Columbia Banking System, Inc. (COLB) Q2 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to Columbia Banking System’s Second Quarter 2012 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, Shyra. Good afternoon, everyone, and thank you for joining us on today’s call to discuss our second quarter results. I hope you've all had a chance to review our earnings release, which was issued this morning, and which also is available on our website. With me on the call today are Clint Stein, our acting Chief Financial Officer and Andy McDonald our Chief Credit Officer. Mark Nelson, our Chief Operating Officer will also be available for questions following our formal presentation. Clint will begin our call by providing details of our earnings performance for the quarter, including the financial benefits of our FDIC-assisted transactions, our capital position, net interest margin, and core deposits. Andy will then review our credit quality information, including trends in our loan mix, allowance for loan losses, and our charge offs. I will conclude by giving you our thoughts on the economy here in the Pacific Northwest, and give you a brief outline of the strategies as we move forward. We'll then be happy to answer any questions you might have. As always, I need to remind you that we will be making some forward-looking statements today, which are subject to economic and other factors. For a full discussion of the risks and uncertainties associated with forward-looking statements, please refer to our Securities fillings and in particular, our form 10-K filed with the SEC for the year 2011. And with that, I'll turn the call over to Clint, to talk about our financial performance.

Thanks, Melanie. Earlier this morning, we announced second quarter earnings of $11.9 million or $0.30 per diluted common share. This compares to $8.6 million for the same quarter of 2011, or $0.22 per diluted common share. While our earnings increased significantly over the same quarter last year, more relevant is a review of the few items that made an impact to the results of the second quarter as compared to the first quarter of this year. We provided a table in our earnings release illustrating the impact of certain accounting entries associated with our acquired loan portfolios. The net effect of our acquired loan accounting resulted in additional pretax income of $3.4 million for the current quarter. This is a reduction of $1.7 million when compared to additional pretax income from acquired loans of $5.1 million for the first quarter of 2012. During prior quarters, we stated the Bank of Whitman discount accretion to interest income would materially decline in 2012 and beyond. And we are realizing the impact of that decline. Discount accretion recorded in the second quarter was $1.1 million, a $2 million decrease from $3.1 million in the first quarter of 2012. If the accretion income from the discounted loan portfolio is removed from the total, the net change in pretax income resulting from the acquired loan accounting entries was consistent between the first and second quarters of the year. The remaining Bank of Whitman loan discount was about $7 million at June 30, and the remaining weighted average term was approximately 5.6 years. The net benefit of operation of other Real Estate owned for the second quarter was $377,000, compared to a net cost of $910,000 during the first quarter the year. Net other personal property owned expense was $177,000 for the second quarter, compared to expense of $2.2 million during the first quarter of 2012. These 2 items combined for a net benefit of $200,000 during the current quarter $1.1million in the prior quarter, resulting in a $3.3 million positive swing between quarters. Our cash equivalent net interest margin for the second quarter was 5.88%, up from 5.49% for the same quarter last year, but down from 6.67% for the first [indiscernible] impacted by 144 basis points as a result of the additional accretion of income related to our acquired loan portfolios. The net interest margin, excluding the additional accretion income was 4.44% for the second quarter, compared to 4.49% for the first quarter of this year and 4.58% for the fourth quarter of 2011. Historically, our operating net interest margin has been stable in the 4.25% to 4.50% range, in part, due to our disciplined approach to deposit pricing throughout this business cycle, we've been able to mitigate the margin erosion that has occurred within the banking industry. Our average cost of interest-bearing deposits for the second quarter was just 23 basis points. However, in light of recent announcements by the Fed regarding the extended duration of this low interest rate environment, it will be more difficult to maintain the operating margin within its historical range, as we see repricing of existing loans, and new loan originations at lower prevailing rates, and the reinvestment of securities cash flows at lower yields. Average interest earning asset yields decreased 82 basis points to 6.11% in the second quarter this year, from 6.93% for the first quarter of this year. The decrease in yield is due in large part to the reduced incremental accretion income, but lower loan origination rates and investment yields are a factor as well. New loans are being originated at rates that are about 50 basis points lower than the existing portfolio. The yield on the investment portfolio declined 15 basis points during the second quarter as compared to the first quarter of 2012. We received limited margin benefit from the reduction in the average cost of interest-bearing liabilities, which declined 4 basis points from the first quarter of this year. Total noninterest income was $11.8 million for the second quarter, up from $9.6 million in the first quarter. The increase was due in part to the $168,000 change in the FDIC loss sharing asset recorded as a reduction in income during the current quarter, compared to a $1.7 million reduction during the first quarter. If we compare noninterest income before the change in the FDIC loss sharing asset, the second quarter experienced an increase of $754,000, or roughly 7% over the first quarter of the year. The increase was driven by mortgage banking fees, interest rate swap fees and service charges. Total noninterest expense was $39.8 million for the second quarter, a decrease of $4.6 million from $44.4 million in the first quarter of this year. The decrease was due to the $3.3 million positive swing discussed earlier, arising from reductions in costs associated with foreclosed assets. In addition, compensation and benefits were down $1 million from the first quarter of this year due to a decrease in cost associated with temporary help and synergies, arising from fully-integrating operations of 3 FDIC-assisted acquisitions. At this point, I'd like to turn the call over to Andy McDonald, our Chief Credit Officer. Andy?

Thanks, Clint. During the quarter, our non-covered loan portfolio increased approximately $64 million, or around 3%. Growth was centered in commercial business loans and commercial and multifamily Real Estate term loans. Growth in business loans remain centered in agriculture, [indiscernible] fishing, followed by finance and insurance. Growth in commercial Real Estate term loans was centered in warehouse and office properties, primarily in our income property bucket. Commercial Real Estate Construction loans also saw some modest growth, with manufacturing and multifamily property types driving this growth. The growth in business loans was however, offset by continued contraction in our Consumer portfolio, which declined $2.5 million. Unlike last quarter, our HELOC portfolio was stable. The decline in this quarter was centered in unsecured private banking lines of credit and other consumer loans, such as boats, RVs and automobiles. We believe the decline in these categories reflect the decline in overall consumer confidence. The decline in our One-to-four family residential perm portfolio, we attribute to home owners refinancing to lower long-term fixed rate, as we are not actively originating these to hold in our portfolio today, but rather, are selling into the secondary market. The covered portfolio continues to contract, declining by over $57 million before discounts and loan loss provisions. Most of this decline was due to the resolution of problem loans within these portfolios, as we continue to address the issues associated with loans acquired through the FDIC-assisted transactions. The vast majority of these resolutions are occurring in the Commercial Real Estate portfolios, both permanent and construction and of course, the One-to-four family residential construction portfolios as well. Looking at our nonperforming assets, we continue to see these declines and they now represent about 1.56% of our non-covered assets as of June 30, 2012, down from 1.84% as of last quarter, and 2.54% as of this time last year. As detailed in the press release, we had inflows of $6.7 million into the nonperforming category, and had outflows of approximately $18.8 million. Year-to-date, we've been able to reduce nonperforming assets by 22%. NPAs to loans, plus OREO and OPPO for the quarter, also improved, declining from 3.3% to 2.7%. Now for each of the portfolio segments they performed as follows: the One-to-four family perm portfolio went from 4.5% in March, down to 4% in June, which was modestly improved for the quarter. Commercial perm loans went from 3.4% to 3%, which is down from last quarter but about even with year-end. One-to-four family construction declined from 27.9% to 18.6%, and we are now down to about $9 million in NPAs left in this bucket to work out. Commercial construction loans declined from 14.1% to 9.8% and this decline is mostly due to new funding, as NPAs by dollar amount were only down about 3% quarter-over-quarter. Commercial business loans also showed modest improvement, declining from 1.9% to 1.6%, and Consumer was essentially unchanged, moving from 1.3% to 1.2%. For the quarter, the company made a provision of $3.7 million, down from $4.5 million last quarter. The provision was primarily driven by the level of net charge-offs during the quarter, which were $3.8 million, and the provision was also driven, but to a lesser degree, by the non-covered loan growth discussed previously. Again, we had a good quarter. We enjoyed modest non-covered loan growth of around 3%, and our credit metrics continued to move in a positive direction. While we would all like the pace of improvement to be faster, it has been steady and in the right direction now for over 18 months. I would say that we remain somewhat cautious at this time, given the tenuous [indiscernible], combined with the financial crisis in Europe. As such, it makes sense to maintain our loan loss reserves at prudent levels. With that, I'd like to turn the call over to Melanie.

Thanks, Andy. Looking at the big economic picture here in the Pacific Northwest, we've seen slight improvement than most companies have seen. However, people are wary of the potential impact of the European financial crisis and consumer confidence has dipped along with retail sales. Unemployment rates remain relatively high in most of the market we serve, as it is throughout most of the country. On the positive side, Forbes Magazine has listed the Pacific Northwest as one of 5 U.S. regions to watch in 2012 that have the brightest economic futures. Another positive sign is that the Seattle-Tacoma-Bellevue area experienced the nation's second-highest rise in wages in the past year, increasing almost 3% from a year ago. The area [indiscernible] Houston, among the 20 largest Metropolitan areas. We are posing some positive signals toward a recovering housing market. Home prices in King County rose 10.1% in June, a double-digit increase, which hasn't happened in nearly 5 years, and was up for the third straight month of year-over-year price increases. The jump in June was broad-based as well, incorporating most of King County and other counties in Western Washington. Median sales prices also increased from a year ago in Pierce [indiscernible] Kitsap counties. While not as dramatic, the same trend is showing in many of our Oregon markets as well, particularly, Portland. We believe the primary reason for the encouraging turnaround is that there are significantly fewer distressed sales, which were usually lower-priced. For example, in February, 23% of single-family sales in King County were bank-owned properties. In June, it was less than 10%. In addition, there is a lack of inventory, which is driving up prices. Boeing, our region's largest private employer continues to hire, and has added over 7,000 workers this past year. Their contract with Machinists Union ensures that 737s and the 737 MAX will be built and ran in Washington. Just 2 weeks ago, Boeing said it has now received overall orders for more than 10,000 737 models. With this historic number, we expect their backlog and the resulting long-term, higher paying employment, to be around for quite some time. Other types of manufacturing, electronics, fabricated metals, machines, food products and industrial equipment continue to do very well also in both Washington and Oregon. And this is during a tough [indiscernible] years. Now a 20% of Oregon's state gross product comes from manufacturing, which has been a bright spot for the state during the slow recovery, particularly in Portland. In fact, overall state production grew more rapidly in Oregon last year than in all but 1 other state, and that was Indiana, primarily due to Intel and the high-tech industry. $3 billion payroll in Washington state continues to become an even bigger presence here. Joint Base Lewis-McChord is already of the largest employer in Pierce County, which is our headquarters county. The Army has confirmed that it is building a new division headquarters at Joint Base Lewis-McChord, which should be fully operational by October 1 of this year, bringing in more soldiers and more officers. Agriculture-based industries in our region continued to do very well as well. For example, Oregon farmers posted a new record for agricultural sales in 2011, with farmers, ranchers, and the fishing industry accounting for over $5 billion last year. The state's log export increased for the second year in a row, they were up 13% from 2010 and 32% from 2009. The increase is being driven by exports to Asia, especially China. In Washington state, the unemployment rate remained flat in June at 8.3%, while an above average 10,200 jobs were added, suggesting more people are reentering the job market and looking for work. The state's workforce has grown by more than 10,000 jobs for each of the last 2 months, and our status now regained more than 1/2 the member of jobs lost during the recession. The professional and business services sectors grew the most. Other sectors that grew, included manufacturing, leisure and hospitality reached on wholesale trade. Most of the jobs lost were in the federal state and local public sectors. While Oregon's unemployment rate ticked up slightly to 8.5% in June from 8.4% in May, it is down more than a full percentage point from June 2011, when the rates stood at 9.6%. Oregon's economy added 1,700 jobs last month to 4 straight months of employment gains, and employers have added almost 14,000 jobs during the last 4 months. The increase in jobs was led by trade, transportation and utilities sectors. Personal income rose in Oregon as well, up about 1% during the first quarter, compared to the fourth quarter of last year. Many economists believe that the economic recovery has lost momentum in recent months, and we will, of course, continue to face challenges as a result. However, we believe our diversifying export driven economy here in the Pacific Northwest is a bright spot in the country, and gives us an advantage going forward. As we mentioned earlier, we are seeing gains in our organic loan growth, our Commercial business loans reached a 4-year high at the end of the second quarter, and were up 19% from a year ago, and 8% from year end 2011. During the second quarter, new loan production was approximately $157 million in the non-covered portfolio. We are seeing activity increase across our lines of business, commercial, small business and professional. Our line of credit usage is still tracking at lower than normal levels. Our commercial retail and wealth management teams throughout our footprint are very externally focused, and are continuing to reach out to current and potential customers who can benefit from a wide range of products and services. As Andy outlined, we're making good progress in resolving problem assets in both our covered and non-covered loan portfolios. Expense control continues to be a focus for us as well, especially now that we have fully integrated all of our acquisitions completed over the past couple of years. For the past 3 quarters, we have provided a full payout of earnings with our regular and special dividends, since we don't see the need to accumulate more capital at this time. However, our capital ratios are high, allowing us to remain in position to take advantage of strategic opportunities as they arise. For the balance of the year, we will continue to focus on effective deployment of capital, expense control and the ongoing development of long-term, deep relationship with customers and prospects. With that, this concludes our prepared comments this afternoon. As a reminder, Clint Stein, Andy McDonald and Mark Nelson, our Chief Operating Officer, with me to answer your questions. And now, we will open the call for questions.

[Operator Instructions] Your first question comes from the line of Joe Morford.

I guess first question was just on the loan side, the C&I balances were up nicely, but you mentioned that you really haven't seen line usage up at all. Did it actually decline again in the quarter? And just kind of talk about some general caution, your own caution, I was just wondering you've seen borrowers and pullback with all the market givings in the recent economic data, where's that stand?

I'll let Mark answer that, Joe and I'll chime in, in a minute.

Joe, our line usage is not as high as it's been at the highest point historically. It keeps bouncing around in that middle 50% level. We were down just modestly for the month. So that can just be seasonal factors that have some impact on that. We are seeing caution in borrowers for major expansion projects. I think low interest rate environment creates an opportunity for, like one of our occupied businesses, investors to pick up Commercial Real Estate, not only at attractive prices but attractive financing rates for those folks that can afford it, but definitely feel there's a sense of caution out there. People are really waiting to see what direction some of the tax decisions go, and the results of the election, that type of thing. So having said that, our folks are out there, talking to our clients and building our prospect base. Our pipelines are strong, and we continue to grow our base of business, in spite of some of the challenges.

Andy, did you want to add anything to that?

Our line of credit usage quarter-to-quarter was essentially unchanged, it's around 57%. But what we're -- where we're seeing growth, for example is, in the agricultural segment, we've been able to grow the commitments there from roughly, $200 million to $300 million. And so even as relatively stable utilization rates because our commitments are growing, we're getting growth in that segment.

Great. And then, I guess, just as a follow-up, how does the pipeline in general look compared to say, 3 months ago, and what's the current update on the pricing, it seems like the release talked about intensified competitive challenges. I was curious how that's changed.

Mark?

Yes. I would say our pipeline is moving up modestly. We see ups and downs every month based on what our closings are, and then we rebuilt the pipeline, the general trend is definitely been positive. And I think the quality of our potential customer base in there is -- continues to be a very strong. Pricing, competitive pricing is an issue. Every loan we renew, every new prospective deal we look at, that's certainly a point of focus.

But one other thing that I might add to that is, we are very competitive, I believe, on rate. Structure, continues to be my big concern in terms of some of the activity that's going on out there. And we would much rather compete on the prize side than the structure side, while still being prudent about how we're doing that. One of the other factors is, we have just been so intent on making sure that our folks are externally focused. And it goes back to even when we structured the increase in the special credit staff, we wanted really good production folks to be out there calling on new and existing customers to make sure that we've got a good opportunity to grow our loan book.

Your next question comes from the line of Jeff Rulis.

I think it was Clint that mentioned the comp and occupancy down linked quarter due to some synergies or conversions, any expectation that, that can continue to decline?

This is a probably a good question for Mark.

Yes, Jeff. When we completed our conversion of Bank of Whitman in March, and a lot of the temporary folks, they were aligned with that, then left our payroll as of April, and so there is a big chunk related to that, that we began to see in second quarter. I don't think we've fully realized that. So that was a big part of it from the previous quarter. We continue to have a real strong discipline around hiring and our staffing levels. We're looking at that constantly. Our senior management group has been charged with trying to find efficiencies there. I think it will continue to help offset the normal push in comp and benefits numbers over time by having that discipline. And so I think we're going to see some benefit of it, although probably not as significant as the last quarter.

Okay. And then another operating expense, on the OREO costs, it's sort of been plus or minus kind of bouncing around each quarter. It looks like Q1 was certainly outlier. Any sort of visibility on that line item? Or should we just kind of assume, kind of a break even number? Is it lending more towards a benefit line, or any commentary there?

Andy?

Yes. The reality -- and you can see the detail in the press releases, we can generally make money on the OREO that is sold-out in the covered portfolio, while the cost and expense, and then the losses in the non-covered portfolio, are offsetting that. We made money in that line item last year. If we could break even in that line item this year, that would make me feel good. But certainly, the gains in the covered portfolio are not going to be as plentiful as they were last year, and so the overall trend is that's moving more to an expense than an income item.

Okay, that's it. And I guess, 1 quick one. I missed what Clint mentioned on the margin. Something to that effect of not going to be within historical ranges, could you repeat what you said there?

Clint?

Sure. I'll find it here.

Just for the conversation, Jeff, was that we -- we've really been able to hold our margin in that 4.25% to 4.50% range. It's more the length of the recoveries that -- was the FED coming out and saying that we are in this for even longer than they had originally anticipated. It's just going to be hard to keep it in that range with interest rates on loans declining and securities declining.

Instead of the indication if you're core at 4.44%, still within that range that the statements is just that is going to be tough to hold that lower band. It's going to, perhaps, blow through the bottom end?

Clint, what's your thought on that?

Yes, Jeff, it could. We referenced the recent announcements by the Fed, and it seems like as time passes, we get farther away from any type of a rising rate environment, and as that happens and we have the repricing in our existing portfolio, and the new origination and the cash flow off of the investment portfolio. It's just going to be more difficult to fight those headwinds. And so it's very possible that, that lower end of the range could be a challenge at some point down the road.

Your next question comes from the line of Aaron Deer.

Just following up, I guess, on Joe's earlier questions, trying to understand some of the dynamics of the portfolio in the quarter going forward. What was the level of non-covered pay downs in the quarter? And can you gauge at all what the seasonal uptick in loan balances was this quarter?

Andy, do you want to answer the first part of that?

I didn't bring the pay down detail. Sorry. Aaron, can I get back to you on that?

Yes, absolutely.

Okay, thanks. I'm sorry, I didn't bring that with me.

And any sense in terms of what the seasonal impact on loan balances was in the quarter?

We had about a $25 million increase in our Ag and fish portfolio. And while some of -- and I would attribute most of that to being seasonal, as the growth in commitments in that category were primarily put into place during the first quarter. And then I think we'll see some moderation of that as we move into the fourth quarter. The thing that I have to give credit to, is Mark's team has been very successful in bringing on new clients. And that has moderated some of the seasonality we would normally see.

Okay. And then just a question on the tax rate. It's continued to run, probably on a level of 27% level. Is that likely to continue? Is there any changes that you're making in terms of your investment choices that could push that up or down?

Clint?

Yes. Not so much anything on the investment side, but what I would expect it to potentially build to as high as 29%, 27% to 29%, I think is kind of the range, that internally -- that I've been looking at and feel pretty comfortable that, that will be.

Your next question comes from the line of Brett Rabatin.

I wanted to first get a clarification from the prepared comments, make sure I heard it correctly, I thought it was indicated that loans were being originated about 60 basis points lower than current yields, was that -- what I heard correct?

That's -- go ahead Clint.

I was just going to say, that was part of my prepared comments. And it was actually 50 basis points.

Okay, 50. And then just wanted to ask, I heard the commentary around some concern about the economy and maybe, some customers being more conservative. Just on the credit leverage, I know I've asked this before, but your reserve is very strong, vis-a-vis you're improving credit. And so I guess I want to make sure I understood correctly your commentary around remaining a strong reserve. Does that imply that your provisioning level would exceed charge-offs going forward? Can you give any color on your thoughts on provisioning, vis-a-vis charge-offs, or any color there?

Our -- no, our thoughts really haven't changed from last quarter. I think for the most part, we'll be looking at provisioning levels that are somewhat near to our charge-offs levels. There may be a modest decrease as you saw this quarter in the quarters ahead but certainly, Europe is a big issue, Boeing sells a lot of planes to Europe, and so we have concerns about that and certainly, some of the events that are occurring elsewhere in the world could have negative impacts on us in terms of tapping into the Middle East, the slowing growth in China, for example. Now the flip side, which has been very positive for the Northwest and it's 1 of the reasons why I think we've had a great deal of success there is, unlike -- unfortunately, for certain parts of the country that are experiencing drought, our agricultural markets are doing quite well and especially our wheat farmers. So it's often the case in agriculture. The unfortunate events that occur to others can sometimes benefit those in our market. And that's certainly been the case.

And just 1 last one on capital. It sounds like the M&A market in the Pacific Northwest has maybe slowed a little bit in terms of talks. I was curious if -- Melanie, if you had any thoughts on that. And then secondly, just around the buyback going forward, any thoughts on being more aggressive with deploying that?

Certainly, all means of deploying our capital are discussed an awful lot around the boardroom table. And I would say that I am not any less optimistic about M&A activity. We're out of the realm of the FDIC deals for the most part. Those happened very quickly. M&A discussions can go on for protracted periods of time. It's just -- we just continue to feel optimistic that there will be opportunities, because at the level of compensation is just -- anecdotally encompasses some things. As far as the stock buyback, it's still out there and we'll continue to look at that on a quarter to basis, exactly what we want to do with that.

Okay. Maybe just aside from that, would it be safe to assume that the quarterly dividend and the special dividend would essentially be the same as earnings in the near term anyway?

I certainly wouldn't want to have anybody count on that. It is just going to be depending on what's going on during the quarter, and kind of what the overall economic conditions are opportunities to deploy capital.

Your next question comes from the line of Brian Zabora.

Another question on expenses. You had steady declines in salary and occupancy, there's a few other lines that were up, mainly data, legal and advertising. Could you give us a sense, is there -- did you expect those to continue to trend higher? Or how do you see that going for the rest of the year?

Mark, would you?

Our second quarter numbers were impacted by the expense about renewing our TV advertising, and so those -- that tends to be towards the end of the first quarter and early part of our second quarter, tend to be our higher expense numbers around television, ad production. I would -- I think with the campaign season hitting us pretty heavily in the fourth quarter in the advertising there. We will probably pull some of our ad dollars back into third quarter and lighten up in the fourth quarter, because there's so much noise going on then that you just get drowned out in all the political ads. So while I don't see the third quarter as high as second, because we won't have TV production, there may be a little bit more in the third quarter and then less in the fourth quarter.

And data was the other one, Brian, right?

Correct.

Yes. I don't see that changing going forward. We had a little bit of extra expense-related to conversion, that was largely worked through our system in the second quarter.

And then on the fee side, I mean, you had some good growth, especially on service charges. Was there any change in fees, or is it the function of just a bigger platform, a bigger customer base?

Clearly, our bigger customer base is a factor, but there's a number of things going on. We don't lead with big fee increases. I think the negative publicity around that has been pretty obvious and that's never been our style. But we do work very hard to collect the fees that were due, and I think our initiatives behind the scenes to do a better job of that, to get paid for what we're supposed to get paid for. And the bigger base that we have account for most of that. We're still seeing a trending down of overdraft payment that's been pretty typical nationally, but not unexpected given the huge liquidity and deposit numbers that we can continue to see in our customer's accounts.

And much of acquired services has been very strong this year as well.

Your next question comes from the line of Fred Cannon.

Both of my questions have been answered, so maybe just a couple of follow-ups. In terms of capital management, I was wondering if you guys had a chance to review the Fed's notice of proposed rule-making on implementing Basel III and if that would have any thoughts on that and comments or thoughts on how it might affect your capital management?

Yes. Actually, Clint did a good job of kind of analyzing that for us. I'll let Clint take that question.

Yes, Fred. We've looked at it and we don't think it's going to impact us as much as some in the industry. I mean, it will have, with the risk weighting changes, it will have a modest impact to us, but it's not anything that we're looking at in terms of needing to change our business model going forward, or our thoughts in -- around capital management and capital planning.

Okay. So and especially because a lot of their risk weighting changes are more in the mortgage business that you guys aren't that -- taking as that kind of the reason why it's not a huge effect?

Correct.

Just one other -- Melanie, you guys did reach kind of that hurdle point of 100 basis points ROA in the quarter in terms of achieving that profitability. And going forward, there's a lot of moving parts to your income statement, at least as far as I look at it. Is that kind of possibly, you think, you can maintain or even improve that over the next year, despite -- even in this interest rate environment?

Well, I would hope so. But clearly, the interest rate environment concerns me and I think that it would concern all of us in the industry. As far as our personal aspirations, 1% ROA is nice, but it's not where we want to be either.

And there are no further questions in queue.

Okay. Well, thank you so much for joining us today and I will talk to you next quarter.

Thank you for your participation in today's conference. You may now disconnect.