Heritage Financial Corporation (HFWA) Q3 2016 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Heritage Financial Quarterly Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I'll now like to turn the conference over to CEO, Brian Vance. Please go ahead.

Thank you, Tom, appreciate it. Welcome to all who have called in and those who may listen in later in a recording mode. Attending with me this morning is Don Hinson, our CFO; Jeff Deuel, our President and Chief Operating Officer; and Brian McDonald, Chief Lending Officer. Our earnings press release went out this morning in a pre-market release and hopefully you've got an opportunity to review the release prior to the call. And as we go through the call, and also through a Q&A session later, I would ask that you refer to the forward-looking statements in that particular press release. Like to first go through some highlights of our third quarter results. Diluted earnings per common share were $0.37 for the quarter ended September 30, compared to $0.32 for the quarter ended September 30, 2015, and $0.30 for the linked quarter ended June 30. Heritage declared a regular cash dividend of $0.12 per common share and a special cash dividend of $0.25 per common share on October 26, 2016. Return on average asset was 1.16% and return on average tangible common equity was 11.99% for the quarter ended September 30. Total loan receivables net increased $52.6 million or 2.1% in Q3 and increased $176.5 million or 7.4%, or 9.9% annualized, year-to-date. Non-performing assets decreased $3.9 million or 25.2% to $11.5 million or 0.30% of total assets at September 30. I'd like to turn the call over to Don and he will cover a few items from our balance sheet and financial statement. Don?

Thanks, Brian. I'll start on the balance sheet. As Brian mentioned, we had another strong quarter of loan growth with net loans growing 8.4% on an annualized basis for Q3 and year-to-date loans having grown 9.9% on an annualized basis. The loan growth for the quarter was funded by an increase in deposits of $83.5 million. As a result of the strong deposit growth during Q3, our loan deposit ratio decreased slightly to 78.9% from 79.2% at the prior quarter end. Our loan deposit ratio has still shown nice improvement from the 76.6% at year-end. During the quarter, the percentage of demand deposits to total deposits increased to 26.7% from 26.0% at the prior quarter end and total non-maturity deposits to total deposits increased to 88.6% from 87.7% at the prior quarter end. We continue to experience a runoff in CD balances due to the low rate environment. Moving on to some credit quality metrics, we saw a nice overall improvement in credit quality in the loan portfolio. Non-performing loans decreased $2.3 million to 0.45% of total loans at September 30, from 0.55% at June 30. Non-performing assets to total assets also decreased to 0.30% as of September 30, from 0.41% at June 30. The ratio of our allowance for loan losses to non-performing loans still stands at a very healthy 262%. In addition, included in the carrying value of the loans are $14.7 million of purchase accounting net discounts, which may reduce the needs on allowance for loan losses on those related purchased loans. Due to recoveries of loans charged off earlier in the year, we recognized net recoveries of $290,000 for Q3. In addition, we disposed the last of our OREO properties during Q3, realizing a net gain of $131,000 in the process. Our net margin for Q3 was 3.95%. This is a 5 basis point decrease from 4.00% in Q2. Pre-accretion net interest margin increased 5 basis points to 3.76% for Q3 from 3.71% in Q2. The increase in pre-accretion net interest margin was mostly due to increases in pre-accretion loan yields and increases in the yields on investment portfolio. Pre-accretion loan yields increased due to a large loan prepayment penalty realized in Q3 that impacted the quarter's loan yields by 4 basis points. Non-interest income increased $3.3 million from the prior quarter, due mostly to a $2.1 million being recognized on the sale of a loan. The loan was a purchase credit impaired loan obtained in the Washington Banking merger. We've been working on resolution of this loan for some time, and we are glad to be out of the loan with substantial gains. Of the remaining $1.4 million in loan sale gains recognized in Q3, $1.1 million related to mortgage loan sales, and $285,000 related to SBA loans sales. Also contributing to the increase in non-interest income was an increase of $514,000 in interest rate swap income to $742,000 in Q3 compared to $228,000 in Q2. This swap program has been beneficial in meeting the needs of borrowers, while putting floating-rate loans on our books and recognizing a gain at the same time. Non-interest expense for Q3 increased $341,000 from the prior quarter, but has decreased $504,000 from Q3 of the prior year, 2015. The increase from the prior quarter was due mostly to a $735,000 increase in compensation and benefits. The increase in compensation benefit expense was due mostly to additional incentive compensation accruals. And I'll pass off to Bryan McDonald who will have an update on loan production.

Thanks, Don. Today, I'm going to provide additional detail on our third quarter lending results by production area, as well some specific color on our King County growth initiative. In the third quarter, commercial teams closed $158.8 million of new loans, which is down from $211 million closed in the second quarter of 2016 and $210 million closed in the third quarter of 2015. Gross loan totals increased during the quarter by $54 million as a result of the strong level of origination. Line utilization at the end of the third quarter was 35.9% versus 36.9% for the second quarter and 34.6% for the first quarter of 2016. The utilization percentage the last four quarters is down from the 38% to 39% range, which had been more typical the prior two years. The decrease in the utilization rate resulted in a $13.5 million reduction to outstanding loan balances versus last quarter end. Commercial team pipelines ended the third quarter at $248 million, down from $273 million at the end of the second quarter and $310 million at the end of the first quarter. Moving on to interest rates. Average third quarter interest rate for new commercial loans was 3.66% and the average third quarter rate for total loans was 3.89%. SBA 7(a) production in the third quarter included eight loans for $2 million and the pipeline ended the quarter at $14.8 million. This compares to the second quarter of 2016 when we closed 21 loans for $7.3 million and the pipeline ended at $13.5 million. Consumer production during the quarter was $43.4 million, which is in line with the prior two quarters. The second quarter production was $41.4 million and the first quarter production was $42.8 million. The mortgage department closed $50.5 million of new loans during the third quarter compared to $43.6 million in the second quarter and $29.6 million in the first quarter of 2016. The mortgage pipeline ended the third quarter at $53.3 million, up from $38.6 million at the end of the second quarter and $41 million at the end of the first quarter. The current pipeline is comprised of 54% refinanced loans, 39% purchased loans and 7% construction loans. This compares to last quarter's pipeline where refinanced business averaged 50%. Outlook for mortgage is favorable with both attractive rates and a strong purchase market in the Pacific Northwest. Finally, some comments on our King County expansion. As many of you are aware, we have placed additional emphasis on expanding our customer base in Bellevue and Seattle as part of a King County growth initiative since the middle of last year. At the end of the third quarter, our commercial teams in King County had 18 FTEs, including nine commercial bankers. Commercial loan balances associated with the King County commercial team have grown from $145 million at the end of 2014 to $275 million at the end of 2015, and just over $400 million at the end of the third quarter. And the commercial loan pipeline of the King County team ended the third quarter at $67 million. Deposit relationships managed by the King County commercial team have grown from $66 million at the end of 2015 to $97 million at the end of the third quarter. In total, loans and deposits managed by our King County commercial team were just under $500 million at the end of the third quarter. We are very pleased with the reception of the King County market to both Heritage Bank and our commercial banking staff. The market continues to show strong growth prospects, and we will look to selectively add additional bankers as talent becomes available. I will now turn the call back to Brian for an update on capital management, as well as some closing comments.

Thank you, Bryan. In addition to continuing our regular quarterly dividend of $0.12, we have announced a special dividend of $0.25. This follows special annual dividends we have paid each year since 2011. Our tangible book value per share has increased 8.5% year-over-year since September of 2015, which is net of a higher than peer average dividend payout ratio. We continue to believe our strong capital position sufficiently supports our balance sheet risk, our internal growth and potential future growth for both organic and M&A and it also supports a capital management strategy that we have employed for the past several years. I'd like to make a few comments about discount accretion. Because we doubled the size of our company in May of 2014 with the Washington Banking Company merger, we have had an abnormal amount of discount accretion favorably impacting our earnings. When we closed our transaction with Washington Banking Company, we had a total of approximately $50 million in discounts on purchased loans on our balance sheet. As of September 30, these discounts had reduced to $14.7 million. As this discount is accreted, we must find ways to replace this revenue in order to grow our revenue. This accounting issue has muted our stated EPS growth. To illustrate this, our 2016 year-over-year reported EPS growth for the nine months ended September 30 is 4.3%. However, by backing up the impact of discount accretion for both years, this EPS growth is approximately 10.5%. We believe this illustrates the internal non-accretive EPS growth of our company. I realize other banks have also experienced this accounting phenomenon, but I believe because we doubled the size of our company the discount accretion issue has had an abnormal impact on our stated earnings than most of our peers. Furthermore, we estimate that 80% of the $50 million in discounts I previously stated will be accretive by the end of 2017, rendering this accounting issue a much less material issue as we go forward. I've some comments about the outlook for the balance of 2016, and just about the Pacific Northwest economy in general. We continue to be optimistic about the overall economy of the Puget Sound region. There continues to be strong inward migration to our region. Commercial real estate construction continues to be robust and we remain disciplined and we are monitoring our commercial real estate loan production concentration risk. Managing our concentration levels will continue to modestly mute our loan growth. In this past Sunday's Seattle Times the following was recorded as it pertains to commercial real estate construction activity in Seattle. Seattle has more construction cranes than New York and San Francisco combined. Let me repeat that statement, because I think it's a significant statement, Seattle has more construction cranes than New York and San Francisco combined. Seattle has double the cranes than Chicago, Washington DC or Portland. Seattle has an 18 crane lead over second place Los Angeles and has grown 38% in the last year. Also reported in yesterday's Seattle Times, the Seattle's average home price has increased 11.4% year-over-year, whereas the national average is 5.3%. Portland Oregon's average home price increased 11.7%, the highest rate in the nation. What does all this mean? I believe it confirms our belief that Seattle is one of the strongest markets in the US. When I say Seattle, I really refer into the Pacific Northwest in general. It also suggests we need to be cognizant of abnormal growth activities, especially as it pertains to CRE lending. This data continues to show Seattle is growing and also suggests strong corporate development activities that are causing strong inward migration of population which fuels many other sectors. We also need to be cognizant of potential future market bubbles when we experience this type of growth that are substantially stronger than other parts of the nation. All in all, we see this information as positive confirmation we continue to operate in a strong market. And at this point, we still believe current construction is on pace with current absorption. We continue to focus on growing core deposits and specifically non-interest bearing deposits. Intentionally managing interest costs, specifically with our CD balances has the continuing effect of muting our overall deposit growth. While year-over-year total deposits have grown at a respectable rate of 6.2%, our non-interest bearing deposits continue to grow at double-digit rates. Our non-interest bearing deposits grew at an annualized rate for Q3 of 22% and our year-over-year non-interest deposits grew at 13.6%. Expense management continues to remain a primary focus of the company. We are pleased that our overhead ratio has improved again this quarter to 2.81%. This quarter marks the fourth quarter in a row that our overhead ratio has improved or decreased. All in all, we believe the first nine months of performance of the company has been good. That completes our prepared comments. I would welcome any questions you may have and would once again refer you to the forward-looking statements in the press release as we answer any questions you may have. Tom, if you would open the call for questions, please?

[Operator Instructions] And we’ll go to the line of Jeff Rulis with D.A. Davidson.

Just wanted to kind of delve into the margin on the core discussion in the release, just kind of talking about additional pressure there. I guess in those comments, does that assume rate hikes in that discussion?

I'm sorry. What comment is that, Jeff?

In the press release, just talking about loan yields and further pressure. We can -- separate from the release, just broadly speaking the margin outlook and the impact of additional rates, you remind us on the sensitivity. I think it's fairly neutral, maybe a little on the liability side. I can't recall, but just update us on the margin outlook, the impact of rates and a little color there would be great.

Again, we are pretty neutral interest rate sensitivity on that. I think, again if we have small increases like a 25 basis point increase, that does help us some. But even with that, if that's all there is, I think we'll still feel a little bit of pressure on the margin side, but probably less so than we did if rates stayed where they are. If we get another 25 basis point on top of that, I think another 50 basis points could possibly level out the decline in our margins. So that's kind of where I see that right now. I do see that -- I think there is a 50% chance right now that the markets factoring in a 25 basis point increase in December. And if that happens, I think it will slow the decline. But I think it's going to decline, but it's not going to decline quickly. I think we're starting to hit an equilibrium there on the decline of our margins, especially if we get one or two increases in the rate.

Brian Vance, I guess on the dividend, the special dividend, you've talked about capital management, it's sort of one of the tools. But I guess as that relates to M&A, is there any indication of kind of any frustration or any -- I guess things not coming together, is it just a quarter-to-quarter capital management strategy?

I think it's more of a -- not only a quarter-to-quarter, but probably a fairly consistent special dividend management strategy that we've had. As I indicated, we've had a special dividend at least once for each of the past year since 2011. So I think it's probably more of that than anything in obviously, speaking to the continuing strong capital position of the Bank. Is there frustration on the M&A side? Yes, it's -- we closed the transaction with Washington Banking Company in May of 2014, it's been over two years. I think that the M&A activity has been slower in the Pacific Northwest the last couple of years. I do see that activity, I won't say necessarily increasing, but I think that there is going to be some continuing M&A activity and to the extent that there is, we will always be involved in those discussions, and as those opportunities become available, we're seeking them out. I think we may see a little bit of activity in ‘17. But I think it's probably going to be on about the same pace that it has been in the last year or two.

Maybe related to that, and the last question is just that, and I think you guys touched on it, was the just sort of talent acquisition, maybe the temperature of what's out there in availabilities. Is it a fierce sort of marketplace to get people on to the platform or how are those conversations going in terms of talent acquisition?

I'll give you a big picture view and Bryan can give you a little bit more color. Certainly, that has been an active part of our organic growth strategies, especially in King County, in growing out the Seattle piece. It continues to be a part of our overall strategy throughout the footprint and I think that Bryan and others have been pretty active in this. What you probably don't see is, is that there are lenders that retire and move on et cetera and we're constantly replacing those, but we're constantly on the outlook for lenders throughout the footprint. Bryan, other thoughts?

Yeah, I think, Brian hit the key points, we’ve really -- been really active in the market, all the time, looking for quality talent and people that are looking for a good long-term opportunities that are a good cultural fit to the Bank and those bankers that have come across that meet on those elements that's been a really positive experience for them as well. So, from a reputation standpoint, the Bank has a good reputation and other bankers are open to talking to us when we're recruiting. And as Brian noted, when we have openings, we accelerate those recruiting efforts to look, to fill them, but the general comment I'd make is the Bank is well received by the other bankers in the market and we're really looking for people that are looking for a good long-term opportunity to have a cultural fit with the Bank.

Jeff, I would add to that comment as well. For the first time in this call, we detailed some numbers for all of you for our Seattle expansion. And then I think when we look back on that, which is just a little over a year old now, we've got almost a total of $500 million in the loans and deposits with that strategy. It's working and then we're very pleased with the results of that. So that continues to show us the value of finding lenders that as Bryan just talked about, fit with our culture to continue to grow the organic side of the Bank.

And we’ll go to the line of Matthew Clark with Piper Jaffray.

First one, just on the weighted average rate on new production, just curious what it was this quarter. I think it was 4.06% last quarter.

Yes. It was 3.89% on total loans for the quarter. And it was 4.06% in Q2, that's correct.

Okay. Is that more just of a mix change or is that just incremental pressure?

Yes, you probably saw we did a number, an elevated number of swaps during the quarter and those are of course all LIBOR-based and so that had an impact on that average rate this quarter.

Tend to be lower rates, but of course variable to the Bank, so there's value there.

And on non-interest expense, I think you guys have done a good job of keeping that run rate in that $26.5 million to $27 million range for almost two years now. Just curious what your thoughts are on the expense outlook as we get into next year in that related run rate?

Yes. As I said in my comments Matthew, we have -- and I appreciate you noting that as well, improving the overhead ratio for some time now and it is our intent to continue to do that. I think we ended Q3 at 2.81%. Don, is that right 2.81% overhead? We need to continue to move that lower, I think on a run rate basis by the end of 2017, we need to be in the 2.70% range. I don't know -- I don't recall, I know we've done a lot of analysis to this, but I think expenses essentially if we are to remain in that 2.7% range of overhead is, will essentially remain flat again. Is that a fair statement Don?

Correct. Yes. Year-over-year.

Yeah, year-over-year.

And your reserve coverage ticked up this quarter, kind of looks like it changed direction at least after the last couple. Just curious with the reserve build you did here this quarter and I think the increase in potential problem loans, that $10 million, just wondering if you are looking to step up coverage ratios from here or just kind of keep them in this range?

Well, Matthew, as I always remind our investors, this is a credit quality or deterioration, whatever the case may be, it's never linear. I think we go back to Q2 for us and we had a sizable charge-off and we had a sizable recovery. I think there's lots of ebbs and flow. As I think consistently stated, as we move through this year, I continue to be very comfortable with the credit -- overall credit quality of our portfolio, potential problem loans ticking up don't necessarily concern me. I think that's just an active management of the portfolio, as we see weaknesses develop, downgrade loans, et cetera. So we're moving loans out as well all the time. I think as it pertains to just the overall allowance or coverage, it did move up a little bit and I think probably it's more really a nod to the strong loan growth for the last several quarters than anything. And I think additionally as the discount accretion runs off, because there's a portion of that, that is for credit quality, I think that that needs to also be reflected and maybe a slight increase in the overall allowance as some of that discount runs off. So I think it's a combination of a lot of things. So I'd guess I would just leave you with the thought that I continue to have very strong confidence in the overall credit quality performance of the company.

Okay, and just the last one from me. You mentioned the crane, the indicator in Seattle. Just curious, which banks are financing that high-rise construction?

Most of the cranes in Seattle, and I realize that this information people will take differently. But I think when we're talking about Seattle proper, most of that is -- actually most of it is residential cranes, in other words cranes for high-rise apartments, high rise condos those sorts of things, which has really been a tech fueled process, and primarily from Amazon. And that's not national money, that's not being funded with local banks. So for the most part that doesn't affect regional banks. I don't think regional banks are necessarily lending on that. I wouldn't say that there isn't some of that, but I think it's a relatively small portion. I think where it does affect the industry is there’s always the ripple effect in the valuations, the cap rates, those sorts of things have a tendency to affect outlying markets, which then that does affect regional lenders, community bank lenders, and it affects the cap rates and the valuations. And so I think that's where we need to especially be careful with, as we look at other projects. But that downtown Seattle stuff is mostly national REIT money that sort of thing.

And next we’ll go to the line of Jacque Bohlen with KBW.

Bryan, I know that this is a very difficult question to answer, but do you have an indication on, given that we're about a month into the quarter, on what your swap income might look like in 4Q? Meaning, I know 3Q was elevated, but do you expect it to stay elevated or should it trend back down?

We have a pipeline on the swap side going into the quarter in terms of notional just under $40 million. So, we do expect strong swap income as that closes. Q3 was certainly our highest quarter to-date at the 742. So depending on how much of that pipeline we close, it would likely be below that number. Again, difficult to predict exactly when those will close. And this is something that a program we've started last year and we had some swaps closed in the second half of the year and are using it to contend with some of the more competitive 10-year fixed rates being offered by the competitors, particularly with the yield curve so flat -- better than putting on high 3s 10-year fixed rate.

No, understood completely. The ramp-up that you're seeing, is it driven more by interest rates or more by maturity of the program?

It's both. There's just an increasing demand for long-term fixed rates out in the market, just because they are so low. And so as loans come up for renewal or we're looking at new projects there just seems to be an increasing number of competitors providing a 10-year option. I'm not saying everyone is doing it. It is just over time with rates low, the demands continued and then more people offering that. Customers are seeking it. And again, with the yield curve so flat, at least as it becomes real competitive, we tend to look more to the swap option versus a portfolio option as a way to contend with that.

And then, Brain Vance, I know in the past we have discussed the concentrations that you have by portfolio, by geography within the individual portfolios. Has any of those that you have in place, have there been any changes over the last 90 days?

No, I think we've -- I mentioned in my comments, Jacque, that we remain very vigilant in managing concentrations, as you just noted, in a variety of ways. I think that there are some buckets that we have seen increase in the last -- I'll say quarter or two. And then that would be generally the construction -- commercial construction buckets have increased, as you would expect with my comments on just the general construction activity in the area. And when we break that down, it's a little bit of everything. There are some multi-family, although we have had a moratorium on multi-family lending. There is still some stuff that is flowing through that. There is some office construction, very little single-family construction, but a little bit, and that's building slightly. But it's still just a very small part of the overall concentration. So I think other than just the construction changes, Bryan, can you think of any other changes in that bucket?

That's the most dramatic. If you look at the pipeline differences from earlier in the year, just we had a lot of construction in the pipeline, kind of coming into the year and then as we closed out that pipeline, we haven't filled with this quickly and just trying to settle out our exposures in some of those categories, not all of them. So that's been the biggest impact in 2016 as related to the construction.

And I would add for everyone's benefit that when we talk about a moratorium on multi-family, it is not necessarily to suggest that we have concerns about that market, because as I also said in my comments, the new stuff that is coming online has been quickly absorbed. There's just not an issue. But what we're doing is just managing our concentration level. We are just saying, as in with any loan type, we do not want to build an improper concentration in any one loan type. So I don't want people to think that we have concerns about multi-family, it's just that we've set that level and that's where we're managing to.

And do you have a sense, and I realize it's a very difficult question, but do you have a sense for how much the concentration levels that you would hereto are muting your overall loan growth?

That's a difficult one, the answer is you just suggested, Jacque. We could obviously grow loans stronger than the pace that we are growing. I said basically 10% on a year-to-date basis, that's a strong loan growth. I realize that some folks are growing more than we are. As I always remind folks that if you're growing loans at -- pick a number 10% and GDP is growing at 2%, you're stealing 8% of the business, you better be stealing the right 8%. So I think that as we look at our markets, which are strong and we have a lot of confidence in our markets, not only today, but I think really throughout ‘17, we have a pretty good feel about where our loan growth is, where our loan growth will be coming for the next year. So while we feel good about that, I think we need to be very prudent with all of our loan decisions. The valuation issues that I addressed a little bit ago in terms of real estate valuations and their increases, I think that anybody needs to make sure that you're dealing with cap rates you're comfortable with, not only today, but on a long-term basis, the appraisal which you're looking at, is it valid. And then what's your underwriting rates on the loans and I think that as we apply those judgmental factors, whether it's an underwriting rate, whether it's a concentration risk, whether it's a cap rate or appraisal issue, sometimes that screens out loans, that screens out production. And that's why I continue to feel very strongly about the quality of our overall portfolio. And I feel strongly about the growth, not only today, but for the next, I'll say, 15 months or so. So I don't want anybody to feel that we are negative on growth, because we're really not, but I also think that we are prudently managing the growth as well.

Jacque, it's Jeff. I think another way to characterize it is we have not changed the way we approach the market. As kind of the final words Brian historically has talked about, we focus on the middle of the fairway, and that's the message we still deliver to our lending team and I think we're pretty focused on staying there.

Next, we’ll go to the line of Tim O'Brien with Sandler O'Neill.

Bryan, another way to look at what you were talking about relative to what Jeff gave as far as the remaining purchase discount accretions, Jeff said there was about $16 million remaining in purchase discount accretion, is that correct?

About $14.7 million.

Bryan, you said that by the end of ‘17, I guess based on accretion schedules that $50 million number, purchase accretion number that you had several years ago after the WBCO deal that's going to be down by 80% by the end of ‘17, or call it -- it will be $10 million. So it's a better way to back in about $4 million in scheduled accretion from now through the remainder of ‘17, is that a fair way to look at it?

Yes, but it's an estimate. And so, please keep that in mind.

Scheduled right, Bryan?

No, it's not scheduled, but because we can't predict it. But it's certainly an estimate. Don is it --

Well, scheduled is the fact that -- it's always dropping, but like we have seen in prior quarters, sometimes we get a large payoff that can pop that up and it does happen obviously. We have some quarters that are higher than others, even though we think it's going to drop. This last quarter, we've got $1.6 million. I would say, again, the next few quarters, we're going to see it -- in the next couple of quarters maybe between $1 million and $1.5 million and after that drop under [ph] $1 million. And so that's why I think that it's going to be -- 80% is -- it could be actually more than 80% down, it could be under $10 million by the end of ‘17.

And then actually, Jeff, or actually Don, you mentioned this that prepay piece of NII that you guys captured, was that one loan or was that more than one loan?

Yes, that was just one loan.

And how big was that on a dollar basis?

I think it was around $10 million.

The loan, not the prepayment penalty. That was the loan, total loan. What was the prepayment portion that rolled to NII?

About $249,000.

On a $10 million loan?

Yes.

Roughly $10 million.

And then a question for Brian. Can you remind us what your last -- you've, in the past, kind of given indications about your outlook or a range of where loan growth might come in for the year and you've alluded to maybe having a better sense of that. Now what was the last guidance range you gave for loan growth for ‘16, and any comments on any changes you might make to that guidance from here?

We've been really consistent at 6% to 8%. Obviously, we're running at year-to-date 9.9%. I don't think that we're going to end the year in a double-digit growth range, I think at the same time I think we will probably exceed our guidance. That's the reason we're being a little hazy on this. There's a couple of things. One is that our pipeline is cyclical, and the pipeline has -- as in Brian's comments, has trended down a little bit. We get some Ag payoffs in the fourth quarter. Things just slowed down up here in the winter months. And so I think as we go through the Q4, loan growth, I think is certainly going to -- not certainly -- likely to exceed our guidance of 6% to 8%. I think as we move into ‘17, I'm probably going to stick to my 6% to 8% guidance at this point. But again, we remain very, very confident and optimistic about the Pacific Northwest in all those numbers I shared with you, just in terms of growth. But that's probably what I would say at this point, have we not completed our budget yet for 2017.

And kind of speaking to your forecasting ability, who's going to win the PAC-12 in football this year?

Well, of course, Utah at 7 and 0, I think they got a good shot at it. But if -- we're going to bore everyone else on the call here, but Utah and Washington State are the only two undefeated teams in the PAC 12. And then I can add my Boise State Broncos to that, because they're undefeated in PAC-12 play at 2 and 0 as well. There you go. That's a good one for you Tim. End of Q&A

[Operator Instructions] There are no further questions in the queue.

Tom, we appreciate everyone calling and appreciate you hosting the call. And we may see some of our investors -- I know we'll see some of our investors next week at an investor conference down in Southern California. So look forward to discussions there as well. Thanks everybody. This concludes our call today.

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