Heritage Financial Corporation (HFWA) Q4 2015 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Fourth Quarter and Year End Earnings Conference Call. At this time, all participant lines are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. Also as a reminder, today's teleconference is being recorded. At this time, I would like to turn the conference over to your host, CEO, Mr. Brian Vance. Please go ahead, sir.

Thank you, Tony. I appreciate all those who have called in and those that may call in later on the recorded version. Attending with me this morning in Olympia are Don Hinson, our CFO; Jeff Deuel, our President and Chief Operating Officer; and Bryan McDonald, our Chief Lending Officer. Our earnings press release went out this morning on a pre-market release and hopefully you've had an opportunity to review the release. As we go through our prepared remarks this morning and as well as the Q&A session that will follow, I would ask that you refer to our forward-looking statement that is embedded in the release. If you would do so, I won't read it to you, but if you do so, I should certainly appreciate it. I'll begin with some highlights of our fourth quarter and our annual 2015 results. Diluted earnings per common share were $0.32 for the quarter ended 12-31-15 compared to $0.24 for the prior quarter ended December 31, '14 and $0.32 for the linked quarter ended September 30. Diluted earnings per common share increased $0.43 or 52.4% to $1.25 for the year ended 12-31-15 compared $0.82 for the year ended 12-31-14. Return on average assets was 1.04% and return on average tangible common equity was 11.04% for the quarter ended 12-31. Total loans receivable net increased $148.9 million or 6.7% to $2.37 billion at 12-31-15 from $2.22 billion at 12-31-14. Total deposits increased $202 million or 6.9% to $3.11 billion at 12-31-15 from $2.91 billion at 12-31-14. Don will take a few minutes to provide a little more color to you on our financial statement results. Don?

Thanks Brian. I will start with the balance sheet. Total assets increased $55 million in Q4, primarily as a result of a $54 million increase in total deposits during the quarter. Deposit growth of about a corresponding growth in loans in Q4 resulted in a decrease in the loan to deposit ratio to 76.6% at December 31 from 78.0% at the prior quarter end. Investment balances increased $76 million to $812 million at December 31 from $736 million at September 30. During the quarter, the percentage of demand deposit to total deposit decreased slightly to 24.8% from 25%. At the prior quarter end, total non-maturity deposits to total deposits increased to 86.5% from 85.7% at the prior quarter end. We continue to experience some runoff in the CD balances due to the continuing low rate environment. Moving onto some credit quality metrics, we continue to see overall improvement in our credit quality for the loan portfolio, nonperforming assets to total assets improved to 0.32% as of December 31 from 0.33% as of September 30. The ratio of our allowance for loan losses to nonperforming loans stands at a very healthy 308%. In addition, including in the carrying value of the loans are $20.4 million of net discounts which may reduce the need of an allowance for loan losses on those related loans. Our net margin for Q4 was 3.97%. This is a 3 basis point decrease from 4.00% in Q3. Pre-accretion net interest margin decreased 7 basis points to 3.69% for Q4 from 3.76% in Q3. This decrease was due partly to a decrease in pre-accretion loan yields of 5 basis points to 4.70% in Q4 compared to 4.75% in Q3 as new loans are being booked at rates lower than the current portfolio. In addition, the quarter over quarter change in the mix of average earning assets from loans to investments in over net deposits affected net interest margin negatively by approximately 5 basis points. Noninterest income decreased $2.0 million from the prior quarter, due mostly to the effects of the $1.7 million gain on the termination of the FDIC shared loss agreement which was recognized in Q3. In addition, gain on sale of loans decreased $507,000 from the prior quarter. Of the gain on sale of loans in Q4, $746,000 related to mortgage loan sales and $109,000 related to SBA loan sales. Finally, I'll discuss noninterest expense. Noninterest expense decreased $553,000 from the prior quarter. The decrease was due mostly to decreases in data processing and marketing expenses partially offset by increases in occupancy and equipment expense and compensation expense. Data processing decreased in the prior quarter, primarily due to an incurred fee of $429,000 for the early termination of a contract that was recognized in Q3. The increase in compensation expense was due mostly to increased expenses related to performance based incentive compensation. Bryan McDonald will now have an update on loan production.

Thanks Don. During the fourth quarter, the commercial lending teams closed $149 million of new loans compared to $210 million in the third quarter. For all of 2015, new commercial loan production was $660 million or a 20% increase over the $551 million of new commercial loans closed in 2014. Gross loan total decreased by $2 million during the quarter and increased by $151 million over the past 12 months for an annual loan growth rate of 6.7%. The decline in loan balances during the quarter was due to elevated payoff activity, some loan closings being deferred into 2016 and a decline in the utilization rate on lines of credit, especially our seasonal agricultural line. Large commercial relationship payoff during the quarter totalled $57 million and total payoffs were $83 million. This compares to prior 2015 quarterly large [indiscernible] relationship payoffs ranging from $11 million to $36 million. The increase in payoff activity during the quarter was due to customers selling businesses and associated real estate in addition to several large multifamily properties being sold or refinanced by permanent lenders after reaching stabilization. We did not experience any unusual customer attrition during the quarter. The overall loan growth rate was also impacted by the payoff of loans that were covered by the FDIC loss share [indiscernible] buyout of these agreements during the summer. This lot of loans continues to be liquidated and declined by $36 million during 2015. Commercial team pipelines ended the year at $336 million, up from $305.6 million at the end of the third quarter and $206 million at the end of 2014. The increase in the pipeline during the quarter was due to the delayed closing on several loans that were anticipated to close in the fourth quarter, and the overall increase in the pipeline during the year is due to consistent loan demand from our customer base and calling efforts across the footprint. Line utilization at the end of the quarter was 35.7%, $140.5 million on $393.8 million of commitments versus 38.5% in the third quarter, 38.96% on second quarter and 39.7% at the end of 2014. The change in the line utilization rate equates to a decline in operating line balances of $11.1 million and $15.8 million during the quarter and the year respectively. SBA 7(a) production for all of 2015 was $27.7 million, which is an increase of 15% over 2014. Consumer production grew $7.8 million during the fourth quarter to $43.4 million. The $43.4 million was comprised of $29.7 million of dealer volume and $13.7 million in branch volume. Consumer loan production for all of 2015 was $149.9 million which is an increase of 30% over 2014. The mortgage pipeline ended the fourth quarter at $29.4 million compared to $21.2 million in the fourth quarter of 2014, mortgage loan production for all of 2015 was $164.2 million, which is an increase of 59% over 2014. Our current pipeline is comprised of 50% refinance loans, 28% purchase loans and 22% construction loans. This compares to last quarter's pipeline where refinance business averaged 56%. The 2014 to 2015 loan production comparisons for the commercial lending teams SBA, consumer and mortgage, all include the premerger loan production in each of these categories for Whidbey Island Bank prior to the May 1, 2014 merger date. I'll now pass the call to Jeff Deuel for an update on our retail strategy. Jeff?

Thanks Bryan. I just had a few words to add about our retail strategy. Like many of our competitors we're focused on rationalizing our branch delivery system to accommodate changing customer needs. Our goal is to continue to streamline our network so that we have the right size of branches in the right location. With our recent move to DNA, our core service provider, we can also accommodate new technology to help with this process. So, as a result, we're currently working on closing and consolidating several retail locations, which will occur between this month January and April. While this effort will reduce our overall locations by four, we're actually impacting six locations by consolidating three metro retail branches in the upper four commercial offices. As an example, we opened the new Seattle lending office in Downtown Seattle in August of last year and we subsequently moved the retail function to that upper floor office and closed the street-level location. This resulted in a lending office with retail capabilities supported by a cash recycler and some of the new technology which results in overall reduced FTE. The metro models are being displayed not only in Seattle but also in Downtown Tacoma and Vancouver. We'll begin to see the positive benefits from these consolidation efforts beginning in the third quarter of this year and I'll pass it back to Brian for some comments on capital management.

Yeah, I have some overall comments on capital management as well as some outlook statements for 2016. First of all, starting with capital management, we've continued our $0.11 quarterly dividend which represents a 34% pay-out ratio and is slightly under the range of our previously stated guidance of 35% to 40% pay-out ratio. Our TCE remains at a healthy 9.7% and our strong TCE levels continue to give us flexibility for a variety of growth opportunities as well as other capital management strategies. Our outlook for 2016 despite the recent market volatility in most sectors, we continue to be optimistic about the overall economy of the Puget Sound region. Real estate values across all sectors continue to appreciate and most of all economic indicators continue to show measurable improvement. Commercial real estate construction growth is robust in the region and construction activity seems to match demand at this point, but we are careful to constantly monitor and limit loan concentrations in highly active sectors. This has caused us to turn away certain loan origination consistent with establishing and maintaining discipline over our loan concentrations. Earlier in this call, Bryan McDonald shared some good detail on our production and lending activities, while Q4 did not end as strongly as we had hoped, it was still a good quarter of originations. I think it is important to reiterate a few points. Total commercial loan production was up 20% year-over-year. SBA production was up 15% year-over-year. Consumer loan production was up 30% year-over-year. Mortgage production was up 59% year-over-year. Commercial loan pipeline at the end of Q4 was up 10% over Q3. Additionally, we reduced problem assets by $56 million during 2015, generally due to a strategy of anticipating more challenging economic conditions in the future and taking advantage of the opportunity to upgrade our total portfolio. Our credit quality as measured by the total of nonperforming assets, restructured performing loans and potential problem loans decreased 27% in 2015 over '14. Overall credit quality remains an important focus of ours in both new originations and managing poor quality loans out of the bank. At year-end 2015, our Seattle growth strategy was substantially ahead of our internal goals, for both commitments, booked and loan balances outstanding, exceeding our expectations. We continue to be quite optimistic about not only our Seattle strategy but our continuing commitment to our core three counties, King County, Seattle, Bellevue; Snohomish County, Everett; and Pierce County, Tacoma. We continue to hire lenders in these three markets. Some of these new lenders are replacements for retirements and some are new additions to our team. Our overall lender total in the Company remains static as we are constantly redistributing our resources. In all other markets we do business in, except for the core three counties, we are seeing slower growth. We continue to be optimistic our net loan growth for 2016 will be in the 6% to 8% guidance that we've been giving. I believe it is important to reiterate our 2015 return on average assets was 1.06%, a significant improvement over 0.74% ROA for 2014. Our continuing focus on growing non-maturity deposits was successful during 2015 with total non-maturity accounts deposits improving to 86.5%, while our CD balances dropped only 13.5% of total deposits. We will continue to focus on growing non-maturity account deposits in the 8% to 10% range. Our overhead ratio for 2015 was 3.01%, a significant improvement over 2014's overhead ratio of 3.49%, as well as our efficiency ratio improving to 65.6% for 2015 from 75.4% in 2014. We believe our overhead ratio will continue to improve in 2016. That completes our prepared remarks and we will open the call for any questions that you may have and again would ask you and remind you to refer to our forward-looking statements as we answer your question. Tony, please open the call for questions.

[Operator Instructions] Our first question comes from Jeff Rulis with D.A. Davidson. Please go ahead.

Thanks. Good morning guys. Hopped on a little late. Is it possible to get the loan production numbers for Q3 versus Q4 and also payoff activity?

Sure. Brian's got that for you.

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

What was the other? Payoffs.

Oh payoff activity was $57 million in large payoffs. Total payoffs of $83 million. This compares to prior quarters during 2015 where the large commercial payoffs range from $11 million to $36 million and then the pipeline was at $336 million at the end of the year versus $305.6 million at the end of the third quarter and $206 million at the end of 2014.

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

I don't have that. I don't have that number in front of me here, but the range for the year was $11 million to $36 million.

Oh, so that wasn't a Q3 number? The large payoff I guess?

Yes.

That was the range for the full year?

That was the range for the year.

Okay, so safe to say your largest payoffs occurred in the current quarter, in Q4?

Yeah right Jeff. That's true. I'm just pulling it up here. Q3 payoffs were the $36 million versus $57 million in Q4. That was just the large payoff activity.

When we say large payoffs, we -- you might want to --

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

Then, I guess a question on just costs again, a nice step down quarter to quarter. I guess if you overlay that with I think Jeff discussed some branch consolidations, but just further work, you talked about efficiency improvements, but is that kind of trying to holding a line on the run rate on expenses? How do we see that for '16?

I think Jeff I'll take a shot at it, maybe Don and Jeff can come in behind me. As we worked through '15 there was a pretty good degree of expenses. I can't quantify it for you in the latter half of the year that were result of an expense reduction where we will see more of an annualized benefit in '16. So, in my guidance, I didn't give a specific guidance, but just in my outlook comments, I was pretty confident that overhead ratio is going to continue down as we move through '16. I think that's going to be accomplished by, again annualizing the expense saves we had in '15, the branch saves as it becomes online maybe in the third and fourth quarter, a variety things, I think will help us continue to move that overhead ratio down. Don? Anything else to that?

Yeah, I think overall, I think you'll see expenses maybe trend down a little bit, except for when we do have some -- again, we talked about some brand consolidations. I'd say the first quarter we have [indiscernible] significant, I'm guessing about $400,000 -- in that range, but overall that will help us, down the road with the cost of rents going forward, and so I can see again that our overhead ratio which I think was 392, I think, 393.

No, no.

No, it's [indiscernible]. In the fourth quarter, we'll continue to decrease throughout the year.

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

Sure. First, a little color on hiring and Bryan can chime in as well. I think the hires that we made, especially in King County in '15 were fairly significant in terms of numbers and the dollar impact and I think as well, we'll have a very positive impact on production. I don't see the same level of that hiring in '16. I think the hiring in '16 will probably be more selective in certain markets. Maybe there's an opportunity to bring over a lender to it in a certain market and I don't know if you picked up on my comments, but we've been doing a lot of hiring of lenders, but our overall lenders are staying the same, because we're redistributing lenders around the footprint. So, but I think -- and before I comment on the M&A, maybe Bryan you may have a couple of comments on that.

No, I agree. It'll be selective hiring. We continue to talk to people and look for top quality talent to bring aboard, but I sense it'll be more one or two in our select markets versus an entire group, you never know.

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

Thank you, very much. We're moving on to our next question that will come from Tim O'Brien with Sandler O'Neill Partners. Please go ahead.

Good morning. Question for Jeff. Hey Jeff, do you have the estimated kind of all in annual cost saves from the branch rationalization? Do you have that number?

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

Okay, and then, so that's really when the overhead ratio shows improvement, in that third quarter, because you're going to -- factoring out one time where we see overhead ratio improvement in the first quarter, factoring out kind of incidentals involving the execution of this initiative, Don in the first quarter or are costs going to the higher? Is that ratio going to come up in the first quarter due to seasonal factors like payroll taxes and stuff or what?

I don't think so Tim. I think it could drop a little bit, because of the exit costs for the branches. I don't think it's going to move a lot. The first quarter I think we'll start seeing it starting overall, because the exit costs will be gone after the first quarter. I think we'll start seeing it improving in the second quarter and then even more so in the third quarter and throughout the year, but I think we'll see some nice improvement in that ratio throughout the year.

Then, do you guys have the classified asset numbers, year-end versus end of third quarter and last year?

Well, our classified assets are -- we showed a potential problem loan number in the -- and that includes that as our classified asset.

But just use that.

Oh that was the nonaccrual loans.

Okay, all right I can work that. Do that work. Then, what about, I mean, you guys had higher payoffs here in the fourth quarter, Bryan, can you talk a little bit about outlook, is that just kind of a volatility or first quarter heading into '16, do you think payoffs are going to remain elevated just because of the nature of market conditions and such conduit activity and all that stuff?

You know, it has been elevated. I guess, I'd say, higher than normal, the last two years, the fourth quarter was exceptionally high. The previous high levels were 35 million, 36 million with something more typical on a quarterly basis being 10 million to 11 million of very large payoffs. This is a very difficult one to predict, because it's not lost account. It's customers deciding to sell assets or sell businesses and that's what makes it unpredictable. We don't see the first quarter activity hitting what we had in Q4. So, at least near-term visibility here is we wouldn't see that level of payoff activity in Q1 based on what we're seeing right now, but again, it's difficult to predict because of what's driving the customer behaviour as it relates to sales and that's often hard to predict.

Tim, it's Brian, I would also add to that, I think it's fair to say that the Q4 prepayment activity surprised us. I just didn't -- we did not anticipate that level. Now, at the same time, we can't control it. It's just one of those things that happens. The banks make loans and we like to see loans pay off, but it would be fair to characterize that as a bit of a surprise, and I've also said that, especially in the economic conditions we find ourselves, although I think we see very good strong growth in the Puget Sound region we're still seeing overall national growth being rather muted and I think it's hard to expect that growth is just going to be a linear line. I think you're going to have these sorts of blips. It was a surprise. I would like to tell you that that was a bit of an anomaly and will not be re-created in '16, but I can't predict that. I think what we're really focusing on are those things we can control and that's the production numbers and we shared all our production numbers, you can see it, from almost across the board 15% to 20% higher in each one of those categories and we look for production to continue strong, and I think the other and final comment I'd make is that, it's not a loss of business. It's just kind of -- I won't say normal reoccurring thing, because I think our customers are taking advantage of higher asset values and they're moving assets and so I think all in all it's a good thing for our customers. It's just hard to predict.

[Operator Instructions] Our next question comes from Matthew Clark with Piper Jaffray. Please go ahead.

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

Yeah. The $149 million for the quarter, wasn't far off what we've averaged for the year. It does go up and down, $210 million for the third quarter was a relatively high level, relative to other quarters. The other thing that was -- that did cause the quarter production, there was several loans that we anticipated would be closed in Q4 that have been pushed off to close in Q1 of '16. So if you look at the pipeline moving up year-over-year and quarter-over-quarter part of the reason for the pipeline growth was a few large loans that we thought were going to close in Q4, being pushed into 2016.

This is Brian Vance. I would also add to that, and Bryan McDonald can chime in his opinion as well, but it remains a very highly competitive market and we're bidding against credits on a day-to-day basis that, sometimes we choose to walk away from the table from a pricing point of view. It's just that intense out there that sometimes we just don't feel that, that particular loan warrants that particular rate, so we'll walk away from it. So, that continues and I don't see that letting up and I think it's probably fair to characterize that that probably has had some impact on our production. Bryan do you have any --?

Yeah, for sure, it is a very competitive marketplace, we get the opportunity, but we don't always win at the final stretch with how aggressive the market is. So, we do see some fallout and the market has become increasingly competitive each quarter the last couple of years.

Maybe Jeff, a question for you, with the branch consolidations unfolding in the first half of this year, is it fair to assume you shouldn't really expect any income declines as a result of the branch consolidations? Should it be pretty small?

I don't think it's going to be notable. Typically we budget for a certain amount of runoff on the deposit, for example, but we are consolidating them with other branches that are nearby and historically, we've always over budgeted on the decline. Our team does a pretty good job of hanging on to the deposit.

I would add that we do have a pretty good history of that in that -- I think it was late '14 where we closed three branches. Late '14? '13 where we closed three branches and you're right they consolidated three branches and something we tracked those deposit migrations very closely and it's pretty consistent from one branch to the next. So, I think we can project pretty clearly, pretty closely what we might anticipate with these consolidations as well, and I would agree with Jeff. I think it will be a very minor impact on noninterest income.

Thinking about the core fee income that we have in 2015, what do you guys think from a gross standpoint we can anticipate as we look out to 2016? Is it kind of a low single digit number?

What growth again?

Core, fee income. Noninterest income.

Core noninterest income?

Yeah.

Again, Don can help me here. When we're comparing '16 to '15 we have some one time noninterest income numbers that are going to skew that comparison, but we're still looking for a pretty healthy noninterest income growth in '16. On a year-over-year comparison you may not see it, but Don do you have some color on that?

Yeah. I think that again, we had some bigger one time, the two big gains, I think is close to $4 million. There's always other things you can break out, but I think we look at the growth in that area that were pretty solid this year as we have in the past. So, I think we're going to see some really positive growth, kind of similar to where we see loan growth and that same type of growth, noninterest income on the core basis, you takeout $4 million.

Great. Maybe just ask the M&A question a little differently. Has the recent market volatility really impacted seller expectations or is kind of pricing movement a little more favourable towards maybe where you guys envisioned from a disparity standpoint I suppose?

Are you talking on the lending side?

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

Okay. We don't have any deals that can be actually compared to, so it would be just anecdotal in terms of discussions that we may be having with folks in terms of their expectations versus our expectations of value, those sorts of things and it's highly variable. I keep saying, and I'll repeat it again. Banks are sold. They're not bought. So, when somebody comes to the conclusion that they want to look for a partner, as I said earlier, I think we'll be at the table. I do think that as time has gone on, I think people are getting a little more realistic expectation of valuations for the franchises. Is there still a gap between those what willing buyers are willing to pay to willing sellers? Yeah there's that gap, but I think, if they make the decision that they're looking for a partner, it'll likely happen and again I think we'll be at the table in those discussions.

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

I'm sorry. Can you repeat?

I'm just wondering on the tax rate going forward, what's a good number to use.

Well, I would say, it was low -- because this last quarter, because of some of the other adjustments that we had, but I would say, in the mid to upper 27% kind of that range.

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

Brian, as you talked about some of the overextended parts of your commercial real estate market in your footprint, are there any specific areas that stand out?

As to what for the commercial real estate?

The riskier parts of it?

Yeah, I think so. Multifamily I think continues to be that space that we see just huge growth in, especially King County. We're seeing it in Pierce County and Snohomish as well, but King seems to be the huge area of growth. I think the stuff that is nearing completion today, I wouldn't worry too much about it, because I think there is still strong demand, I think the projects that are on the drawing board may start construction at some point in '16. I think that those projects carry with it a much healthier level of risk. I alluded to my comments about concentrations and this is something we take very seriously, at Heritage and I think when you look back at all of the issues that were created in the '09, '10 timeframe, a lot of that was created for banks not paying attention to concentrations and higher risk categories, and that's something we follow very closely. Multifamily would be one, and I think probably certain sectors of office space might be areas that might show some stress in the next few years, but I also want to stress that we continue to see very strong inward migration of population, very strong growth in the tech sector, especially in Seattle. So, while I don't see those stress points yet, they could easily and quickly develop and it's something that we're watching very closely.

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

I think probably a little bit of both know. We're seeing pretty fierce competition at all deal size, all deal types and there's out-of-state, especially on the larger transactions. The smaller transaction is typically local competition, but I don't think we characterize it as just coming from one place. It's coming from everybody.

We have a follow up in queue from Tim O'Brien with Sandler Partners. Please go ahead.

Just talking about multi, do you expect you guys are going to pull back or ease back or step away from growing that book in '16, multi in King County, is that -- are those footings in a decline for if when 2016.

Yeah, a couple of answers to that Tim. We got cautious about multi-family in probably the middle part of '15, not necessarily because we were concerned about the space. We were not concerned, but we were achieving the level of concentrations that we were comfortable with in our portfolio. So, I think it's fair to say that we pulled back on origination of new product in the midway through '15. However, some of the payoff that we alluded to that happened in Q4 came out of the multifamily sector. Not all of them, but several larger deals did come out of the multifamily sector. So, it could be that we would very selectively add back a few to that space, but I think we'll be very selective on the developer, on the location, on the size of product et cetera. Bryan do you have any more color to add to that?

No, I think that covered it Brian. We have customers that do that business and are very successful long-time customers and that's our focus in terms of our lending activity. We've got lots of experience with them and that's our first spot in terms of accommodating [indiscernible] and I think Brian's comments covered the rest.

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

I like that. Love to see those -- if you guys put some vintage detail on CRE in your K we'd appreciate it, I'm sure. Beyond that, would love to see that transcript as soon as you get a chance. So thanks a lot.

Okay, thanks Tim, appreciate it.

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

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