Heritage Financial Corporation (HFWA) Q4 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Heritage Financial Fourth Quarter and Annual Results Call. [Operator Instructions] And as a reminder, the conference is being recorded. I would now like to turn the conference over to CEO Brian Vance. Please go ahead.

Thanks, John. I appreciate it. I'd like to welcome to all who have called in this morning and those who may listen later in the recorded mode. Attending with me this morning here is Don Hinson, CFO; and Jeff Deuel, President and Chief Operating Officer. Our earnings press release went out yesterday afternoon. Hopefully, you've had an opportunity to review the release prior to this call. And please, as always, refer to the forward-looking statements contained within the press release as we go through not only the prepared remarks but the Q&A session following the prepared remarks. I'll start with highlights of our fourth quarter. Diluted earnings per share -- per common share were $0.04 for the quarter ended 12/31/13 compared to $0.20 for the linked-quarter ended September 30 and the prior year quarter ended December 31, 2012. Originated loan receivables increased $102.8 million or 11.8% to $977 million at 12/31/13 compared to $874.5 million at 12/31/2012. Nonperforming originated loans decreased to 0.53% of total originated loans at 12/31/13 from 0.81% at September 30, 2013. Heritage declared a regular cash dividend of $0.08 per share. Heritage also announced a definitive agreement to merge with Washington Banking Company and its subsidiary, Whidbey Island Bank. We completed a core systems conversion for Heritage Bank and conversion of the former Valley Bank branches into our new core system during the quarter. And also during the quarter, we consolidated 7 branches, 4 former Valley branches and 3 branches previously acquired in the FDIC-assisted Cowlitz Bank acquisition into existing Heritage Bank branches. Overall, this quarter, once again, had a number of moving pieces consistent with our overall strategies for 2013. Don Hinson will take a few minutes and cover our balance sheet and income statement changes. Don?

Thanks, Brian. I'll start off with the balance sheet. Total assets decreased $15.4 million from the prior quarter end and were $1.66 billion at December 31. Net aggregate loans, both the originated and purchased loan portfolios, in aggregate decreased $5 million during the quarter. Net originated loans increased $15.6 million during the quarter. The increase in the prior period was due primarily to increases in owner-occupied commercial real estate loans of $13.9 million, non-owner-occupied commercial real estate loans of $7.1 million and construction loans relating to both 5 or more family residential properties and commercial properties of $6.5 million. This was partially offset by a decrease of $9.8 million in commercial and industrial loans. The decrease in commercial and industrial loans was primarily due to a seasonal decline of $10.5 million in agricultural loans. Net purchased loans decreased $20.6 million during the quarter. Purchased covered loans decreased $5.9 million, while purchased non-covered loans decreased $14.7 million. Total deposits decreased $26.8 million during Q4. This decrease was due to a decrease in deposits from branches obtained in the Valley Bank merger, as well as a decrease in deposits from the consolidation of 3 other branches during Q4. Our non-maturity deposit ratio continued to be a very strong 77.9% of total deposits, and our percentage of noninterest demand deposits to total deposits was 25% at year end. Total stockholders' equity decreased slightly to $216 million. The ratio of common -- ratio of tangible common equity to tangible assets remained relatively unchanged at 11.4%. Our tangible book value per common share decreased slightly to $13.31 at December 31 from $13.36 at September 30. During Q4 2013, there were no shares repurchased under the current repurchase program. I will move on to the net interest margin. Our net interest margin was -- for Q4 was 4.58%. This is a 9-basis-point decrease from 4.67% in Q3. The decrease was mostly due to a lowered contractual loan note rates. The effect of the -- effect on the net interest margin of incremental discount accretion overstated note rates on the acquired loan portfolio was 38 basis points for both Q4 and Q3 of 2013. Without the effects of incremental discount accretion, the net interest margin decreased 9 basis points to 4.20% in Q4 compared to 4.29% in Q3. A decrease in cost of funds helped to partially offset the decrease in net interest margin. The cost of funds for Q4 decreased to 33 basis points compared to 35 basis points for Q3. Likewise, the cost of all deposits decreased 2 basis points to 25 basis points in Q4 from 27 basis points in Q3. Due to the continued low rate environment, we expect margins to continue their declining trend in the near future. I'll conclude by talking about net interest expense -- or noninterest expense, excuse me. Noninterest expense was $11.5 million (sic) [$18.5 million] for Q4 compared to $14.3 million for Q3. Current year initiatives had a significant impact on noninterest expense during 2013. During Q4, there was approximately $3.2 million in initiative costs mostly related to that Valley Bank acquisition, the core system conversion, consolidation of existing branches and the proposed Washington Banking merger. This was an increase of approximately $555,000 of cost in the third quarter. The after-tax Q4 earnings impact of these initiative costs were $2.4 million or $0.15 per share. For 2013, costs related to initiatives totaled approximately $5.1 million. Jeff will now have an update on overall loan growth, as well as some comments on current initiatives.

This is Brian. I'm going to interrupt just one moment. For the record, I think Don indicated that noninterest expense for the quarter was $11.5 million. I think he intended to say $18.5 million, so I just wanted to make that comment to -- for the record. And now, I will give it to Jeff.

Good morning. With regard to loan growth during Q4 2013, we booked a total of $63.2 million in new loans compared to $61.1 million in Q4 2012 and $70.6 million in Q3 2013. These totals represent new loans to new borrowers and new loans to existing borrowers. The average note rate for new loan was 4.69% in Q4 2013 compared to 4.87% in Q4 2012 and 4.78% in Q3 2013. While loan production in the fourth quarter was generally in-line with prior quarters -- with the prior quarters, competitive pressures still exist. Our pipeline is holding. However, we do anticipate a seasonal slowdown in loan production in the first part of the quarter. Generally, our loan production tends to pick up in the later part of the first quarter, and we expect that to occur again this year. With regard to current initiatives, we had a very busy year managing all the strategic initiatives across the bank, and that continued into the fourth quarter. In October, we completed a long-planned core conversion for Heritage Bank and Central Valley Bank, and in November, we converted Valley Bank to the new platform. At this point, the entire Heritage organization is operating on the new core servicing platform. After 18 years, using Fiserv's TotalPlus core system, Heritage moved to Fiserv's DNA platform which provides a variety of efficiencies in all operational areas of the bank and positions us to provide an improved customer experience in the branches. This new platform will also allow us greater flexibility to streamline branches in response to changing customer needs. In November, after the Valley Bank conversion, we consolidated 4 Valley branch locations into existing Heritage Bank locations. In addition, we also closed 3 existing Heritage Bank locations and consolidated those locations into existing Heritage Bank branches nearby. We also kicked off 2014 with a soft opening of the new branch in East Vancouver, Washington on January 13, which will augment our existing branch and regional offices in downtown Vancouver, further supporting our development of that market. The grand opening of the East Vancouver branch is scheduled for mid-February. We're extremely proud of the entire Heritage Bank team for the successful completion of all of our 2013 strategic initiatives. At this point, we're working with our counterparts at Whidbey Island Bank planning for the integration process in anticipation of closing in early Q2 and a core conversion to the DNA platform early in the fourth quarter of 2014. Brian will now have an update on loan quality and capital management, as well as some closing comments.

Thanks, Jeff. I'll first start with loan quality. Nonaccrual originated loans decreased $2.8 million from the prior quarter. The decrease in nonaccrual originated loans was primarily due to a $2.4 million loan restored to accrual status, and $1.5 million of net principal reductions and $225,000 in transfers to other real estate owned, partially offset by an addition of $1.4 million on loans to the nonaccrual originated loans. OREO increased $430,000 during Q4 to $4.6 million. The increase was due primarily to the addition of 5 properties totaling $1.2 million, partially offset by the disposition of 5 properties totaling $456,000 and valuation adjustments of $348,000. The ratio of allowance for loan losses to nonperforming originated loans increased to 329% from 222% at the prior quarter end. Even though our overall allowance to originated loans has been decreasing, we still maintain a very healthy allowance of 1.76% to originated loans. As credit quality continues to improve, our ratio of the allowance for loan losses on originated loans to total originated loans is likely to continue to decrease. A few comments on capital management. We have continued our $0.08 cash dividend. As a result of the announced Washington Banking Company strategic merger, it is not likely we will engage in any special dividends or stock buybacks until we can reassess our capital strategies sometime after merger closing. As a reminder, when we announced the proposed merger, we indicated our pro forma tangible common equity was estimated to be above 9% following closing. I would further refine that TCE estimate to the mid-9% range. 2014 outlook. I'll first comment on the -- just some general comments on the economic outlook for our region. We expect, from an economic point of view, 2014 will be much like 2013 with a continued slow and steady improvement in the overall economy. And depending on the development of the most recent global economic market shivers, it is quite possible the Pacific Northwest could experience stronger growth in 2014 than experienced in 2013. We expect both single-family residential and commercial real estate will continue to show modest valuation improvements, with the strongest valuation improvement to continue in the Seattle area. Multifamily continues to be one of the strongest growth areas throughout the Pacific Northwest footprint. The well-documented Boeing machinists contract renegotiation was settled with the apparent outcome of Boeing keeping the 777 production in the Puget Sound region, which is a very important economic development for the entire region. Amazon continues to hire and develop an extensive commercial real estate and its total employed presence in the downtown Seattle area. The Tacoma Port recently announced its total containerized shipping exceeded that of the Seattle Port for 2013. The port handled 1.9 million containers in 2013, and was just short of their 2.1 million peak before the recession. Also handled through the port, log shipments were up 14% over 2012, as well as auto shipments were up 8% and total vessel calls were up 16% over '13. Washington continues as one of the top 10 states in the nation with inward migration growth. As discussed earlier, we experienced quite strong loan growth for 2013. 2013's loan growth was fueled in part by a desire and the balance sheet ability to put some 7- and 10-year fixed CRE to the portfolio, which was successful. We are not likely to repeat that activity this year, so we're forecasting loan growth to be in the 5% to 7% growth area. As you also are aware, we continue to focus on efficiency improvements. As we have shared with you, we've had a lot of activity this past year: 2 acquisitions; collapsed the Central Valley Bank charter; converted both acquired banks to our system; completed a total systems conversion at Heritage; consolidated 4 of Valley's 8 branches; closed 3 Heritage branches; and announced the Washington Banking Company merger. All of these activities during 2013 will result in substantial efficiency gains going forward. And this is an important point, so I'd like to reiterate this point and state it in several different ways. We ended 2012 with FTE of 363 and we ended 2013 with FTE of 373, an increase of only 10 FTE even after 2 acquisitions. Our assets per employee improved from $3.7 million at the end of '12 to $4.4 million at the end of this -- end of this past year, a 19% improvement. Additionally, we increased average deposits per branch year-over-year from $34 million to $40 million, an 18% improvement. During the year, we increased total assets by $313.5 million through acquisitions and strong organic growth. If we would have added FTE at the same assets per employee run rate at the end of 2012, we would have added a total of 85 FTE. However, we added only 10 FTE year-over-year. Another way to state this efficiency improvement is, we increased assets year-over-year by $313 million and added 10 FTE, which is equivalent of an asset per employee of $31 million. And even one more to state this is, we increased year-over-year assets by 23% and increased FTE by only 2.75%. And finally, we realized we still have efficiency gains yet to make. We believe there are further efficiency gains in the Legacy Heritage. But also as we merge Heritage Financial and Washington Banking Company together, we believe we can gain additional efficiencies through scale and process. I'd like to share with you briefly as to some 2014 initiatives. We intend to focus on increasing our SBA loan originations. We intend to continue to build out our wealth management strategies. We recently hired a Trust Officer for the Olympia [ph] Tacoma area, and we'll focus on strategically increasing our presence with both trust and investment activities. We will continue to focus on improving our overall efficiencies, as I stated earlier, across the entire organization. The primary measurement metrics will continue to be assets per employee and deposits per branch. I'd like to give you an update on our announced strategic merger with Washington Banking Company. It is progressing as we originally expected it would. As of the date of our most recent filed proxy statement prospectus, all of the required applications have been filed, and Heritage has received approval for the bank merger from the FDIC and Washington DFI in late December and early January. Heritage has not yet received a waiver from the Federal Reserve Board of its application requirement that would apply to this merger, but neither Heritage nor Washington Banking know of any reason why such waiver would not be obtained in a timely manner. There can be no assurance as to whether all regulatory approvals will be obtained or as to the date of the approvals. There are also can be no assurance that the regulatory approvals received will not contain a condition or requirement that results in a failure to satisfy the conditions to the closing set forth in the merger agreement. We are still anticipating the merger closing in early Q2. Ongoing integration discussions are also progressing quite well. This completes our prepared remarks this morning, and I'd welcome any questions you may have and would once again refer you to our forward-looking statements in our press release and answer -- and as I answer any of these questions dealing with a forward-looking comments. John, would you please open the call to any questions that we may have?

[Operator Instructions] Our first question will come from the line of Jeff Rulis from D.A. Davidson.

So Brian, you threw a lot of numbers out of the efficiency side. I appreciate it. But on the -- if you back out the $3.2 million this quarter, you get to $15.3 million on noninterest expense. I know you want us to focus on sort of assets per employee or deposits per branch. Is there -- I guess from that level, could you talk about run rate? Could that be approved upon $15.3 million Legacy Heritage from that point?

Jeff, let me give you an overview comment here, then going to ask Don to give you a little more specific color on that. I think one of the things that I would like everybody to hopefully understand is, last year was a busy year and especially in Q4. As I read off the accomplishments in Q4, maybe any 1 of those 2 would have been a year, but we packed about 6 or 7 pretty critical activities in, actually, third and fourth quarter. My point being is that we have not had the time to fully assess go-forward run rates and to really work out because there are a lot of moving pieces to expenses. And whether it was expenses related to the Whidbey transaction or whether it's expense related just to our ongoing strategic initiatives, we're still analyzing that from a go-forward point of view. So hopefully, you would -- you can understand that. And in that, in the last 30 days or so, we've been pretty busy, and with S-4 and merger activities with Whidbey. So having stated that overall caveat, Don, would you have some additional comments to that?

Jeff, if I understand your question correctly, you're asking if you take the $18.5 million, you back out the $3.2 million in costs. Again, these costs -- I just wanted to reiterate that these costs were basically amounts paid to third parties and items such as severance or retention bonuses paid to those employees leaving. It does not actually take into consideration additional costs that we're going to save by reduction of the number of branches, the cost of running the branches and in addition to the number of employees going down. So yes, there are additional cost saves beyond the $3.2 million. The $3.2 million is basically just to highlight things that were, as you call them transaction cost, we're calling them initiative costs because they're easily identifiable and they're not related to initially cost saves that we're going to get from these initiatives. More like they're costs that we incurred as a result of implementing these initiatives.

And I would also add to that, that during the third and fourth quarter, because of the conversions, the branch consolidations and all of these activities, we had quite a bit of overtime. We had temporary employees that we needed to hire. So there's just a lot of things that -- and I realized, you would love to have more color on this and we'd love to give you more specifics on this, but we just haven't had the time to sort all this out and the detail in a manner that I think probably all would be happy with. So hopefully, that gives you a little bit more color on that, Jeff.

Sure. So just -- if I hear you right, the $15.3 million, you're saying that it can be approved upon, but at this point, a little cloudy as to what that figure is?

I think that's a fair statement.

Okay, okay. And then Brian, sort of a follow-up on your kind of loan growth expectation for sort of Legacy Heritage, the 5 points -- 5% to 7%. Kind of a tough question, but any sense in talking to the Washington Banking folks as to their loan growth expectations for the year, if that's possible? And secondary to that would be, what's the incentive for them to grow loans in your agreement?

Yes. A couple of questions there, and I'm going to drop back and first remind folks on the call here that I think I estimated and gave guidance this time last year that we have loan growth of 3% to 5%, and I missed that a little bit with 11.5% growth. I'll apologize for you -- to you for doing that. And I've given you guidance of 5% to 7%, and Jeff, this really gets your question as we combine the companies later this year. I'll remind folks that when we announced the merger with them, we did not factor in any synergies from bringing the organizations together. So I think that, and to answer the question in a big picture point of view, and I will remind folks that we are 2 separate banks still and I know you understand that. But we do have a number of discussions, integrated-related discussions, as well as discussions about what's going on with, just as you mentioned, Jeff, from a loan growth point of view. I will tell you that this merger continues to get very positive responses in the marketplace from both investors and customers and employees on both sides. So to that end, I am not speaking for Washington Banking Company, but I will tell you that I think that they would say that, because of the positive reception, they have not seen the normal slowdown on loan production that you would typically see when you announce a merger. I think that folks are continuing full steam ahead on their side as they are on our side, and I do believe that we'll get synergies from loan growth in the combined companies. So I think as we have conversations with them and they us and we're analyzing processes here and we're looking at opportunities, and as I announced here, we had some discussion with the original announcement of the merger, we talked about the potential of Seattle and King County and we're -- and we continue to see potential in there, and that's beginning to develop. So a very long answer to say -- I think that I would end in this by saying we're -- we feel very positive about opportunities in that regard.

And now we'll go to the line of Jackie Chimera with KBW.

I just wanted to circle back quickly on expenses, realizing everything that you said before that you haven't had a chance to really sit down and look at the run rates. But these are a little bit more technical questions. So you had a reduction of 42 people in FTE, if I calculated that correctly from your press release. When did that reduction occur?

Well, most of that reduction came in Q4. Now I'll invite Don to step in if I misspeak here. But just as a reminder, we closed the Valley transaction in early Q3, which then increased the FTE numbers in Q3 substantially. And we could not do -- and we could not affect any of those FTE reductions until such time as we did the conversions which happened in early Q4, which then allowed us to do the reductions that resulted in that number we've stated at 373. So anything else on that, Don?

Jackie, it occurred throughout the fourth quarter. And just also to be clear, FTE is not necessarily true headcount but it's kind of the effect of the employees because it does include kind of an hours calculation. So it is representative of kind of how we have cut expenses but not true headcount. But it did happen kind of throughout the quarter because we had -- in October, we had 1 conversion. November, we had another conversion. We closed some branches later in November, and then the effects of those getting the payouts were done even into, I think, December, so it's kind of spread out throughout the quarter.

But I think it'd be fair to say that probably most of it came more in the latter part of the quarter than the forepart of the quarter, if that gets to your question as well, Jackie.

Yes, it does very much. And then also the press release touched on this a little bit, but I wondered if you could just expand. To my understanding is that, of that $3.2 million in the merger-related charges, it encompasses what you can quantify, but there are other professional fees that are in there and maybe some other expenses here and there that may not necessarily be directly related to a merger but are not necessarily recurring in future quarters. Is that an accurate statement?

Well, we -- Jackie, we try to do as best as we could of actually accumulating all those costs directly associated with the initiatives that we have listed here. So I would say we probably did a pretty good job. Could there be ancillary-type expenses because we were working on initiatives we might have outsourced something we wouldn't normally because of the workload that every -- that was on a everyone's plate over the fourth quarter, yes, that's a possibility. I'd say there could be some ancillary-type expenses, third-party expenses. But we really tried -- anything that was directly related to these initiatives, I think we have captured when it relates to third-party expenses. And again, well, I will reiterate what I said earlier, we have the cost of -- this does not include the cost savings from the branch -- from the branch closures or the less employees.

Or, as I said earlier as well, the overtime and substantial temporary help that we had as well.

Okay. And then just lastly, did you have any hirings in the last quarter that you'll continue to keep those individuals on?

Well, we have -- I think we mentioned that we have some trust.

Yes, there were some..

Oh yes, the trust, okay. Outside of the trust, was there anyone else?

No, I don't believe there was, Jackie.

I guess, Jackie, I mentioned one thing, then we also mentioned that we did open up a branch earlier this month. So that was not in the fourth quarter, but it will affect the first quarter.

Now we'll go to the line of Tim O'Brien with Sandler O'Neill and Partners. Tim O’Brien: So just picking at the expense side of it a little bit more. So the $3.2 million, does that include the overtime expense with regular employees? Did -- was that captured in that, too? Or is that something...

No. Tim O’Brien: You've kind of alluded to that's going to be -- that separately showed up? Okay. So the overtime -- how much overtime do you think you paid, Brian?

Well, Tim, it's -- again, I get back to my earlier comment, trying to categorize a lot of this stuff, we just haven't had the time to sort through. Tim O’Brien: No worries. I understand.

But I would say that there's a fairly significant number along with the temporary help that we -- employees that we had hired for the process. So we just haven't had the time to quantify that. Tim O’Brien: Great. That's good to know. And then the other question is, so exclusive of the merger, the pending merger, are these other -- are the costs, kind of a one-time cost associated with the systems conversion and the branch consolidations, are they fully realized in this quarter's number? Or is they're going to be residual costs associated again with the system conversion -- the conversion that just took place and the branch consolidations that just took place, barring WBC, leave that off?

Okay. I think there will be very little. Don?

Correct. Tim, we did the best we could, basically getting everything captured in Q4. So there might be a little bit, but very little in Q1. But we will -- like you did mention, there will be continued ongoing costs associated with the pending Washington Banking [indiscernible]. Tim O’Brien: So any lease agreements that existed with regard to the branch consolidations, that was dealt with already?

Correct. Tim O’Brien: Okay, great. And then as far as deposit runoff is concerned, just remind me, do you guys expect a little seasonality just kind of based on your traditional history of deposit runoff here in the first quarter relative to fourth quarter?

Tim, it's Jeff Deuel. I don't think that we necessarily see any seasonal runoff, and I can add to that with a comment. The branches that we did close, we budgeted for to have some runoffs and we've not gotten anywhere near the budgeted amount of runoff. Now keep in mind, that's still relatively early, but so far so good is probably the message at this point. Tim O’Brien: So it's early on -- - and that was my second question was, there will be -- there's likely to be a little bit more -- realistically, more deposits are going to flow out as a result of the consolidations. We're not done there. That's just get going.

Yes, I think so. But as Jeff -- this is Brian. As Jeff indicated, I think the experience today had been substantially better than we had anticipated. And I also comment that typically, our deposits build through the first quarter. I think we find that specially our business folks build the cash reserves for tax payments, which typically come late first quarter or second quarter. So -- but yes, there will be a little bit of runoff of those branches. But I've made this comment before, and that is that consumers are amazingly resilient these days with their online banking and mobile banking and all those sorts of things. And they're -- we're hoping that we continue to that performance of deposit loss is ahead of our expectation. In other words, better than our expectation. Tim O’Brien: Good. I hope so, too. And then last question, the owner-occupied CRE that you guys grew this quarter, did that come with other aspects of our relationships, such as unfunded new lines of credit? Or did you guys add lines of credit this quarter, unfunded?

Oh, I'm sure we did. I don't have a number for you, Tim, on that. But we are pretty much sticklers on total relationship. We do not do one-off transactions. I won't say we don't do it, but it is very rare that we would. So that we would pick up if we pick up owner-occupied CRE, it's quite likely that there is lines of credit that come in with that, accounts that come in with that, maybe equipment financing, all of that. So it's a -- we're a total relationship bank.

[Operator Instructions] And we will go to the line of Brent Villaume (sic) [Brett Villaume] with FIG Partners.

So I wanted to ask you, you made a -- you mentioned that the rate on new loans was -- in the fourth quarter was 4.69%. And I wanted to ask, if you guys foresee or can see the rate of contraction in those new loan yields, is it's continuing at a linear rate in your opinion, or is the decline slowing?

I think that this was a little lower than we had in the past few quarters. I mean, the rates have been down for this quarter. I think we had a couple of larger loans that were put on at lower rates that affected this, and I think that was driving it probably below where it has been the last few quarters. I think we're up in the 4.7% to 4.8% in the last few quarters, and I think a couple of big loans here at lower rates kind of drove that down some. So I would expect to pop back up in the originations yield -- or the rates on new originations to pop back up a little bit next quarter.

And I would add to that. It's Brian. That 4.69% number compares to a 4.78% number in Q3, and -- so it is down a little bit. But I think it's more of kind of a weighted average issue of the larger transactions. I think from a general point of view, we're seeing rates stabilize in the marketplace. Now still competitive, but I think we can anticipate maybe that coming back up maybe to closer to Q3 levels.

Okay. That's very helpful. And then I just wanted to ask, and forgive me if there are some more logical answer to this, but I noticed at the period end, the balance of noninterest-bearing deposits was down 3.3% versus an 8.8% increase in the average balance. And I'm just wondering, if you could give me a little bit better understanding of what was going on there with that change.

Well, I would say that you're saying that the average balance has actually increased. Is that what you're saying?

Correct.

Okay. So a couple of factors. I think we did -- again, we -- some of the branch closures that happened later in the quarter, so we have the effects of those hit the averages more than ending balance. In addition, in Q3, we didn't have Valley Bank for the entire quarter, and so that's also affected by the average balance and for the full average balance of that this quarter, so we had it from the very beginning. So I think it's just the timing. Again, the branch closures happened later in the quarter, and I think the runoff happened later in the quarter also.

We will go back to the line of Jeff Rulis with D.A. Davidson.

Just one quick follow-up. On the other income line, that was cut in half sequentially. Was that something in Q3 that brought that number up? It was a little over $1 million last quarter. It was down to almost $500,000 this quarter.

Jeff, we had -- we sold a branch, the branch we talked about. We moved our Tumwater branch from one location to the other, and that gain was in the third quarter, and that was about almost $600,000, so...

Got it. This quarter's other income is pretty normalized?

Correct.

And nothing more from the phone line at this time.

Well, if there are no further calls, I certainly appreciate everyone's interest. And I mentioned to Brett a moment ago, we will be at the Financial Institutions Group Conference in San Francisco next week. So I'm sure the investors that are on the line, I -- we like to -- Jeff, Don and I will be down there. We'd like to see you. So I appreciate your interest, and this will conclude our conference call for Q1. Thank you -- Q4, excuse me.

And ladies and gentlemen, this conference will be available for replay after 1:00 p.m. today through Thursday, February 13, 2014. You can access the AT&T Teleconference replay system at any time by dialing (800) 475-6701 and entering the access code 315328. International participants can dial (320) 365-3844. That does conclude your conference for today. Thank you for your participation and using AT&T Executive Teleconference. You may now disconnect.