PrivateBancorp's (PVTB) CEO Larry Richman on Q4 2015 Results - Earnings Call Transcript

| About: PrivateBancorp, Inc. (PVTB)

PrivateBancorp, Inc. (NASDAQ:PVTB)

Q4 2015 Earnings Conference Call

January 21, 2016 11:00 AM ET

Executives

Jeanette O'Loughlin - Head of IR

Larry Richman - President and CEO

Kevin Killips - Executive Managing Director and CFO

Kevin Van Solkema - Executive Managing Director and Chief Credit Risk Officer

Analysts

Chris McGratty - KBW

Stephen Alexopoulos - JPMorgan

Jon Arfstrom - RBC Capital

David Long - Raymond James

Terry McEvoy – Stephens Inc.

Jared Shaw - Wells Fargo Securities

Brad Milsaps - Sandler O'Neill

Casey Haire - Jefferies & Company

Operator

Good morning and welcome to PrivateBancorp, Inc. Fourth Quarter and Full Year 2015 earnings call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for questions and answers after the presentation. Please note that the company will be taking questions from individuals and companies that have been invited to attend the live portion of the conference call.

I will now like to turn the call over to Jeanette O'Loughlin, Head of Investor Relations.

Jeanette O'Loughlin

Good morning and welcome to PrivateBancorp’s fourth quarter and full year 2015 earnings conference call. Participating on the call today are Larry Richman, PrivateBancorp President and Chief Executive Officer and Kevin Killips, our Chief Financial Officer. Kevin Van Solkema, our Chief Credit Risk Officer will also be available for questions.

PrivateBancorp’s fourth quarter 2015 earnings press release was distributed this morning over the newswires. The release and the financial supplements with additional financial tables are available on our website at investor.theprivatebank.com.

Before we begin, I would like to read our Safe Harbor statement. Statements made during this conference call that are not historical facts may constitute forward-looking statements within the meaning of federal securities laws. Management’s ability to predict the results or the actual effects of future plans or strategies is inherently uncertain.

Factors which could have a material adverse effect on our operations and future prospects are disclosed in the filings we make with the SEC, including our Form 8-K dated today, relating to today’s earnings release. You should consider these risks and uncertainties when evaluating any forward-looking statements and undue reliance should not be placed on such statements. The company assumes no obligation to update any of these statements in light of future events.

Now, I will turn this call over to Larry Richman, President and CEO of PrivateBancorp.

Larry Richman

Thank you, Jeanette and happy new year everyone. Let me start by saying that 2015 was another strong year of profitable client growth. Our business development and relationship management expertise drove year-over-year gains in revenue, operating profit, net income, loans and deposits. I am pleased with our results and the value we continue to create for our shareholders.

With this in mind this morning I will discuss our fourth quarter and 2015 results, what our performance says about the business we are building and how we are positioned for 2016. Kevin Killips will discuss key results in greater detail and then Kevin, Kevin and I will take your questions.

Net revenue was $52.1 million up from third quarters 2015 and fourth quarter 2014, Q4 benefited from solid loan growth in average loans, which were up nearly $400 million and an increase in loan fees due to early loan repayments. New loans to new clients were nearly $500 million, which was higher than any other quarter last year. About 75% of that growth is in our commercial and industrial portfolio.

We had solid loan growth from existing clients both C&I and commercial real estate. There was a good and diversified mix of new clients and existing clients in a variety of industries both in Chicago and in our regional markets. At the same time weighted more towards the end of the quarter we saw higher level of paydowns as clients repaid or reduced lines of credit.

Additionally payoffs were significantly higher than past quarters due to sale of businesses and refinancing in long-term market. Net loan growth was over $180 million. We had cross-sell business in the fourth quarter. Fee income was higher largely on a strong quarter from syndications and capital markets, which also benefited from a large credit valuation adjustment. Syndications had a good quarter distributing deals originated in Q3 and Q4 and I feel good about the Q1 pipeline.

Both interest rate derivatives and foreign-exchange in our capital markets business had good quarters as rate movements and market volatility led to good deal and we believe this gives us good opportunities going forward as clients consider ways to mitigate risks in their business.

Overall expenses were down from the third quarter and flat to the same period a year ago, largely on lower credit cost. Kevin will talk more about this in a moment. I like the strong growth in client deposits in the fourth quarter. New deposits from new clients were approximately $200 million and net deposit growth was almost $450 million.

To sum up, the quarter our top-line revenue growth and prudent expense management drove a 12% increase in operating profit from the third quarter and impressive 34% increase from a year ago. A really nice quarter for us.

Now let me turn to our full year results, which continue to show the strength of our core operating engine we have built. I think there are few key highlights that really capture our year. First loan growth, we continue to generate quality profitable client relationships through our selective and disciplined approach to business development. This led to total loans at year-end of $13.3 billion compared to $11.9 billion at the end of the 2014, a $1.4 billion increase. This growth in loans helps drive a 13% increase in net interest income year-over-year. Loans to new and existing clients is a key to our strategy to cross-sell other product solutions and generate fee income.

Second deposit growth, our teams understand the importance of deposit gathering as the raw material to fuel our loan growth. Once again this year, our teams grew deposits at the same strong pace we grew loans. Total deposits were $14.3 billion at year-end 2015 up from $13.1 billion a year ago.

Finally discipline, this extends across several areas. We are disciplined in growing our business with a focus on responsible growth. We want to ensure we get more than our fair share of clients in prospect financing opportunities, which remained disciplined to not do deals that present unacceptable levels of risk and return. We are building quality relationships and credit quality continues to be a priority of our team. We are disciplined in expense management. We continue to invest appropriately to grow our business in infrastructure, technology and our talent while keeping a prudent management of overall expenses and efficiencies.

We expect to continue to achieve operating leverage as we build our business and realize the benefits of interest rate increases. We are disciplined in our decision making to ensure we are investing wisely in building relationships with our clients and generating improving value for our shareholders overtime as we build our business.

Now I want to spend a moment talking about the business we’ve built. As I look back on the year, our growth continues to come from clients in traditional Midwest industries such as manufacturing, distribution and professional services as well as our specialty businesses where we have a distinctive expertise and knowledge. These include healthcare, construction, engineering, insurance, technology, security and financial services. Commercial real estate also had a very strong year with a good balance and diversity of property types and select client relationships. I continue to be comfortable with our two third C&I and one third CRE and consumer mix in our total portfolio.

The environments will remain competitive and I am confident in our ability to continue to compete effectively while remaining disciplined in our approach. Our clients and prospects continue to feel good about their business fundamentals and opportunities generally. However they remain cautious given the geopolitical events the recent volatility in the U.S. and global markets and other uncertainties. They are looking for ways to achieve their business goals and as trusted advisor, we continue to have opportunities to serve and support their banking needs. Our pipeline remains solid with good new C&I and CRE opportunities. We have almost 2,400 strategic commercial relationships. Our growing client base along with our active new business develop will lead to more opportunities across our business lines overtime.

Now Kevin will give you a bit more detail on some of our key results. Kevin?

Kevin Killips

Thank you, Larry. Let’s start off by talking about the December rate move and how it impacted us. We remain highly asset sensitive. About 96% of our loans continue to be variably priced with about 70% of total loans indexed to 30 day LIBOR. During the quarter, 30 day LIBOR moved from 19 bps to 43 bps with the acceleration towards the end of the first week in December. Most of our LIBOR book re-prices at the beginning and the end of each month and therefore we did not see a material impact from December’s moves in 30 day LIBOR. Our prime book which accounts for approximately 17% of loans moved with the fed increase in the last 16 days of the quarter.

As we have discussed we do have floors in place, but only about 10% of our variable book has floors in effect at year-end. When you put that all together the impact of the rate rise was a modest two bps to fourth quarter NIM due to the timing of loans re-pricing the benefit will be more evident in the first quarter loan yields. As an illustrative example if we consider our variable book at December 31, which is about 96% of total loans along with 30 day LIBOR at the same point 43 bps and all other things being equal such as loan mix, the level of loan fees and hedging loan yields could expand between 14 and 17 bps versus quarter four 2015.

Rates also had a positive impact on our capital markets revenue increasing $3.2 million from Q3 largely due to changes in CVA, compared to the third quarter CVA increased by $2.3 million as medium term rates increased at year-end.

Turning to net interest income, we grew NII 4% compared to the third quarter, primarily due to growth in average loans. Net interest income also benefited from significant fees of about $2.5 million driven by early loan repayments. These fees helped to drive the 2 bps increase in NIM from the prior quarter, overall loan yield trends without the impact from fees and hedging remained relatively stable.

Taking a look at our cost of interest bearing deposits, we saw a small increase from Q3 primarily related to approximately $1.5 billion in deposits linked to Fed fund pricing. From a NIM perspective, the 9% average growth in non-interest bearing funds primarily DDAs offset the above mentioned cost of funding increase compared to the third quarter. Non-interest expense was down slightly compared to the third quarter as higher comp expenses were offset by lower other expenses, primarily related to the provision for unfunded commitments.

During Q4 we released $3.5 million of the reserve for unfunded commitments largely reflecting one credit that we discussed during Q3. The related letter of credit funded during the quarter and was reflected in Q4 charge-offs. Our efficiency ratio was 49% for the quarter compared to 52% in the third quarter, in comparison the four quarter trailing average was 53%. Looking ahead first quarter non-interest expense will include seasonally higher payroll taxes and employee benefits.

Given the overall credit environment, credit metrics remained in a good place. At quarter-end, nonperforming assets as a percentage of total assets were 35 bps. The provision for loan loss for Q4 was $2.9 million compared to $4.2 million in Q3. The reduction in the allowance and the provision expense from Q3 was influenced by changes in the composition of our loans including commercial loan repayments and growth in CRE, some portfolio movement including improvement in the risk ratings of several commercial loans and a lower specific reserve requirement on impaired loans.

Turning to deposits and funding, deposits increased 3% from September 30th primarily driven by higher non-interest bearing and interest bearing DDAs. Historically, we have seen our commercial client base increase their deposit balances in the second half of the year, resulting in some periods of uneven deposit growth. Considering our deposit growth we rolled off about $140 million of our traditional brokers, reduced our repos and repaid some shorter term FHLB funding during the quarter, at year-end our loan to deposit ratio was 92%.

And with that I’d like to turn it back to Larry.

Larry Richman

Thank you, Kevin. I continue to be confident in our execution of our commercial banking strategy as we responsibly build our business and create value for our shareholders. We leverage our expertise in commercial banking, private wealth and community banking to serve clients across our markets and in all of our regions. Our experience, our focus on relationships and the care we show to our clients and our communities is which sets us apart.

Finally I want to thank everyone on the PrivateBanc team for their commitment to our mission. Your hard work and dedication are the driving force behind the results we achieve; hands down we have the best team in banking. Thank you. Operator, please open the lines for questions.

Question-and-Answer Session

Operator

Thank you, sir. [Operator Instructions] Your first question comes from the line of Chris McGratty with KBW.

Kevin Killips

Hi, Chris. Good morning.

Chris McGratty

Hey, Kevin. Kevin [indiscernible] got the NIM, all else equal I think the 14 to 16 basis points was that a first quarter kind of, Kevin?

Kevin Killips

Yeah, Chris. If you go back to my comments it relates to if we took the loan book we had a 12/31 and essentially froze that the variable book. The rates stay the same, LIBOR finish the year with 43, the Fed fund rates stays the same as it was at year-end and we just don’t look or just discount the effect of fees or hedging the pure loan yield would move mathematically somewhere between 14 and 17 bps on a comparative quarter basis into the first quarter and we are only talking about the first quarter there.

Chris McGratty

Understood. I’m interested -- that’s a good color. I am interested in the other side of the input to the margin the deposit cost it saw a little bit of an increase in a couple of your buckets. I’m interested if pricing has moved up at all in your market given the Fed move in December and whether you guys are actually trying to raise rates keep deposits?

Kevin Killips

I think what we are seeing and I’ll take half and then I’ll turn it over to Larry to get a little bit better client perspective. But the one thing we did see the reason we called it out was those about $1.5 billion or so of primarily money markets which primarily are program deposits that are indexed to Fed or Fed fund effective. So those moved from December 16th forward given the rate rise. Generally at this point we have not seen a significant movement or significant action from a pricing perspective on the funding side. But we are going to have to keep our eye in it you know our deposit base is largely based on commercial clients and commercial clients have a tendency to probably act a little differently and if this was a very granular retail book. So we’ll see how it goes, but we are going to keep our eye on it. Larry?

Larry Richman

Yeah Chris. We are not seeing any significant pressures to-date.

Chris McGratty

Okay. So kind of wrap all the comments together and understanding loan fees are kind of a wind card. But your margins kind of been trending up the last two three quarters, is the expectation based on the Fed move in December that we start to move kind of consistently off of the 325 to kind of north?

Larry Richman

Could you repeat that last one Chris? Because you broke up.

Chris McGratty

Yeah, no problem. I guess the margins increase the last couple of quarters and given your comments understanding that loan fees are a bit volatile, but kind of where we are with of rates and your comments on deposit pricing is the expectation that the 325 margin kind of moves north from here?

Larry Richman

I think if we just take the mathematics of the full impact of the December rate rise playing into the first quarter and I think we know mathematically that’s going to work. We do have some volatility with fees and I think cost of funds will see I would expect based on that mathematics that the NIM could move up.

Chris McGratty

Okay. Last question on the margin and I’ll hop out. The trust preferred are still out there I know you guys have been hesitant to touch them any update there?

Larry Richman

No, Chris. The same is my usual answer, we are studying on it. We understand it and given how the business is developing we don’t have any imminent plans.

Chris McGratty

Thank you.

Larry Richman

Great. Thank you, Chris.

Operator

Your next question comes from the line of Stephen Alexopoulos with JPMorgan.

Stephen Alexopoulos

Good morning, everybody.

Larry Richman

Good morning.

Stephen Alexopoulos

Not to be the dead horse about how the margin. Kevin, could you just help us think through a range of where NIM should be in the first quarter through the exercise you describe because there is other puts and takes right with loan fees being strong deposits are going reset higher. So can you give us some parameters of where do you think margin actually falls out the first quarter?

Kevin Killips

I’ll give you some drivers Steve and I’ll leave you -- to you guys. Okay, how is that sound?

Stephen Alexopoulos

Okay. Fair.

Kevin Killips

So if again I’ll repeat, if we take the book that we had at 12/31 and as I said most of the loans in our variable books re-priced at the beginning of the quarter we get the full benefit of that in January. Of course that’s going to be very constructive somewhere in the neighborhood of 14 to 17 bps quarter-on-quarter that’s as on the yield. If we talk about the impact of just those indexed that should probably be all things being equal, which they never are, but if they were that will probably be worth, could be worth somewhere between 3 or 3.5ish on the cost of funds if that’s the only thing that moves. Then I go to loan fees we talk many times about loan fees, we believe that there is probably about 8 bps of what I’d call variable or volatile loan fees and that could play into the mix too. So it seems to me that if you lay that all together that would suggest at least arithmetically that NIM could push higher compared to the fourth quarter.

Stephen Alexopoulos

That’s actually very helpful thank you, Kevin. Just on the expenses, there is quite a bit of movement in the individual lines in the quarter. Should we think about $83 million as a decent run rate heading into 1Q with the caveat being that we’ll see a seasonal increase that Kevin mentioned?

Kevin Killips

Well what -- this is Kevin again. So if I go back to what we said there and we look at the fourth quarter, one of the items that we called out was that unfunded reserve releasing itself in the neighborhood of I think we said in the neighborhood of about $3 million in change. I would expect that that would probably be added back so that would be an unusual item of deduction if you will. I think if we then think about the seasonal impacts whether it’s from the FICA other taxes and then the frontloading of 401-Ks as you mentioned. I think those would be the true major things that I look at as we move into the -- into next year.

Stephen Alexopoulos

Okay, great. And then just one final one on credit, anything on the horizon keeping Kevin Van Solkema up at night? Thanks.

Kevin Van Solkema

Good morning, Steve. Overall asset quality looks a lot like it has over the last year or so. I think the last time on the call you were probing a little bit about the same issue about what’s my view on the cycle and how deep are we into the credit cycle. I don’t really take a view on that, but we spent a lot of time with my team looking forward and looking for any systemic weaknesses or patterns industry themes. And particularly looking at credit migration of credits moving into special mention, certainly potential put on loans are we seeing any patterns of that migration a root cause. So I’m not seeing it, I mean there is a lot of headline risk out there for sure. We just remain really diligent with through things, but I’m not seeing it at the moment.

Stephen Alexopoulos

Okay, thanks for that Kevin and thanks everybody for taking my questions.

Larry Richman

Thanks, Steve.

Operator

Your next question comes from the line of Jon Arfstrom from RBC Capital.

Kevin Killips

Good morning, Jon.

Jon Arfstrom

Good morning, guys good morning, Jeanette. Just a one follow-up on margin on funding cost. So you’re just saying Kevin Killips, other than the index money markets you’re not really seeing any funding cost pressure yet?

Kevin Killips


Yeah I think that’s fair Jon. But as I said given the commercial nature of our book, it will probably perform a little more sensitively than a real granular deposit book. So we’ll keep our eye open for it.

Jon Arfstrom

Okay. And then Larry on kind of new deposits coming in and even new deposits from new clients. Is there any ask for greater compensation on deposits there?

Larry Richman

Nothing out of line that I guess I could know. We’re sensitive the new deposits coming in from new clients are based upon overall relationships in servicing and the quality of the relationship and the bankers’ relationship with these clients. So there is really nothing it’s not driven by price, it's being -- you have to be clearly -- we have to be competitive. But it’s not driven by price it’s driven by the relationship.

Jon Arfstrom

Okay, that makes sense. And then just the comments on the Q4 growth and the pipeline Larry you alluded to in your prepared comments on the paydowns. Obviously averages were up in period and were still strong but quite the strong as the averages talk a little bit about the follow through that you’re seen in the Q1 pipeline and if there is anything unique or specific in that the Q4 paydown numbers other than just the typical year-end items that typically happen?

Larry Richman

Sure Jon, it was an interesting quarter and generally I feel good that there is -- we have a solid pipeline of new business opportunities that we’re seeing both from C&I and CRE and that’s been pretty good pretty consistent at this point in the quarter. The average growth was 400 for the quarter, the point on point was 180 and what really has changed is a few things one, we had better, more active new loans to new relationships of about $500 million, which was the highest over the last five quarters.

The activity during the really mostly end of the quarter in the call it December time period had two things happen, one we had some payoffs and this occurred in a number of different ways and I’ll call this success. We had a number of clients that improved and build their business along with the relationship they had with our bankers that were able to realize some really good sales of their businesses because of the appropriate good values, the liquid markets, the strong markets and took advantage of it. So we ended up seeing a number of clients more than normal sell and close before the end of the year.

At the same time we also saw some property sales in commercial real estate that took place similarly because of the long-term markets being good and the fact that these were good properties that had been improved. We also saw that paydowns at the end of the quarter had both lines of credits that reduced and this was about $200 million higher than cost of five quarter average. Both, I think it’s mostly seasonal Q4 clean up at the end of the year, but we saw a little bit more that this quarter at the end than we did in the past as well.

So I think all told I feel good about the business and good about the opportunities but there is a lot of changes that take place in a commercial book and clearly we saw that in Q4.

Jon Arfstrom

Okay, all right that’s helpful. Thank you.

Larry Richman

You’re welcome.

Operator

Your next question comes from the line of David Long of Raymond James.

Larry Richman

Good morning, David.

David Long

Good morning, everyone. Question looking over the next couple of years you guys have obviously grown organically very nicely, but as you look out over the next couple of years do you see any opportunities to potentially acquire another depository institution or an asset generator? And then how do you weigh that against opportunities in the marketplace to hire additional producers and where may some of those opportunities be?

Larry Richman

Sure, David I feel really good about our position and the opportunities that we have over that longer term time horizon. Our focus is organic and we like the position and sort of the opportunity we’re in and again just refresh we’re a middle market Bank in Chicago in our regions and our specialties including good business in commercial real estate. And so all of our products and clients are really focused on that, but plus the strong business we have in wealth management and our community banking business. So there is a few things that end up happening we will probably continue to opportunistically look for quality additions to the team where they are additive.

We opened up an Indianapolis office over the last quarter, which we think similarly gives just a little more regional expansion in a market that we know that we serviced before with some really good talent and I think that’s a nice opportunity for us as well and so adapt within. And then finally also we built a really good training program that’s given us the ability to leverage our bankers and leverage our expertise. So that’s the organic strategy.

The M&A strategy is maybe I’ll call it likely overtime, but again this is very disciplined and very centered on what can supplement our current business not to alter or change the business we worked so hard to do. So it will really be primarily maybe funding deposit channels to supplement our business, but there’s nothing eminence we’re very active in the market as everyone else is in terms of knowing what’s available. And we’ll take a discipline look if it’s right, but again nothing eminent.

David Long

Excellent thanks for the color Larry.

Larry Richman

Thank you.

Operator

Your next question comes from the line of Terry McEvoy with Stephens.

Larry Richman

Good morning, Terry.

Terry McEvoy

Hi, good morning. A question for Kevin, I have my notes here the loan fees contributed 3 basis points to the NIM in the third quarter, did I hear you correctly was that 8 basis points in Q4?

Kevin Killips

Yeah because if last quarter we said that number was close to 5 so that moved up to 8. So we’re kind of at kind of what we’ve seen is the higher end if not the highest end of that kind of variable of volatile range because we think that historically that’s kind of been bottoming out around 20 and it’s kind of moved between 20 and up. So I think this quarter given the high level of payouts and especially as where some of those payoffs and payoffs came from that really was very constructive as it related to putting fees into the P&L this quarter.

Terry McEvoy

Okay. And then how much of the $3.2 billion of brokered deposits re-price off of 30 day LIBOR?

Kevin Killips

I would say that that number is about to $1.5 billion I have talked about, the $1.5 billion primarily not perfect but primarily.

Terry McEvoy

Okay. And then just a question for Larry, you talked about the pipeline being solid and you also talked about maybe some uncertainty or concern among some of the business owners that you stay in touch with. How should we think about maybe some disruption in Q1 given what’s going on in the markets and the potential for kind of deals being pushed out given that heightened level of uncertainty.

Larry Richman

Yeah, just couple of views and this is my business environments view. But again this is my view more based upon active conversations and this is with clients and bankers and others not an economic report. But I think we’re seeing good confidence in performance of about client base generally, but nothing robust. But we’re also seeing that it’s being tempered some. And I think there is a general sense of maybe I’ll call it increased cautiousness because of the volatility that’s taken place along with all of the geopolitical and macro concerns.

And so I think that’s tempering and it’s not really changing strategy, we haven’t seen clients making moves to do anything different. But at the same time I think that will cause that conservative approach is appropriate and frankly where we have our eyes on that and I think that’s prudent from a business perspective. The Midwest and Chicago just to sort of go from the [indiscernible] to the -- we’ll call it to the local where we serve primarily. It’s really still big and diversified and if we’re seeing any weaknesses that’s maybe coming in some early signs in industrial. But those are really ones that are more global and energy related, nothing of any significance it’s not really impacting consumer, manufacturing or business that we’ve seen and services in some of our specialty still represents really -- also really good opportunities.

And so it’s very competitive, it’s we’re in a good position we’re seeing good activity. Our reputation and our ability to execute has really been -- has allowed us to continue to be in a strong position. But we’re going to be selective and disciplined but we’re seeing good opportunities. So nothing dramatic has changed despite the incredible volatility that the markets are having generally.

Terry McEvoy

Thanks everyone.

Larry Richman

Thank you.

Operator

Your next question comes from the line of Jared Shaw with Wells Fargo Securities.

Jared Shaw

Hi, good morning thank you.

Larry Richman

Good morning.

Jared Shaw

Just maybe closely upon those $1.5 billion of deposits linked to Fed fund, should those move basis point per basis points with the Fed funds or is there is a step down index on that?

Kevin Killips

I think because some of our are Fed funds and some of our Fed funds the effect of it doesn’t capture the whole move, but I would say Jared from a practical perspective, I would say that it probably covers point-on-point close enough.

Jared Shaw

Okay. And is that area you’re growing or are you able to either you cap in at the $1.5 billion.

Kevin Killips

I don’t know if I would say we’re capping it or we are growing it. Those are primarily some of the bigger program deposits that are in their classification. We have deposit limits in certain areas. So I don’t see that moving all of that much in the near-term. That’s probably the best I can do on that.

Jared Shaw

Okay, great. And then could you give an update on what trends you saw in the quarter on the capital call advance lines, in terms of utilization and in terms of maybe the duration that they’re staying outstanding?

Larry Richman

Yeah, the capital call facilities which is a... it’s a really good part of the business force and I like it there is numbers of clients in that business. So it’s not just one. So the general trends are we see more paydowns and clean ups and clean downs in Q4 than we would have maybe in various quarter because there is a general trend towards clean up. Yes there is some that had really good opportunities that they use them to buy some companies before year-end so we saw some activity in that business.

So it really it generally depends on the particular firm not overall. But I think you generally see a little more paydown at the end of the year in that business segment. The activity levels are interesting. They are generally very active. But yet some are trying to sell portfolio company and because the markets and some are trying to buy because in certain segments there is some more attractive buying opportunities today than there was before. So we are seeing a lot of interesting activity and we’ve got a very select client base there. But it’s broad enough that we’re seeing a lot of good trends.

Jared Shaw

Okay, that was great color. Thanks for that. Just on -- circling back on the credit side. Appreciate the commentary around sort of the trends you are seeing there. But if we look just sort of at the numbers this quarter with the charge-offs at 15 basis points and NPLs inching up a little. Where should we expect to see the allowance as a percentage of loans or bottom out as we look to the next few quarters? I mean we’ve been in a downward trend there for a little while, so is there still room for that to go down or do you think they were stable or we should stabilize around here?

Kevin Van Solkema

I mean maybe it does bottom out here. But I think what we obviously do every quarter as have various factors that move that around. So this quarter the loan growth that we had was in commercial real estate construction as oppose to what we see in prior quarter where it’s been more evenly split or even buy us towards commercial and commercial growth takes a little more reserve with it. So we ended up needing to provide less this quarter because of the nature of the loans.

We also had that portfolio migration that Kevin Killips talked in his remarks at the beginning of the call, which as these sizable loans get risk rated to a better position that also pulls down the required reserve and then we had lower specifics as you can see from the schedule. So it definitely moves around based upon the growth of the portfolio and the relative position of the credit in the portfolio. I think we are at a pretty low level of reserve. We’ll have to see what that goes for the rest of the year.

Jared Shaw

Great. Thank you.

Larry Richman

Thank you.

Operator

Your next question comes from the line of Brad Milsaps of Sandler O'Neill.

Larry Richman

Good morning.

Brad Milsaps

Hey, good morning. Kevin just a follow-up question on expenses. You’ve commented in the past that you thought kind of long-term the business would kind of be mid-50s type of efficiency ratio, you guys have obviously done much better than that over the last couple of years. Just curious with maybe the margin went at your back going into ‘16 it would seem you would do even better than that, but just curious are there any other thing in the expense horizon that would kind of keep you from pushing that maybe below 50 or even better or other things triggered as you do better from a profitability perspective that would increase pay outs or anything to keep that maybe where it has the last few quarters versus continue to go down?

Kevin Killips

Brad that’s always an interesting topic efficiency ratio has two components towards and I think this quarter the growth in top-line really was helpful as we had more robust fees as average of loan growth played in and we pick up a little bit. So based on the comments I made earlier about expectations we think for yields on loans and then translating to NIM, all things being equal I think we would expect to have some positive results from a revenue perspective.

First quarter expenses as I said usually has a POP and FICA, but it takes hard to argue with. And as revenues keep growing I think last year revenues grew about 12% expenses grew about 7% if my arithmetic is correct I think that really be able to help to feed the efficiency ratio. So as we said a number of times I don’t think we have -- we were spending money on an ongoing basis with from an infrastructure from a people perspective we added people the last year we added people a year before. So the arithmetic would kind of lead to efficiency ratio kind of moving down.

Brad Milsaps

No that’s helpful. It sounds like you’re still kind of in that kind of higher single-digit type expense growth, but with the revenue it should be helpful. Okay, that’s helpful. Thank you.

Larry Richman

Thank you.

Operator

[Operator Instructions] And your next question comes from Casey Haire with Jefferies.

Larry Richman

Hi, Casey. Good morning.

Casey Haire

Wanted to touch on the commercial book; if I look at the progression over the last couple of years it’s really kind of plateau I would say at the 66% concentration level and I’m just wondering are you guys managing to that or is that just sort of the flow of the demand and then it’s just turning out that way?

Larry Richman

Yeah, I guess two points, one is I like the mix where it is and that’s comfortable level of again we very much believe in diversification and then diversification within. So that’s a good position to be. We manage it -- we manage concentrations across the organization. But it’s really based upon opportunities and client needs. And so it’s not to restrict it’s really to identify and do the right deals for the right clients' overtime. So hopefully that gives you a little color.

Casey Haire

Yeah, sure. I mean if the demand was there and it was good quality loan growth and excellent client relationships very much in line with what you currently have. Would you guys go above that concentration or that level today?

Larry Richman

Yes.

Casey Haire

Okay, great. That’s what I was getting at. And Kevin Van Solkema question for you, it sounds pretty good on the outlook in terms of asset quality. Can you just -- there was an uptake in new non-accrual. Can you just -- was that broad based anything systemic just some color there?

Kevin Van Solkema

Casey it was really one deal, it was one deal that went sideways on us and clearly underperformed so we move that to nonperforming. I guess if there is a bright spot to it, it did not have a lot of embedded loss. And therefore as you’ll notice our specific reserves actually declined $2 million as we cleaned up that credit that had the large unfunded reserve last quarter and now funded and we charge that off. So that non-accrual movement I don’t read a lot into that it was really one deal and has not us loss content.

Casey Haire

Got you, thank you.

Larry Richman

Thank you.

Operator

You have a follow up question from the line of Chris McGratty with KBW.

Larry Richman

Hi, Chris.

Chris McGratty

Thanks for taking the follow-up. Kevin did you quantify or can you quantify the FICA signal I thought it was $2 million, but just wanted to get a better handle on the seasonality? Thanks.

Kevin Killips

I didn’t quantify it. But I think if we looked at last season and the season before that our last. I think it’s in the neighborhood 5ish maybe a little bit more maybe a little bit less. But it’s in that kind of neighborhood.

Chris McGratty

Thank you.

Larry Richman

Thank you. I think that ends the questions. I wanted to thank you all again happy New Year to you. We appreciate your questions, your interests and we look forward to talking to you again next quarter or before.

Operator

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