Heritage Financial Corporation (HFWA) Q3 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen thank you for standing by and welcome to the Joint Heritage Financial Corporation and Washington Banking Company Q3 Earnings and Merger call. [Operator Instructions] And as a reminder, this conference is being recorded. I’ll now turn the conference over to your host CEO, Brian Vance. Please go ahead sir.

Thank you, Kathy. I appreciate it. I’d like to welcome all who called in this morning for our joint Q3 earnings and merger call and also those that are maybe calling later in the recorded version. As I’m sure most of you know along with earnings yesterday, we announced a merger agreement with the Washington Banking Company, join us today from Burlington, Washington is Jack Wagner, CEO, Bryan McDonald, President and CEO of Whidbey Island Bank; and Rick Shield, CFO; attending with me here on Olympia is Don Hinson, Chief Financial Officer; and Jeff Deuel, President and COO of Heritage Bank. We also have as guests here in Olympia this morning Don Rhodes, Chairman of Heritage Financial; and Antony Pickering, Chairman of Washington Banking Company. Today, we’ll cover both companies Q3 earnings announcements along with the merger discussion. Heritage Financial will first discuss our Q3 earnings in an abbreviated form and then we’ll ask Washington Banking Company to discuss their Q3 earnings also on in abbreviated form. I will then share some prepared remarks about our plan merger with Washington Banking and Jeff will also share some comments about the merger. I will then walk you through all through the investor presentation and then open the call for questions. I would ask that everyone on the call refer to both Heritage Financials forward-looking statements as well as Washington Banking Company’s forward-looking statements. And please keep both of these statements in mind as we enter into the question-and-answer session. I’ll start off this morning with just some brief highlights of Heritage Financials third quarter performance. Diluted earnings per share per common share were $0.20 for the quarter ended September 30 as compared to $0.18 for the linked quarter ended June 30 and $0.19 for the prior year quarter ended September 30. Also during the quarter, we completed the acquisition of Valley Community Bancshares on July 15. Our non-performing originated loans decreased to 0.81% of total originated loans at September 30, down from 1.05% at June 30. Heritage declared a regular cash dividend of $0.08 per share. Overall, this quarter had a number of moving pieces consistent with our overall strategies for 2013 and we’re particularly pleased with the continuing execution of our efficiency strategies. Don Hinson will take a few minutes and cover our balance sheet and income statement changes. Don?

Thanks, Brian. The balance sheet this quarter was significantly affected by the Valley Bank acquisition. On July 15, the company acquired $237 million of assets from the Valley acquisition. Assets acquired at fair value were loans of a $117.1 million, investment securities of $54.4 million and cash and interest during deposits of banks of $54.5 million. In addition, deposits totaling $207 million were assumed. Day 1 fair value marks included $3.1 million or 2.6% on the loan portfolio. Primarily as a result of the Valley acquisition total assets for the quarter increased $248.8 million and we’re $1.67 billion as of September 30. Net aggregate loans including both originating and acquired loans increased a $122 million during the quarter again mostly due to the Valley acquisition. Originated loans only increased $29.4 million or 3.2% during Q3. Year-to-date originated loans have increased $87.4 million or approximately 10%. Total deposits increased $229 million during Q3 due mostly to the Valley acquisition, removing the effects of Valley acquisition total deposits increased $22.5 million or 1.9% during Q3. Our non-maturity deposit ratio continues to be very strong at 77.6% of total deposits and our percentage of non-interest demand deposits or total deposits increased 25.4%. Total stockholders equity increased $16.1 million during Q3. This was due to the issuance of 1.53 million shares for total amount of $24.2 million, as part of the Valley acquisition this is partially offset by 544,000 shares of stock repurchase at weighted average price of $15.88. The ratio of tangible common equity to tangible assets decreased to 11.3% from 13.2% at June 30 again as a result of Valley acquisition. Moving onto our net interest margin, our net interest margin for Q3 was 4.67% which has 15 basis points decreased from 4.82% in Q2, the decrease was due to a combination of lower contractual loan note rates and reduced effects of incremental discount accretion. The effect of the net interest margin of the incremental discount accretion for Q3 was 38 basis points compared to 45 basis points in Q2 without the effect of incremental discount accretion net interest margin decreased 8 basis points to 4.29% in Q3 compared to 4.37% in Q2. A decrease in cost of funds helped to partially offset the decrease in net interest margin, the consequence of Q3 decreased to 35 basis points compared to 39 basis points in Q2. Noninterest expense was $14.3 million in Q3 compared to $13.0 million for Q2, the increase was primarily due to the addition of Valley operating expenses, as well as acquisition and core system conversion related expenses. During Q3 there were approximately $467,000 of costs related to mergers acquisitions and the core system conversion which was completed earlier this month. Year-to-date there has been acquisition and conversion cost approximately 1.7%, Jeff Deuel now has a update on overall loan growth, as well as some comments on current initiatives.

Thanks Don. During Q3, 2013 we’ve booked a total of $70.6 million of new loans compared to $56 million in Q3 2012 and $89.2 million in Q2, 2013. These totals represent new loans to new borrowers and new loans to existing borrowers, we analyzed all new loans for the quarter. The average loan size for all new loan production was $127,000 and for loans originated over a size of $300,000, the average loan size was $1.2 million. The average yield rate for new loans was 4.78% in Q3 2013, compared to 5.11% in Q3, 2012 and 4.84% in Q2, 2013. The first half of 2013, we experienced very strong loan growth across all sectors, the second half of the year has not been as robust but loan production models are steady and our loan production team will have a good year overall, I attribute this to the improving local economies in the markets we serve and the strong lending team we have developed across our footprint. With regard to current initiatives as our investors and analysts know, we have a number of efficiency initiatives planned for this year, and I would like to give you a quick update on them. As a reminder, we’ve merged Central Valley Bank charter into Heritage Bank effective June 20, that merger is expected to create certain efficiencies within the organization, the Valley Bank acquisition was announced March 11 and as mentioned earlier change of control occurred on July 15, David Brown, Valley’s CEO joined Heritage Financial’s Board effective October 1. Integration process is going as planned, Valley’s conversion is planned to November 11. As announced earlier we will be closing 4 Valley branches at conversion. We are confident that we will achieve our announced cost saves as 45% to 50%. Additionally, our announced closure of 3 Heritage Bank branches will take place in November. And as I discussed on the last investor call, Heritage has been gearing up for a closures and conversions moving from [indiscernible]OpenSolution platform to [indiscernible] DNA platform on October 7, Heritage and Central Valley Banks were successfully converted to the new platform. It was the smooth and uneventful conversion, which is testament to our experience and dedicated team of bankers. Brian will now have an update on loan quality and capital management and some additional points.

Thanks, Jeff. I’ll start with loan quality. Non-accrual originated loans decreased $2 million from the prior quarter. The decrease in non-accrual originated loans was due to $1.8 million of net principal reduction and $477,000 of charge-offs partially offsets by an addition of one loan in the amount of $315,000 to nonaccrual originated loans. OREO assets increased $333,000 during Q3 to $4.1 million. The increase is due primarily to the addition of 3 properties totaling $1.2 million, partially offset by the disposition of both [ph] properties totaling $849,000. The ratio of allowance for loan losses to non-performing originated loans increased to 222% from 183% at the prior quarter end. Just a quick comment on capital management, as Don noted earlier, we had a fairly significant repurchase of stock activity in Q3. And our decision to repurchas stock in Q3 was made as a standalone company and while we believe as a good decision at the time we’re not likely to continue the strategy in the near-term. Just some quick comments on the outlook for the balance of 2013 and in consideration of times this morning I will not give my normal economic outlook, except to say that the economy in the Pacific Northwest continues to slowly improve and it’s likely to do so for the foreseeable future. At this point that completes our Q3 earnings portion of this conference call and I’d like to turn the call over to Jack Wagner, CEO of Washington Banking Company and for their Q3 earnings discussion. Jack?

Thanks, Brian. Well after the noisy results we produced last quarter from the covered loan portfolio, we’re back on track with a very good third quarter. We earned $4.5 million or $0.29 per share in the third quarter and $12 million or $0.77 per share in the first 9 months of 2013. As you may recall, our results in the second quarter were impacted by accounting for the FDIC covered loan portfolio which reduced income by $1 million or $0.7 per share. For the full year to date the adjustments across the bottom-line are $1.2 million or $0.8 per share. As we have said all along, the FDIC assisted acquisitions have been very profitable for us over the past few years. The covered loan portfolio was down 60% to $156.4 million from its peak of $393.3 million in the third quarter of 2010. We have about 2 more years to go in resolving these issues and the FDIC indemnification asset on the balance sheet was $25.4 million down from a $124.7 million at its peak. Our legacy loan portfolio continues to do well. Our loan demand in the commercial sector continues to build and our mortgage business did finally start to show effects of the higher interest rates on refinancing activity. I’m going to let Bryan McDonald to tell you a little more about that in a moment. The regional real estate market continues to improve admirably [ph] weather the storms that we’ve had in our area. Despite consistent inventory shortage in some areas, both hedging [ph] and close sales outgained the same period a year ago with sales and prices up for the month of September from year-over-year and that is true throughout all of our counties within the area which is particularly significant as we are talking about Skagit and Whatcom Counties also. Finally before I turn the call over to Bryan, I want to mention, the next Washington Banking Company dividend with the strong capital position and solid profitability, the Board approved a quarterly cash dividend of $0.145 per share; that’s our basic $0.07 per share and additional $0.075 per share as the variable amount; this keeps with our previous guidance of paying out up to half of our quarterly earnings to shareholders. Over the trailing 12 months, our dividend was $0.53 per share, which provides a dividend yield of approximately 3.7% to-date. Now I’m going to give it to Bryan McDonald. Bryan?

Thanks Jack. Loan growth is the highlight for the quarter and we are seeing good results from our commercial lenders as they continue to call on existing and potential customers. We ended the quarter with $855.7 million in gross loans, which is up $47.7 million from $808 million a year ago and up $19.4 million from the prior quarter. Looking at the quarter-over-quarter loan level detail, we showed growth in all segments with the exception of construction which was down $11 million. Commercial division loan production was good with $66.3 million in new loans closed; this represents a closing ratio of 72% of the 90-day pipeline we reported at the end of last quarter and a 32.2% increase in closed new loans as compared to the second quarter. The commercial division’s 90-day loan pipeline remains very strong at $87 million and includes $13 million of SBA 7(a) loans. The SBA pipeline level represents the 130% increase over second quarter and we remain confident we can continue to expand this business line. Income from our mortgage division at $726,000 was down 31% from the second quarter with closed loans during the quarter down 28%. The pipeline has fallen by 26% as compared to the second quarter, but stabilized at this level of purchase and custom construction business now making up 60% of the tax [ph]. The net interest margin also comprised of 4.59% during the quarter with covered loans yielding 13.29% which is up from 12.7% last quarter. Our net interest margin excluding the contribution from the covered portfolio was 3.85% for the third quarter, up from 3.79% at the end of our second quarter. In the third quarter of 2013, investment sales volumes were $9.7 million and contributed $128,000 to revenues. For the first 9 months of the year, investment sales were $37.2 million, generating $600,000 in revenue. We continue to see the mix of sales move more towards mutual funds and less to annuities, consequently the revenue stream from the investment was initially lower but provides a continuing stream of income. Total deposits were up 2% compared to the proceeding quarter and down 2% from a year ago. The mix of deposits however continues to improve with non-CD deposits increasing $61.8 million from a year ago and transaction balances making up 73.3% of total deposits up from 67.6% a year ago. Commercial loan balances increased to 11.5% from a year ago to $173 million and account for 20% of the non-covered loan portfolio. Commercial real estate loans are up 13% from a year ago at $446.6 million and account for 51% of the non-covered portfolio. Now I’m going to turn the call back to Brian Vance to provide an overview of the merger brand.

Thank you, Bryan. Again just as a reminder, I have a few prepared remarks about the merger and then I will ask Jeff to share some remarks from his point of view and then I will walk you through the investment presentation. As you saw yesterday after market close, Heritage and Washington Banking Company issued a joint press release announcing our agreement to merge, which will create a strong community banking franchise with 73 branches from Bellingham, Washington to Portland, Oregon. This is the combination of 2 quality Washington state community banks that are similar in many ways to create a $3.3 billion franchise. The deal value of $265.1 million or $16.89 per share. The Heritage shareholders will own approximately 54% of the combined company and Washington Banking shareholders 46%. We are very excited about this merger with Washington Banking. This is a truly transformational deal for both companies in many ways. It leverages both of our expansion efforts and it creates an institution of meaningful size that will be able to more effectively compete within our industry and provide momentum for accelerated growth initiatives such as in King County marketplaces as well as throughout the footprint of the combined organization. As I will discuss in our investor presentation later, this transaction is highly attractive both financially and strategically. From a strategic point of view, Washington Banking’s network is highly complementary with ours with no overlap as the Washington Banking branches are concentrated north of Seattle to Bellingham, while the Heritage branches are primarily located south of Seattle to Portland. The company will combine 2 strong management teams, best practices, processes and business lines from each institution to create a company that’s well positioned for growth, execution and excellence. Washington Banking has built an organization we admire and with a strong culture, a geographic footprint that is complementary to ours and a shared commitment to serving our customers and communities at the highest level. While clearly a large transactions for both organizations, both Heritage and Washington Banking are experienced integrators. We are confident we will complete this integration successfully. We believe this is the right merger at the right time with the right partners and provides compelling economics for both sets of shareholders. Now I’ll turn the call back over to Jeff for his comments about the merger.

Thank you again Brian and good morning everyone. This is certainly an exciting opportunity for both of our companies and I think Brian’s term of transformational is truly the key to the combination. Together our complementary footprint, increased operating scale and expanded resources will offer great prospects for the near combined organization. Whidbey Island Bank and Heritage Bank are 2 of the top-notch community banks and together will strengthen our competitive position throughout the Pacific Northwest helping us to better serve all of our customer bases. The new organization will have a strong and clean balance sheet going forward with improved leverage and better opportunities for increased profitability. We expect this enhanced profitability to improve the shareholder value for both sets of shareholders. From here, we will continue work in close collaboration with the team from Heritage Bank, sharing our respective expertise and implementing the best practices from both banks to ensure we position the combined company with a continuing success that both of our individual companies have traditionally known. The Board of Directors and management of the combined companies are committed to serving your needs and building a growing and successful institution as we go and I am looking forward to assisting Brian in this process as an advisory role. Now, I will turn it back to Brian Vance to walk us through the rest of the presentation today.

Well, thank you Jack. And hopefully everyone has in front of them the investor presentation slide deck and I’m going to walk through the slide deck with you. I’m not going to go through and read it all to you, I’m just going to give you what I believe are the highlights of this merger. And before I start I will ask again that you refer to the forward-looking statements on page 2 of this document and once again refer to this statement as we open the call for Q&A. On page 3 of the document, we believe that this is a very compelling strategic partnership as we’ve been discussing with you. It’s a very logical geographic fit with this particular merger and it combines what I believe are 2 of the most respected community bank organizations in the state. I think from a compelling strategic partnership point of view, perhaps I think the most compelling piece of this story is a 24% EPS accretion in 2015, which is also get listed as shareholder value proposition. EPS accretion is a very important part of that. But I think this just position us for a continued growth in this footprint, across the footprint and it certainly does give us increased market visibility in all markets where we do business. We believe that both companies independently have a very low risk profile and we think that low risk profile accrues to the combined organization with a very experienced management team going forward, as we’ve indicated earlier experienced integrators and I think perhaps most importantly here its 2 banks that have a very strong historical credit quality discipline. These 2 banks have performed neck-and-neck throughout the downturn in this economy in terms of overall credit quality and I believe probably the best credit quality performance of any bank in the Pacific Northwest. And when we go to page 4, you can look at the map and the map, in and of itself, is a compelling story, but we know that maps don’t create organization, it’s the people, it’s the customers, it’s the shareholders and again we believe that bringing not only the geographic diversification and the footprint from Canada to Oregon border, a very strong community banking presence. We’ve got the branches in the North from Washington Banking and of course the blue dot south representing the Heritage franchise. On page 5, this is kind of giving a merger summary. The merger will obviously be Heritage Financial Corporation and be branded as Heritage Bank with the exception that Whidbey Island Bank, Whidbey Island Bank the name will survive as the BDA and on Whidbey Island that is the legacy location of Whidbey Island Bank and has a very strong presence on the Island and that is something that we certainly want to continue going forward and we believe that’s a good strategy to bridge those customers with a very strong name and a very strong presence in that market. This particular strategy is not dissimilar to what we’ve done with our Central Valley Bank locations in the aftermarket area. The headquarters of the company will be in Olympia. You can see the management representation from both sides of the company of myself as CEO, Jeff as COO, Don Hinson as Chief Financial Officer and Dave Spurling, as Chief Credit Officer. On the Whidbey side, as Jack mentioned earlier, he will continue as a very important advisor for the go forward company and for that I’m grateful. Bryan McDonald will continue with the company in a very critical role as Chief Lending Officer with responsibilities of lending production across the entire footprint. Ed Eng as Chief Administrative Officer and his current role at Whidbey will continue in a like role, but with certainly expanded responsibilities across the footprint and Lynn Garrison will head up the Human Resources area from Whidbey Island, Washington Banking Company. On our board’s composition basis, there would be 8 Directors from Heritage, 7 Directors from Washington Banking Company including Tony Pickering as Chair of the combined company continuing forward from Washington Banking Company. Targeted closing of the first half of 2014, the ownership status you can see as 54% and 46%. Pro forma shares outstanding will be about $30 million under the fixed exchange ratio of 0.89 shares plus $2.75 on cash. The transaction value is about $265 million of course this particular transaction requires regulatory and shareholder approval from both sides of the transaction. And then the pro forma company will be well-capitalized and I’ll talk about that in a moment and I’ll also give you a little bit more color on due diligence in a moment. On page 6, we take a look at the financial numbers of the transaction. We can see that EPS accretion as I mentioned earlier 13% accretion in 2014 and approximately 24% in 2015. There is a tangible book value of share dilution that estimated at 12.8% at closing and a payback period of approximately 2 years using incremental earning method in 4.9 years using the traditional EPS method. Both of those numbers are footnoted for additional definition of how these numbers were arrived at. Internal rate of return of approximately 18% and a pro forma return on average asset of about 1% and a return on average tangible common equity over 10% and that’s footnoted as excluding non-recurring merger related costs. We’ll have a strong capital position again I’ll talk about those numbers in a little bit more a little bit later. And then I’ve already talked about the consideration side of the transaction with the exception but there is a 18.5% market premium for the Washington Banking Company shareholders which was 15.8 times last 12 months earning and about 149% of tangible book value as of 9/30. On page 7, going into a little bit more on the due diligence side, gross credit mark write down of approximately $26 million or 3% of originated loans and additionally an interest rate mark write down of approximately $3 million or 0.33% and a net mark write off of about $1.1 million on the net balance of the covered loans. There are some other marks write down to fixed assets of about $1.8 million and trust preferred about $8.2 million, we are assuming 20% cost saves that’s a 10% of the combined company, non-interest expense or 20% on a standalone basis which will be phased in 50% in 2014 and a 100% in 2015. We believe strongly that there are several opportunities for revenues, synergies in the combined go forward company but none were assumed in the modeling of the numbers that we’re sharing with you today and after tax one-time merger costs of about $12 million and because of the branch network is so strongly complementary there are no branch consolidations and no branch consolidations anticipated as there are no branch overlaps in the current footprint. Core deposit intangible about $14 million and anticipated pro forma dividend payout of 35% to 40% which is fairly consistent with what we have been messaging to our investors over the last few years. On the credit review side, I will give you a bit more color on the credit review, we employed a third party credit review, an experienced team that did a credit due diligence both on the Heritage side and on the Washington Banking Company side as with all mergers at Heritage I’m personally involved in the credit review of in the due diligence process and I was in this one as well 2 of our folks attended in the credit due diligence process with the third party evaluator onsite on Washington Banking company and that also happened conversely here at the Heritage site where 2 of their individuals accompanied the same team from the third party analyzer here at Heritage. When we reviewed the portfolio of Washington Banking Company, we reviewed all loans greater than $2 million that was a 100% of loans that were reviewed about $273 million and we also reviewed a good percentage of loans over $1 million in that portfolio. In addition to that, on our construction loans, we reviewed all construction loans over $1 million, excuse me, not all 94% essentially and then on an overall basis, we reviewed about 30% of the overall loans almost 31% of the overall loans of the portfolio of Washington Banking Company and Washington Banking Company performed a similar scope of scale of exam with the third party company of Heritage. On page 8 there are some summary pro forma financials, again I won’t go through everyone of these in detail just note up few in highlights the combined company will have a pro forma total assets of $3.3 billion have a market cap estimated at $477 million, there will be 73 branches. I failed to mention on the geographic map earlier that this 73 combined branch total includes 7 branches on the Heritage side which have been previously announced which will be consolidated and closed later this year. So please keep that in mind. Tangible common equity is estimated to be at 9.27% on a pro forma basis or a leverage ratio of 10.25% and then return on average asset is anticipated at 1% or slightly above and return on tangible common equity estimated at 10% or slightly above and this is as it's footnoted is a following merger with cost savings fully phased in. On page 9, you can see the pro forma loan and deposits as I have said several times these are 2 companies that are incredibly similar in not only the balance sheet size but in the makeup of assets and liabilities. And as you just look across the pie chart from Heritage Financial to Washington Banking to the pro forma, the pie chart changes very little. It is a very complementary balance sheet you can see that Heritage has $1.2 billion on loans, the Washington Banking has $1.1 billion with combining loans of $2.3 billion again I won’t go through all of the pie chart splits, which you can see there is a lot of similarities. On the deposit side, same sort of a mix very similar splits you can see that both companies have $1.4 billion of deposits very similar cost of deposits and a very attractive overall combined cost of deposits of 31 basis points. Currently, Heritage has loan to deposits of about 86% or Washington Banking Company has approximately 72% on a combined basis it will be about 78%, we have consistently signaled to the market that our loan to deposit ratio would be in the 85% to 90% area on a go forward basis. The reason I point that out this is a -- I think you can see a balance sheet that has room for considerable loan growth going forward. On page 10, you can see a pro forma market positions for our combined company going forward the table on the left hand side is Washington-based institutions in the combined footprint. So these takes -- this information takes all Washington-based banks that have operations in this combined footprint and this is what these are the respective totals of these organizations. And you can see on a pro forma basis, Washington Banking and Heritage are 5 and 6, but on a pro forma basis it moves us to #3 behind Washington Federal and Colombia Banking System. And the table on the right hand side are all banks and you see Washington Banking and Heritage on the position of 13 and 14 to pro forma 11 in the overall space. On page 11, you can see. I think, which is a nice chart to show I think the relative strengths of each organization and then when we combined them the combined pro forma our business model going forward, Heritage has been in business since 1927 and Washington Banking Company since 1961 as we’ve said Washington Banking Company has a concentration north of King County ours is south of King County but when we combine them we have a very attractive North-South I-5 Corridor representation. Washington Banking Company has had a long history and a successful history in consumer lending that is something that we intend to expand their expertise across our footprint. And we think there are opportunities to take advantage of that lending opportunity and tied to the consumer lending is an auto lending program that also has been historically very successful and very profitable for them and we'd like to find the way to extend that strategy across the footprint. On the fee income side, Washington Banking Company has also had a very successful mortgage banking operation, where we have not, but on a combined basis, we would like to take that strategy across the footprint. The SBA lending you can see that we are on the last line there we are one and 2 in the Seattle Spokane markets as measured by the SBA. Combined, we would have a very strong SBA strategy going forward. And I think that’s a very important lending strategy when you look at a Community Bank strategy that’s something that lending the small businesses is what we would do best. On a wealth management side, I think it’s fair to say that Heritage has a bit of a stronger presence in the space both on the trust side and on the wealth management side, the Washington Banking Company has a presence in this area as well. But I think a combined strategy is to expand our wealth management strategy across the footprint which I think also gives a very nice opportunity for future growth. We take a look at slide 12, looking at the shareholders, the customers and employees, we think from a shareholder position as we’ve shared before the one we look at the combined financial metrics of this particular partnership, we feel very good about the financial performance from a shareholder perspective especially with our future EPS growth. And we believe that most compelling shareholder story here is the EPS accretion that we will achieve as a result of this transaction that both companies individually will have difficulty in achieving, but together I think that this a very compelling story. On the customer side, we believe that this expanded footprint gives our customers much more access to banking opportunities. I think as we combine this company into a $3.3 billion bank and as we increase the visibility across the footprint and as we increase our scale, we’re going to have the opportunity to attract more mid-market commercial lending activity. Many of these mid-market commercial customers have expanded networks up and down of the I-5 corridor and having a branch network to access will give us I think a very excited opportunity to expand our customer base again in small business lending. And then from an employee part of view, obviously retention of key management employees is an important part of this partnership and we’ve had a number of conversations with the executive management team on the Washington Banking side and I think that we’ve seen very strong synergies of culture, very strong synergies of future growth opportunities and I believe that from an employee point of view I think both sides are very excited about the opportunities of putting the 2 companies together. And then also on one of the real values here is a very strong board from both sides And you can see the we’ve worked hard to create, what I think is a company of a board that is a bit larger than most, but I think the experience and the knowledge that both directors have from both sides of the company will really have a very positive impact on our growth and interaction with various communities up and down the I-5 corridor. That completes my prepared remarks as a results of the investor presentation. You will notice that there is an appendix in the, I’m sorry there is one more page that I haven’t, the summary page I haven’t gone over, my apology. Let me run through the summary page here. Most of this I’ve already talked about. I think when we take a look at the logical fit, geographic, strategically and financially when I look at MOE and MOE like transactions across the U.S. and it’s been a number of them and the last little while. It’s hard for me to imagine a more compelling story than this one from a geographic point of view, from an employee culture point of view and I think from a strategic point of view and that’s what I think gives both sides excited about the combination that we are creating here. In terms of achieving quality operational scale, I think the important thing here of scale and efficiency in today’s banking environment is critically important and I think this merger also creates the scale and efficiencies that we both need going forward to be able to compatibly compete in what is an increasingly difficult landscape. I think it’s important that both shareholders are invested in the go forward company and I’m very appreciative of the ownership split that we have of 54% 46%, a very strong representation from both sides of this transaction. And then the company is well positioned for future growth. When we take a look at tangible common equity position of nearly of 9.3%, I think that that gives us some capital for continued expansion and continued growth and I think that’s important as well. And with that, that does complete my remarks. There is an appendix attached to this particular presentation that I will not go through with you. But please refer to this data, because I think it’s some important market share data and other financial information that would be helpful to you. So with that, I would like to turn or ask Kathy to open the call for any questions that you may have. Kathy.

[Operator Instructions] Our first question will come from Joe Morford with RBC Capital Markets.

I know you touched on this a bit, but I wondered if you could just expand a little more on your comments about the importance of scale in the current banking environment and how much of a driver was that for this partnership?

Yes, it’s a very good important part of the combination. And I think that there is lots of discussion out there and I’ll certainly invite Jack to comment for this as well. But there's lots of discussion out there, as what it is take for a community bank to be viable in today’s economic environment, various opinions to that. But I think that when we look at it on a combined basis, from a product point of view, both sides have more access to product which I think is going to drive efficiencies on the sales side of the organization. I think that there will be obviously efficiency driven from the back room side of this combination. And I think just as I mentioned earlier, the increased visibility from a market point of view, I think is going to be of note to customers, to potential customers and also to lenders that may see an organization that has a very competitive size and can lend to a very competitive diversified larger customer base. And I think all of that creates synergies that, but we can’t create or we can’t do on an individual basis. So when we put the scale and efficiencies together for a $3.3 billion company and continue to drive that scale and efficiency, I get pretty excited about the go-forward financial performance.

Yes, and I think Joe, this is Jack. I just like to add that, well up here in the Northwest banking industry, it’s always going to be a factor of scarcity as far as quality banks that you’re able to either attract or to possibly think even of the merger of equals. So when we start looking around in the past, trying to find a quality bank, that’s not going to cost us either an arm or a leg on the bid ask price or bring us a ton of headaches for our staffs to have to workout. There is a limited number of potential possibilities. Obviously, Heritage, we have known for a long time. As Brian said, we’ve watched each other on a quarterly basis. We’re very familiar with each others operations and markets. And if you going to get comfortable with a grade A merger, this is certainly it, those are 2 strongest community banks on the west side on the Cascades and to be able to pull this transaction off in the manner with which it’s done, that is going to be nothing but a win-win for both sets of shareholders.

That’s great. And thank you both for the comments there. And I guess just a follow-up, just if I can get a little better understanding of the drivers or assumptions behind the 24% accretion, just given the limited overlap between the 2 institutions and the fact that no revenue synergies are being assumed or obviously seeing some opportunity. Is it really just the cash portion to deal than these 20% cost savings o…

Well, I think that the -- it’s Brian, I think the 20% cost saving is an important consideration in the go forward EPS accretion numbers. Let me comment to the 20% and I think that as we’ve indicated before both sides are experienced integrators and we have especially on the Heritage side, we have done 2 banks just in the last year and our team is pretty well experienced from the integrated point of view, but in addition to that has been able to identify potential cost saves in these sorts of transactions, obviously this is a lot larger than anyone who’ve ever done. But my point here is that I think that we’ve done a pretty good job of being able to a. estimate potential cost savings and b. deliver those cost savings. But I think as the 2 organizations have come together early on and begin to look at the potential cost savings, I think it’s a pretty high degree of confidence in the fact that we can drive 20% cost saves with this particular transaction. So that, that certainly and it comes from a variety of areas in the company background, but also just the synergies and the combinations of the data processing contracts and all of that administrating services that you take 2 and you end up with one platform and one process that’s going to drive efficiencies and be a big part of that 20% cost save. So I think that’s a big part of the assumptions in that number.

We’ll go next to Jeff Rulis with D.A. Davidson.

Brian I was wondering if you could give us an efficiency ratio goal, I mean there is a lot of moving pieces with sort of both companies on the FDIC front and your ongoing efficiency strategies. I think an important, in terms of your discussion on scale. Could you point us to a go on that efficiency front for the combined company?

Jeff, I have to talk about a goal, I don’t want to -- this comment to be perceived as a prediction, but I think that as we combine the companies and efficiency ratio we know this has been an important consideration in any community bank today. And I think you look at our efficiency ratio is considerably higher than Washington Banking Companies and I think is that the shareholders from our side has we’ve been talking about efficiency ratio for some time. I think if we look at the initiatives that we have put in place this year, and that will come to be by the end of the year with branch consolidation, with the systems conversions that’s going to drive efficiencies and with just a couple of other very critical efficiency focuses. I think from our point of view the Heritage side, we believe that in the near future, I would say that we will drive efficiency ratios down much closer to 65% than we are currently at approximately 70%. And I think that as we look at the combined company, I believe that the combined company needs to be in that 65% efficiency ratio in the short run and I don’t need to define short run in instance to any sort of a time element that does -- we need to remember that this transaction is going to close probably sometime in the second quarter and conversion is quite a bit later in 2014. So it’s going to take some time to initialize the integration process, but I do think the both companies do have a good deal of discipline in this area, and I do believe that we can continue to drive efficiencies to that 65% level. That gets to the scale of a larger company and being able to spread the cost across the larger asset base et cetera. I really feel confident that we can do that.

And then one last question on the -- just if you could comment on, if you are seeing any disruption in your marketplace and I guess this to go both to Brian and maybe Jack. In terms of deals that may have occurred in the market and if you are seeing any positives or any early signs of benefits from a deal in the market.

I’ll comment first and then I’ll ask Jack to give his perspective from his area. The short answer is yes, I think we are and we’ll continue to see some dislocation issues developing in the southern part of our footprint with some merger activities that have taken place. And I think that will continue to be an opportunity for us and I think also King County, and I think then the folks that are knowledgeable of both organizations are going to look at the map and they are going to say wow, great footprint north of Seattle, wow great footprint south of Seattle. Now what are you going to do with Seattle or King County. And the way I have characterized this and as Jack and I’ve talked about it, their organization has attacked Seattle from the north. And we’ve been attacking Seattle from the south, and we’ve got Seattle covered and surrounded. Now, we do have a Seattle Bellevue presence. We’ve indicated on several occasions that it’s just a foothold in Seattle and Bellevue, but we are in conversations with Brian and Donald and ourselves. I think we are beginning to see that there is a combination of knowledge of the Seattle market is much stronger from a people point of view. And I think that the market is going to take notice of this particular transaction and I think it’s going to allow us to recruit seasoned vendors and teams more easily, than perhaps either one of us could have done independently. And I think there will be continued acquisition opportunities in King County. I really feel strongly that we will over the next few years drive a strong King County strategy as we come together. There are also some dislocation issues from previously announced mergers taking place in that market, that I think that we can benefit with. So I see that as an opportunity to accelerate both the companies King County strategy with the combination here and again I can get pretty excited about those opportunities. Jack your thoughts in that regard.

I agree with you Brian completely that the thing that drives markets and increase market shares, as well as just outright outward gains is of course reputations and what is going on. We’ve done 2 branches now on the east side on an organic basis, but we build branches by leading with key personnel. So until such time as we have attracted a strong lending team, we don’t go forward with the branch. We are sure that this combined combination, the strategic merger is going to catch the fancy, the majority of lenders out there as well as a lot of the customer base that sees both banks as being a little larger lender now with greater lending limits, but I think the lenders are going to see it as a great opportunity to get aboard something that’s really developing the first grade. And we’re probably not as far away, Brian and I, in developing that market that doesn’t see from the surface of things. Things crank pretty fast, once you start getting some momentum going and this is going to have a lot of momentum.

Secondly, take just a couple of seconds and talk about your inter-cost strategy.

Well, the inter-cost strategy was built around a gentleman named Bob Ittes who had a long history and background over in the area over there, running the Bank of the Northwest and one other bank, I’m not sure if that was…

Issaquah Community Bank.

It’s Issequah Community Bank, thank you Brian, but he comes of course with a very strong following in the local community and he also will be recruiting his former team. We’ve already brought aboard one of those lenders, key lenders and we will bring aboard a couple more. And now fill that team out and gives them real impetus in going forward and trying to develop that market. So Issaquah is exactly how we like things to happen, very seasoned lender and his team coming across capable of bringing a very sizeable commercial market into our [indiscernible] here and that’s just absolutely perfect, because that reputation moves around quickly.

Then we’ll go next to Sachin Shah with Albert Fried.

Just a couple of questions on kind of the background, can you maybe just talk about that, how this deal came about?

I think both companies have known each other for a long time. I think that Jack would tell you the same thing here that every time we meet the investors, a common comment that is made is why don’t you put the 2 companies together. And I think that you look at a map and you look at the quality and the size of the organization, it does make a pretty compelling story. On the other hand, in terms of how it came together, I think it’s probably best that -- and we will provide more detail in the merger and proxy material that will be filed with the SEC. And I think that would be probably best if we leave specific comments in that particular document that’s coming later.

Okay. And any idea when that primary S-4 is going to be filed or expected to?

I’d say 45 to 60 days that should be filed.

Okay. And can you maybe just go over some of the regulatory approvals, is it FED, FDIC, Washington DOI?

Representative" /> Certainly and then we have had a preliminary discussions both Jack and I with all of our regulators, DFI, FRB and the State DFI. And we have had very positive response for our regulators. And while I can’t speak for the regulators, in that process, I think again you have 2 very highly regarded organizations with very strong relationships with all of the regulatory bodies and this particular kind of transaction obviously requires approval from all of the regulatory bodies of which applications will be made to them -- all of them very shortly, but we had a nice positive response from all.

Okay. And you guys, there has been some kind of special dividend that you guys announcing Heritage that is want to find out if their in, keep on issuing those special dividends between now and the close?

I’m sorry?

Between now and the close or is that expected $0.10 this year and then $0.30 I think previous year?

Yes, from the Heritage side of the transaction, we do not anticipate. First of all we don’t typically give guidance on -- specific guidance on capital but the management strategies as they pertain to special dividends, but I think it’s probably fair to say that the special dividends are not likely on the Heritage side prior to the closing of this transaction.

Okay. So it maybe happening or you may wait until the deal closes. Okay and then just one last question about the closing, is there any kind of estimated timeframe that you guys are looking at?

As we indicated first half of next year likely second quarter, but there is a lot of moving pieces here, but that’s our best estimates at this point.

Okay, sometime in the second quarter?

Likely, yes.

We have a question from Tim Coffey with FIG Partners.

I had a question for Jack from the Washington Banking Company standpoint, I mean this still make a kind of sense financially and culturally but I wondered what was the drawbacks to remaining independents and/or being an acquirer?

Well, it’s all measured Tim by opportunities for revenue growth which translates into franchise growth, as you know we looked at I don’t know how many banks, but I would guess a half-dozen at least that we’ve done some due diligence upon and taking to the point where our modeling stuff shows it was just -- it just was not worth the amount of effort or actually a balance sheet efforts to bring that stuff aboard. Most of them have pretty heavily distressed positions and I don’t think that accretive to the overall earnings per share that wanted us stepping up. So we looked hard and we looked long, the criteria -- centers around trying to find banks that are compatible in culture to begin with. Second of all one that’s going to have some meaningful effect for our branches and our staff by that I mean they aren’t outward wholesales of our buildings and our people. And then third of course it has to be very accretive to our shareholders and our franchise value. And actually you can reverse the orders as far in importance. But there are very few transactions Tim that you can pull that off, now you can put together a combination of several small ones and maybe get there, but doing a small transactions is very painful. You just don’t really move the needle and you really don’t improve your overall position that far with today’s economic situation and financial statements out of Washington, D.C. along with everything else just going on the flat interest rate curve. Continued profitability on organic basis does not look real strong. So it takes a merger to generate revenue and it takes a merger to create the efficiencies that you can get in the cost savings for profitability. This is to us is the best of all possible deals and you are right we did look at a lot of other things, but they just don’t measure up.

Okay, great. Well, I think those are my questions Jack great job running Washington Banking Company and Brian and Jack did a smart deal.

We’ll go next to Jacque Chimera with KBW.

To touch back on the dividend, Brian you touched on your dividend and Jack I wondered if you could talk about if you plan to continue to do the 2-tiered dividend that you’ve been doing historically?

Yes, we will. We are not changing our guidance at this time, which of course is exactly that bringing that up to 50% of the quarterly earnings to our shareholders and that guidance to the markets still stands.

Okay. And then possibly a question for Don, how do you plan to increase the truck market [ph] that you are taking into earnings?

We will -- that’s obviously going to effect earnings on a go forward. It’s going to be an accelerated method. We actually have a -- we used the third-party to actually value that actually setup a schedule for that, but it’s an accelerated method where we’re keeping more of an upfront then towards the back end.

Okay. And will that run into fees?

That’s -- I think its offsetting the interest.

It’s in the interest, okay. I’ve seen it everywhere. Far be it for me to understand why accounting is the way it is.

The offsetting interest expenses will actually go into interest expense.

Okay. And then Brian a question on the repurchases in the quarter. You mentioned that you did that on a standalone basis. So looking at it outside of the deal that was just announced, was that done as a reaction to the Valley deal and the share counts that were added.

Well, I would say Jacque partially, I think when you look at a capital management strategy and share repurchases there is probably a lot of consideration that go into that. Certainly, we had a strong capital position prior to the Valley deal, a strong capital position after the Valley deal. We had in repurchasing shares fairly steadily throughout this year, was accelerated a little bit in Q3. We obviously look at the price points that we can repurchase. We did issue more shares to Valley and so I think, the long answer is that’s a little bit of all of the above that drove the decision for those repurchase activities.

Okay. So is it a safe assumption then, because I myself view the pro forma capital position over the combined company to be healthy as well and probably even more healthy just based on internal generation. So is it a safe assumption to say that capital management strategies post deal once that settled would continue. You'd still think about repurchases, special dividend, looking at future acquisitions and things like that.

I would say the answer as maybe. Again, we need to look at a lot of things going forward. I think probably once this particular transaction is effective, once the integration is complete, systems are converted, all that process. Then I think we need to step back and look at future growth. And the future growth opportunities I think we will continue to be interested in the M&A area. I think this Pacific Northwest markets still has opportunities for continued consolidation. So to the extent that we believe that there is that opportunity facing us, then we may have a less of an interest to do special dividend and/or share repurchase, because I think that both sides of this deal have been very disciplined acquirers and I think that when we see an opportunity that we believe that it would be nicely accretive to our shareholders, we probably believe that’s a better use of the capital going forward. But again, I think those are all considerations and issues that we will need to work through once we get the combined balance sheets put together.

Our next question is from Tim O’Brien with Sandler O’Neill. Tim O’Brien: Question regarding both companies are kind of in both company’s DNA, you guys have tended to be focused on granular business production on the lending side to some degree. I think you guys would agree with me there. Does this -- and Brian you alluded to going up market or having that potential. Could you just tell us where your house limit at here for stands now relative to your legal limit? And then I’m not going to pin you down to what your house limit might be in the cannot [ph] by an entity, but can you give us some sense of what your -- how your philosophy might change in terms of the idea going up market a little bit more or is that granular focus on smaller clients going to remain a part of the DNA of the combined company?

Sure Tim, I think on the Heritage side, I think when we take a look at the legal lending limits, we typically adhere to about a 50% of the regulatory lending limit that we have for anyone relationship as now, you remember -- you can have a loan but you shouldn’t have relationship that is bigger than just one loan, but typically we’ve been at 50%. As we take a look at our peer group and larger peers out there, I think as you grow, I think that 50% of lending limit authority tends to drop-off a little bit, it may drop-off down to 30% or 40%, because I think when you take a look at the credit risk and you have transaction risks, and I think there as a larger a relationship grows the more transaction risk that you gain from that. I think both companies have had a very strong credit discipline. So I think that I would not suggest that our go-forward in-house limit if you will, to be continuing at, let’s say a 50% of regulatory authority. I think that’s something that we need to evaluate, but I also will say Tim that again the credit discipline of both companies is such that I think it will allow us to go upscale. I think we have the credit expertise that will allow us to go upscale but I don’t think that this is going to be something that you are going to see us get wild and crazy about. I think it will just be a gradual process as we really take a look at a stronger entry into Seattle/Bellevue, King County in a very careful approach to that, but I do believe that allowing us to go upscale on a careful disciplined basis will allow us to gain access to markets that we’ve not had independently before. Tim O’Brien: And then by the way, great color on intentions and goals with regard to retention of business lines, that was really helpful. And you alluded to focus, focus, focus on King County. Can you give a little bit of color on how you view that market or that County from a market standpoint with regard to commercially, is it a split market between east and west or what are the nuances of that market that present the challenges in opportunities? Jack is targeting, or Washington Banking Company is really making a move in to east part of the county. You guys have footings closer to downtown. What’s the big picture outlook for that county in terms of what the opportunity looks like?

I’ll invite Bryan to have some comments in this area, because he has got a pretty strong knowledge of the King County market as well. And first of all, Tim, I want to make a comment there, this merger is not about Seattle. This merger is about a combined company from Bellingham to Portland. And let me think that’s an important consideration here, because we have tremendous opportunity across this entire combined footprint, and I don’t want to leave the impression with everybody on the call today that this opportunity is all about Seattle. Now having said that, there is a tremendous opportunity in King County, Seattle/Bellevue, and I think that’s a strategy that we need to figure out how to do that. Yes, there are some differences between Bellevue and Seattle. I think that Jack alluded to earlier about an Issequa strategy, which is then basically in east Bellevue, a strategy for the folks who aren’t familiar with the geography. But I think that once again, you put the knowledge of these 2 companies together and you begin to develop synergies of knowledge that we have, that they don’t have a knowledge that they have, but we don’t have. And I think that when we put that together, we’re going to be able to attract that market better. We don’t have any answer for you today. I don’t want to say that that we got to figure it out and then 12 months we can come back and say we’ve done it. I think that is just probably something that we will do as we do everything with discipline, and we’ll figure it out, and we’ll execute it. But I’m confident about that. Bryan, do you have additional thoughts in that regard?

Yes, what our experience has been in that market, Tim is that you have bankers in downtown Seattle banking of pretty wide market in King County down of the south over the Bellevue north, and you have bankers in Bellevue doing the same thing. So certainly an operating standpoint, today, we have customers in Seattle and to the south in these King County. And so I’m not going to say we see it as necessarily as one market, but we see a lot of bankers in that market with relationships that span that full marketplace rather than so much centralized necessarily in Bellevue, but not at Seattle or vice versa. And I would agree with the earlier comments that both Brian Vance and Jack made with regard to talent. George Bowen and myself have stepped considerable time over the last 3 years, calling on a large number of bankers in that market as we’ve tried to establish teams and the combined company I can tell you will only augment that strategy. I’ve already had several contacts back from people that we’ve been in dialogue with for some time just in the under 24 hours, since it’s been announced. So to the bankers that are in the market that are looking at this combined company, it will just enhance our ability to recruit talent, which is really the key to our strategy in any of our markets that’s having the quality of people to attract the customers that drives the value for the bank. Tim O’Brien: And Bryan one other question and I’m glad you brought this up Bryan about no resting or no looking beyond your existing footprint what about Portland, Vancouver, how does your strategy evolve with the deal with regard to a your focus and interest in growing down there?

Tim I don’t think our strategy changes, I think that we’ve indicated that larger than organic strategy that we’re drive in Vancouver, we’ll continue to do that I think there are more opportunity of late in that market place that we intent to exploit and then the Portland strategy is probably more of a future acquisition strategy, but again I think the increased visibility of this company give us more of an opportunity to recruit lender in at market as well. So it’s certainly I think just a continuation of the existing strategy.

Our next caller is Kevin Reynolds with Wunderlich Securities

Doing great. Congratulations this is an excellent deal. I think that’s kind of universally have been stated here on the call today and Brain thanks for all the color, Jack as well. My question, and I’m want to ask this, most of my questions have been answered, because its more conceptual and I know Brian you have talked reputedly on here about the benefits of scale on efficiency. I guess bigger picture 30,000 foot question in a Pacific northwest and now you said there is more opportunities that there, is there a size that you think you need to be when you be -- as you grow, not necessarily to be bigger for bigger sake, but is there a critical mass out there that you think is sort of the sweet spot where you need to grow to over time and beyond that you don’t really see any more benefits. And if there is a larger size, do you this particular merger puts you on the sidelines for a little while, as you sort of work to get this one -- to make sure that you got this one right or do you have the depth, the management depth and the infrastructure in place where you could actually put an other deal and talk relatively quickly if one came to you?

Kevin, to the size question first that’s a -- you will get a lot of variations to that particular question. I do believe that $3.3 billion Company give us the scale and size to be competitive and viable in today’s landscape, I strongly believe that. Does that mean that we are at now $3.3 billion on a combine basis and we’ve got to get the $5 billion in some time period, I don’t necessarily think so, but at the same time I think we’ve got the capital and I think we -- and I strongly believe this as well, I think we have the management team that will that will allow us to continue to grow beyond the current size. So when I take a look at this viability question at -- independently each at $1.6 billion, I think that a more questionable than certainly the viability of a $3.3 billion organization, so I think that we have made a huge step forward in that regard and I think that once we combine the companies, we’ll continue to look for opportunity, because I think we do have dry powder and capital and I think we dry powder in management. Now as to does this put us on a side line? Certainly, I think that the most experience investors out there will look at this field and they will like it for all of its financial metrics but probably the question you have is can you execute and integrate this particular merger. And I personally believe that that’s one of the most important aspects of this deal. It was very important for us to make sure that we put together a strong management team and I believe we have in this combination. And I think the management team that we have along with a very strong and committed board that we will be able to not only grow the company but we will be able to integrate in the short run. We have both sides of indicator, very experienced integrators. And while that experience of integration, there is always risks and there is always thing that pop-up that you don’t anticipate. I have a lot of confidence in this team being able to integrate this transaction. Will it put us this on the sidelines, absolutely I think that we’ve really got to focus on integration between now and conversion and again conversion date obviously hasn’t been set but probably sometime in late third quarter, early fourth quarter. But we also know that deals take time to develop, so I think that that once we get through the large part of this process, we could certainly begin to have discussions and I think that would be a possibility. So but job one in this deal is to integrate this transaction and we are focused on that and I have a good deal of confidence that we will.

And we’ll go next to Jean-Luc Servat with Panoramic Capital.

This is definitely an exciting transaction. I got a couple of quick questions with respect to the deal. One, wanted to confirm that there are no colors to the amount of to the ratio of shares that are being offered, is this truly a fixed exchange ratio correct?

That is correct.

Okay. One quick question, why was there cash involved, why did you not do a 100% stock transaction?

I think that we take a look at our equity position, I think we had the cash available to do that and I think that it was probably more of a leverage in a capital than anything from our consideration and I think also EPS accretion. I think that was an important consideration. I think that this deal is all about EPS accretion for our shareholders. So I think those 2 issues drove the current structure of this transaction.

One final question and it was inevitably the case in strategic merger. Someone out there will suggest that maybe Jack and his team could have sold for a higher price to someone else, are there any I suspect their break-up fees involved in, in this agreement. Can you comment on that?

Yes, there are. 3% break-up fees, approximately $7.9 million.

Okay, good. Well those are my questions. Congratulations to both and we certainly expect great things from the resulting company.

Thank you. And gentleman we have no further questions. So please go ahead with any closing remarks.

So first of all I appreciate all of your interest. I know there are a number of folks out there on the call and you’ve persevered for us with us for almost an hour and half I appreciate your interest in the combined company. I will reiterate my excitement for this transaction. As you hear a lot of comments about the mergers of equals and that 2 plus 2 equals 5, but I think this is one where we really have an opportunity of creating that kind of a transaction here and I just want to thank everybody that’s been involved and especially Jack and his team for the great partnership and this whole process from beginning to end. It just gives us a very good feeling that we’re partnering with a team that is very similar to ours in culture and focus, discipline and go-forward strategy and I -- and myself along with our entire team and the Board here at Heritage are very excited about this transaction and look forward to continuing the work to put us together. And Jack, thoughts from your side.

Well Brian, I would just -- second everything you are saying, I think this is an such an exciting start and very compelling merger aspect of 2 strategic basis and we’re very -- we’re excited to get going and get on with this process, and the response so far from our large customer base, large borrowers has been extremely positive and also from this staff the branch is on Whidbey Island are being left to operating under DBA, thanks to Brian and Heritage, are feeling great about that. And I think that’s the kind of careful attention that this merger teams on both sides have applied to this transaction. That is going to get it off the block say in a very fast fashion. So, we are confident this is about one of the best things going in banking and the Pacific Northwest and we look forward to proving that shortly.

Thanks Jack, I appreciate your thoughts and comments and Kathy that completes our presentation today and again thanks to everybody for calling in.

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