodate changing customer needs. Our goal is to continue to streamline our network so that we have the right size branches in the right locations.

With our recent move to D&A, our core service provider, we can also accommodate new technology to help with this process. So as a result, we are currently working on closing and consolidating several retail locations which will occur between this month, January, and April. While this effort will reduce our overall locations by four, we are actually impacting six locations by consolidating three metro retail branches into upper floor commercial office space.

As an example, we opened a new Seattle lending office in downtown Seattle in August of last year, and we subsequently moved the retail function to that upper floor office and closed the street-level location. This resulted in a lending office with retail capabilities, supported by a cash recycler, some of the new technology, which results in overall reduced FTE.

The metro models are being deployed not only in Seattle, but also in downtown Tacoma and Vancouver. We will begin to see the positive benefits from these consolidation efforts beginning in the third quarter of this year.

And I will pass it back to Bryan for some comments on capital management.

I'll have some overall comments on capital management, as well as some outlook statements for 2016.

First of all, I'll start you with capital management. We have continued our $0.11 quarterly dividend, which represents a 34% pay out ratio and is slightly under the range of previously stated guidance of 35% to 40% pay out ratio. Our TCE remains at healthy 9.7%, and our strong TCE levels continue to give us flexibility for a variety of growth opportunities as well as other capital management strategies.

Our outlook for 2016, despite the recent market volatility in most sectors, we continue to be optimistic about the overall economy of the Puget Sound region. Real estate values across all sectors continue to appreciate, and most all economic indicators continue to show measurable improvement.

Commercial real estate construction growth is robust in the region, and construction activity seems to match demand at this point. But we are careful to constantly monitor and limit loan concentrations in highly active sectors. This has caused us to turn away certain loan origination consistent with establishing and maintaining discipline over our loan concentrations.

Earlier in this call, Bryan McDonald shared some good detail on our production and lending activities. While Q4 did not end as strongly as we had hoped, it was still a good quarter of originations.

I think it is important to reiterate a few points. Total loan commercial production was up 20% year over year. SBA production was up 15% year over year.

Consumer loan production was up 30% year over year. Mortgage production was up 59% year over year. The commercial loan pipeline at the end of Q4 was up 10% over Q3.

Additionally, we reduced problem assets by $56 million during 2015. Generally due to a strategy of anticipating more challenging economic conditions in the future, and taking advantage of the opportunity to upgrade our total portfolio.

Our credit quality is measured by the total of non-performing assets, restructured performing loans, and potential problem loans decreased 27% in 2015 over 2014. Overall credit quality remains an important focus of ours in both new originations, and managing poorer quality loans out of the bank.

At year end 2015, our Seattle growth strategy was substantially ahead of our internal goals for both commitments booked and loan balances outstanding, exceeding our expectations. We continue to be quite optimistic about not only our Seattle strategy, but our continuing commitment to our core three counties. King County, Seattle Bellevue, Snohomish County Everett and Pierce County Tacoma.

We continue to hire lenders in these three markets. Some of these new lenders are replacements for retirements, and some are new additions to our team. Our overall lender total in the Company remains static as we are constantly redistributing our resources.

In all other markets we do business, in except for the core three counties, we are seeing slower growth. We continue to be optimistic. Our net loan growth for 2016 will be in the 6% to 8% guidance that we have been giving.

I believe it is important to reiterate our 2015 return on average assets was 1.06%, a significant improvement over 0.74% ROA for 2014. Our continuing focus on growing non-maturity deposits was successful during 2015, with total non-maturity accounts deposits improving to 86.5%, while our CD balances dropped to only 13.5% of total deposits. We will continue to focus on growing non-maturity account deposits in the 8% to 10% range.

Our overhead ratio for 2015 was 3.01%, a significant improvement over 2014's overhead ratio of 3.49% as well as our efficiency ration improving to 65.6% for 2015 from 75.4% in 2014. Well our overhead ratio will continue to improve in 2016.

That completes our prepared remarks, and we will open the call for any questions that you may have. Again, we'd ask you and remind you to refer to our forward-looking statements as we answer your questions. Tony, please open the call for questions.

(Operator Instructions)

We'll take our first question from Jeff Rulis with D.A. Davidson. Please go ahead.

Thanks. Good morning, guys.

Good morning, Jeff.

I hopped on a little late. Is it possible to get the loan production numbers for Q3 verses Q4 and also pay off activity?

Sure, Bryan's got that for you.

Sure, Jeff. The new loan production for commercial was $149 million in Q4, compared to $210 million in the third quarter, $660 million for the year versus $551 million in 2014. What was the other?

Pay offs.

Pay off activity was $57 million in large pay offs, total pay offs of $83 million. This compares to prior quarters during 2015 where the large commercial pay offs ranged from $11 million to $36 million. Then the pipeline was at $336 million at the end of the year versus $305.6 million at the end of the third quarter, and $206 million at the end of 2014.

Okay. I lost you on the pay off in Q3. You mentioned a large number, and then do you have a total number in Q3?

I don't have that number in front of me here.

Okay.

But the range for the year was $11 million to $36 million.

So that wasn't a Q3 number in the large pay off, I guess?

Yes.

That was a range for the full year?

That was the range for the year.

Okay. So safe to say, your largest pay offs occurred in the current quarter -- in Q4?

Yes, Jeff.

True. I am just pulling it up here. Q3 pay offs were the $36 million versus $57 million in Q4. That was just the large pay-off activity.

And when we say large pay offs, we -- you might want to --.

Yes, we mean -- typically we only look at larger relationships $1 million and over, and track those numbers. Because pay-off activity was larger in the fourth quarter, we looked at total pay-off activity and spent a little more time analyzing it just to be certain that we weren't losing relationships during the quarter. So the comparative number is $57 million in Q4 versus $36 million in Q3.

And then I guess a question on just costs again, a nice step down quarter to quarter. I guess if you overlay that with -- I think Jeff discussed some branch consolidations.

But just the further work, you talked about efficiency improvements. But is that trending to holding the line on the run rate on expenses? How do we see that for 2016?

Jeff, I will take a shot at it, maybe Don and Jeff can come in behind me. As we worked through 2015, there was a pretty good degree of expenses, I can't quantify it for you, in the later half of the year that were a result of an expense reductions where we will see more of and annualized benefit in 2016.

So in my guidance, I didn't give a specific guidance. But just in my outlook comments, we are pretty confident that overhead ratio is going to continue down as we move through 2016. I think that's going to be accomplished by again annualizing the expense saves we had in 2015, the branch saves as they become online maybe in the third and fourth quarter, a variety of things that I think will help us continue to move that overhead ratio down.

Don, anything else for that?

Yes, I think overall I think you will see expenses maybe trend down a little bit, except for we do have some -- again, we talked about some branch consolidations. I'd say the first quarter we have some exit costs that are not significant, I am guessing about $400,000 in that range.

But overall, that will help us down the road with the cost of those branches going forward. So I could see again that our overhead ratio which I think was 3.92%, I think, 3.93%.

No.

2.92%, sorry. Yes. And in the fourth quarter we'll continue to decrease throughout the year.

Right.

And maybe just one last one for Brian Vance. As you look at additional lending team hires or acquisitions, I guess what's the appetite for either or both and the recent discussions that environment on deals?

Sure. I'll first start with a little color on hiring, and Bryan can chime in as well. I think the hires that we made, especially in King County in 2015, were fairly significant in terms of numbers and dollar impact, and I think as well will have a positive impact on production. I don't see the same level of that hiring in 2016.

I think the hiring in 2016 will probably be more selective in certain markets. Maybe there is an opportunity to bring over a lender to in certain markets.

And I don't know if you picked up on my comments, but we have been doing a lot of hiring of lenders. But our overall lenders are staying the same, because they're redistributing lenders around the footprint. And before I comment to M&A, maybe, Bryan, you may have a couple comments on that.

No, I agree, it will be selective hiring. We continue to talk to people and look for top quality talent to bring on board. But I sense that it will be more one or two in our select markets versus an entire group.

You never know. That's how it appears.

Then maybe just the M&A. Our strategy certainly hasn't changed, Jeff. We continue to be interested in M&A, continue to be interested in our footprint, existing footprint, potentially expanding a bit to the Southern area of the footprint if we could. It's been a little quiet, but at the same time, when those opportunities become available I think we'll be at the table.

Thank you very much.

We'll move along to our next question that will come from Tim O'Brien with Sandler O'Neill Partners. Please go ahead.

Good morning.

Morning, Tim.

A question for Jeff. Hey, Jeff, do you have the estimated all-in annual cost saves from the branch rationalization? Do you have that number?

We do, Tim. It's, on an annualized basis, it's about $1 million and we expect to start seeing the benefits of that in the third quarter.

Okay. And then -- so that's really when the overhead ratio shows improvement is in that third quarter. Factoring out one times, will we see overhead ratio improvement in the first quarter, factoring out incidentals involving the execution of this initiative? Don, in the first quarter, or are costs going to be higher?

Is that ratio going to come up in the first quarter due to seasonal factors like payroll taxes and stuff or what?

I don't think so, Tim. I think it could drop a little bit, because again, the exit costs of these branches. I don't think it is going to move a lot the first quarter.

I think we'll start seeing it starting overall, because the exit costs will be gone after the first quarter. I think we'll even start seeing it improving in the second quarter, and then even more so in the third quarter and throughout the year. But I think we'll see some nice improvement in that ratio throughout the year.

And then, do you guys have the classified assets numbers at year end versus end of third quarter and last year?

Our classified assets are we showed potential problem alone a number, and that includes -- basically that's our classified assets.

Just use that.

Well that plus the non-accrual loans.

Okay. That will cover it, okay. So all right, I can work that, do that work.

And then what about -- you guys had higher pay offs in the fourth quarter. Bryan, could you talk a little bit about outlook?

Is that just a volatility? Or first quarter heading into 2016, do you think pay offs are going to remain elevated just because of the nature of market conditions and such, conduit activity and all that stuff?

It has been elevated. I guess I would say higher than normal the last two years, the fourth quarter was exceptionally high. The previous high levels were, $35 million, $36 million with something more typical on a quarterly basis being $10 million to $11 million of very large pay outs.

This is a very difficult one to predict because it is not lost accounts. It's customers deciding to sell assets or sell businesses, and that's what makes it unpredictable. We don't see the first quarter activity hitting what we had in Q4.

So at least near-term visibility here is we wouldn't see that level of pay-off activity in Q1 based on what we are seeing right now. But again, it is difficult to predict because of what's driving it, the customer behavior as it relates to sales. And that's often hard to predict.

Tim, it's Brian. I would also add to that. I think it's fair to say that the Q4 prepayment activity surprised us. I just didn't -- we did not anticipate that level, at the same time, we can't control it.

It's just one of those things that happens. Banks make loans, and we like to see loans pay off. But it would be fair to characterize that as a bit of a surprise.

And I have also said that especially in the economic conditions we find ourselves, although I think we see very good strong growth in the Puget Sound region, we're still seeing overall national growth being rather muted. And I think it's hard to expect that growth is going to be a linear line. I think you are going to have these sorts of blips.

It was a surprise. I would like to tell you that, that was a bit of an anomaly and will not be recreated in 2016, but I can't predict that. I think what we are really focusing on are those things we can control, and that's the production numbers.

And we shared all the production numbers as you can see from almost across the board 15% to 20% higher in each one of those categories. And we look for production to continue strong. And I think the other and final comment I would make is that it's not a loss of business.

It's just -- I won't say normal recurring things, because I think our customers are taking advantage of higher assets values and they're moving assets. So I think all in all, it's a good thing for our customers. It's just hard to predict.

Thanks a lot, guys.

Thank, Tim.

(Operator Instructions)

Our next question will come from Matthew Clark with Piper Jaffray. Please go ahead.

Hey, guys. Nate Race on for Matthew. Morning.

I'm sorry, Matthew, is that you?

No, I'm sorry. Nate Race on for Matthew. Good morning, guys.

Okay, good. Go ahead.

Maybe just dig into the loan production this quarter, roughly a 30% decline from 3Q. Is it a function of just pricing moving away from you guys, or can you guys maybe provide a little more color on maybe the drop linked quarter?

Yes, the $149 million for the quarter wasn't far off what we have averaged for the year. It does go up and down, $210 million for the third quarter was a relatively high level relative to other quarters.

The other thing that did cause the quarter production, there was several loans that we anticipated would be closed in Q4 that have been pushed off to close in Q1 of 2016. So if you look at the pipelines moving up year over year and quarter over quarter, part of the reason for the pipeline growth was a few large loans that we thought were going to close in Q4 being pushed into 2016.

This is Brian Vance. I would also add to that, that -- and Bryan McDonald can chime in his opinion as well. But it remains a very highly competitive market.

We're bidding against credits on a day to day basis that sometimes we choose to walk away from the table from a pricing point of view. It's just that intense out there that sometimes we just don't feel that, that particular loan warrants that particular rate, so we'll walk away from it. So if that continues and I don't see that letting up, and I think it's probably fair to characterize that, that probably has had some impact on our production.

For sure, it is a very competitive marketplace. We get the opportunity, but we don't always win it in the final stretch with how aggressive the market is.

So we do see some fall out. And the market has become increasingly competitive each quarter the last couple years.

Great, I appreciate that color. Thanks. Maybe, Jeff, a question for you. With the branch consolidations unfolding in the first half of this year, is it fair to assume we shouldn't really expect any income declines as a result of the branch consolidations, or it should be pretty small?

I don't think it's going to be notable. Typically, we budget for a certain amount of run off from the deposits, for example. But we are consolidating them with other branches that are nearby.

Historically, we have always over budgeted on the decline in balances. Our team does a pretty good job of hanging on to the deposits.

I would add that we do have a pretty good history of that in that I think it was late 2014 where we closed three branches.

2013.

2013 where we closed three branches, or I will say consolidated three branches. We tracked those deposit migrations very closely. It's pretty consistent from one branch to the next.

So I think we can project pretty closely what we might anticipate with these consolidations as well. And I would agree with Jeff, I think it will be a very minor impact on non-interest income.

Now thinking about the core fee income that we had in 2015, what do you guys think from a growth standpoint we can anticipate as we look out to 2016? Is it a low single-digit number?

For what growth again?

Core fee income, non-interest income.

Core non-interest income?

Yes.

Again, and Don can help me here. When we're comparing 2016 to 2015, we had some one-time non-interest income numbers that are going to skew that comparison. But we're still looking for pretty healthy non-interest income growth in 2016, on a year-over-year comparison you may not see it. But, Don, do you have some color on that?

I think that again we had some bigger one times, the two big gains, I think close it's to $4 million just in and of themselves. There's always the other things you can break out.

I think we look at growth in that area to be pretty solid this year as we have in the past. So I think we're going to see some really positive growth, similar to what we see for loan growth and that same type of growth as non-interest income on the core basis, if you take out say the $4 million.

Great. And maybe just to ask the M&A question a little differently. Has the recent market volatility really impacted seller expectations, or is pricing moving a little bit more favorable towards maybe where you guys envision from a disparity standpoint I suppose?

Are you talking on the lending side?

No, I'm sorry, on the M&A pricing expectations.

Okay. We don't have any deals that can be actually compared to, so it would be just anecdotal in terms of discussions that we may be having with folks in terms of their expectations versus our expectations of value, those sorts of things. It's highly variable.

I keep saying, and I will repeat it again. Banks are sold, they're not bought. So when somebody comes to the conclusion that they want to look for a partner, as I said earlier, I think we'll be at the table.

I do think that as time has gone on, I think people are getting a little more realistic expectation of valuations as for their franchises. Is there still a gap between those what willing buyers are willing to pay to willing sellers?

Yes, there is that gap. I think if they make the decision that they're looking for a partner, it will likely happen. And again, I think we'll be at the table in those discussions.

Great. Just lastly, Don, a good tax rate to use going forward, 27% to 28% still good?

I'm sorry? Can you repeat the question?

Just wondering on the tax rate going forward, what's a good number to use?

Well I would say as low as last -- because this last quarter, because of some of the other adjustments that we've had. But I would say, in the mid to upper 27%, that range.

Great. I appreciate all the color, guys.

You bet. Thank you.

Thank you. The next question will come from Tim Coffey with FIG Partners. Please go ahead.

Thanks, morning, gentlemen. Brian, as you talked about some of the over extended parts in the commercial real estate partner in your footprint, are there any specific areas that stand out?

As to what for the commercial real estate?

The riskier parts of it.

Yes, I think so. Multi family I think continues to be that space that we see just huge growth in especially King County. We are seeing it in Pierce County and Snohomish as well, but King seems to be the huge area of growth.

I think the stuff that is nearing completion today, I wouldn't worry too much about it because I think there is still strong demand. I think the projects that are on the drawing board or may start construction at some point in 2016, I think those projects carry with it a much healthier level of risk.

I eluded to in my comments about concentrations, and this is something we take very seriously at Heritage. I think when you look back at all of the issues that were created in the 2009, 2010 timeframe, a lot of that was created for banks not paying attention to concentrations in the higher risk categories. And that is something we follow very closely.

Multi family would be one. And I think probably certain sectors of office space might be areas that might show some stress in the next few years.

But I also want to stress that we continue to see very strong inward migration of population, very strong growth in the tech sector, especially in Seattle. So while I don't see those stress points yet, they could easily and quickly develop and it's something that we're watching very closely.

The competition that you have on some of these loans that you have lost due to price, are those competitors out of market or in market?

I think probably a little bit of both. We are seeing pretty fierce competition at all deal size, all deal types. And yes, there's out of state, especially on the larger transactions.

The smaller transactions, it's typically local competition. But I don't think we characterize it as just coming from one place. It's coming from everybody.

Okay. All right, well, thank you. Those are all my questions.

Thanks, Tim. Appreciate it.

Thank you very much. We do have a follow up in queue from Tim O'Brien with Sandler O'Neill Partners. Please go ahead.

Just talking about multi, do you expect you guys are going to pull back or ease back or step away from growing that book in 2016? Multi in King County, are those footings going to decline for FY16?

A couple answers to that, Tim. We got cautious about multi family in probably the middle part of 2015, not necessarily because we were concerned about the space. We were not concerned, but we were achieving the levels of concentrations that we were comfortable with in our portfolio.

So I think it's fair to say that we pulled back on origination of new product midway through 2015. However, some of the pay offs that we alluded to that happened in Q4 came out of the multi-family sector. Not all of them, but several larger deals did come out of multi-family sector.

So it could be that we would very selectively add back a few to that space. But I think we'll be very selective on the developer, on the location, on the size of the product, et cetera. Bryan, do you have any more color to add to that?

No, I think that covered it, Brian. We have customers that do that business and are very successful long-time customers. That's our focus in terms of our lending activity.

We've got lots of experience with them, and that's our first spot in terms of accommodating [requests]. I think Brian's comments covered the rest.

I think I would also add to that, that I think as you look at the real estate sector especially, I think bankers need to start to taking a look at vintage dates. And when you originate certain product in certain space, it has different risk levels attached to that. And I think it would be good that we heed that as well, and I believe we are.

I like that, love to see those. If you guys put some vintage detail on CRE in your K, we would appreciate it I am sure. And beyond that, would love to see that transcript as soon as you get a chance. So, thanks a lot.

Okay, thanks, Tim. Appreciate it.

At this time, there's no additional questions in queue. Please continue.

As always, I appreciate everyone's willingness to be a part of the call today, and those that may be calling in later on the recorded version. So appreciate your interest, and thanks for calling in today. Goodbye.

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