Cascade Bancorp's (CACB) CEO Terry Zink on Q4 2015 Results - Earnings Call Transcript

| About: Cascade Bancorp (CACB)

Cascade Bancorp (NASDAQ:CACB)

Q4 2015 Earnings Conference Call

January 27, 2016 17:00 ET

Executives

Andrew Gerlicher - General Counsel and Secretary

Terry Zink - Chief Executive Officer

Chip Reeves - Chief Banking Officer

Greg Newton - Chief Financial Officer

Analysts

Jeff Rulis - D.A. Davidson

Russell Gunther - Macquarie

Jacque Chimera - KBW

Tim Coffey - FIG Partners

Andrew Gerlicher

Good afternoon and welcome to Cascade Bancorp’s Fourth Quarter 2015 Earnings Conference Call. Our presentation today will include forward-looking statements. Those statements include descriptions of management’s plans, objectives or goals for future operations, products or services, forecast of financial or other performance measures and statements about Cascade’s general outlook for economic and other conditions. We also may make other forward-looking statements in the question-and-answer period following management’s discussion. These forward-looking statements are subject to a number of risks and uncertainties and actual results may differ materially from those discussed today. Information on the risk factors that could cause actual results to differ are contained in the press release that was released today as well as in the Risk Factors section of Cascade’s most recent Annual Report on Form 10-K filed with the SEC. Forward-looking statements are effective only as of the date they are made and Cascade assumes no obligation to update or publish revised forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date hereof.

Now, let me turn today’s call over to our CEO, Terry Zink. Terry?

Terry Zink

Thank you, Andy and good afternoon. I would like to thank each one of you for joining Cascade Bancorp’s fourth quarter and full year 2015 earnings call. Before I get going, I would like to make a couple of introductions. You just heard from Andrew Gerlicher, our General Counsel and Secretary. Also with me today is Chip Reeves, our Chief Banking Officer and Greg Newton, our Chief Financial Officer. Just so you know after our prepared remarks, we will open the call to any of your questions. So, with that, I would like to jump right into the fourth quarter and full year 2015 results.

I am very pleased with our results for the quarter and for the year. Net income for the fourth quarter was $5.6 million, or $0.08 per share and that compares very favorably to the $5.1 million, or $0.07 per share on a linked quarter basis. For the full year, our net income was $20.6 million or $0.29 per share compared to $3.7 million or $0.06 for the full year in 2014. In the organic loan growth category, we actually have 8.5% annualized loan growth for the fourth quarter and our full year organic loan growth was 11.8%. We ended the year with $1.7 billion worth of loans. For the quarter, the underlying strength was fairly broad-based, but especially strong in CRE, construction and consumer residential loans.

Looking into 2016, we do expect that our core franchise is going to generate a high single-digit organic loan growth and you are going to hear from Chip in a moment about our Seattle office that we just opened, that is going to actually offer some upside to us as we ramp through 2016. Our total deposits for Q4 were constant with the Q3 levels at $2.1 billion. Our average cost of deposits was 8 basis points and it continues to be a very strong area for us with average total deposits for the year being up 8%. One of the interesting things when we look at our deposit franchise that it’s almost unparalleled in banking, as the total checking balances represents almost 57% of our total deposits.

Credit quality remained very, very solid for the fourth quarter, with NPAs coming in at 0.34% with a slight improvement over third quarter’s level of 0.36%. The year ago level was 0.64%. What I would tell you is that the charge-offs for the year we ended up in a net recovery position of $6.4 million, which really ties in nicely to what we have talked about all along of our B note strategy. We ended up, as you recall, in third quarter with $3.1 million in recovered B note with the $6.4 million net recovery and an ALLL that is running above peers. What I would like to do now is spend a little bit of time on our strategic initiatives and give you an update of how we are doing.

As a management team, our focus and actually part of our compensation is to grow the franchise value of the bank. Ultimately, we are building a very valuable franchise in the enviable Pacific Northwest, which continues to experience growth in excess of the national average. There is a recent study that just came out that showed the Oregon was the number one state of people moving into and it was followed very, very nicely in the number four position by Idaho.

There are two drivers of our growth really organic growth and strategic M&A. I would like to touch on our organic growth strategy first and that really has been to leverage our enviable low cost deposit base into products and geographies, where we can take share. Our investment in new bankers is probably a fine example of this strategy in an area that we continue to pursue. The other leg of this strategy is to identify markets outside of our core deposit franchise that are attracted in higher commercial banking team. I think you saw that in Portland. We have talked about Portland being a very strong market for us for loan growth. We are very excited about our recent opening of the Seattle LPO. And in a moment, Chip is going to provide you an update both on our organic loan initiative, but also an update on the Seattle market, which is progressing well ahead of schedule.

The second driver of our growth strategy is disciplined acquisition. In the quarter, we announced the acquisition of 15 Bank of America branches, 12 of those branches are in Oregon and 3 are in the Southwest corner of Washington. As I talked about several times before, our strategy is really to increase our market share in Tier 2, Tier 3 markets. Essentially, we want to own those markets with either a one, two and three market share position and redeploy the excess deposits out of those markets into our LPO strategy, Portland and now Seattle. The Bank of America acquisition allows Cascade to jump to the number three market share in Southern Oregon and in each one of the coastal markets we are going to be in, we will be in a top three market share position.

The BofA branches are really well established branches with approximately $50 million on average deposits in each one. The total deposits that we bought were $707 million and the model we put together assumes that there would be 20% attrition by the time we close the transaction on March 4 and then an additional 10% after that. But one of the things that’s very complementary to us is that the cost of deposits is very similar to our own and you should basically see no increase in deposit costs.

Our human resources group has met with each one of the Bank of America employees. The feedback has been very, very positive. I think each one of them is excited to be with Cascade and we expect to have little turnover in that area. You will see an increase in customer service fee revenue of about 33%. It will manifest itself in having approximately 10% accretion to EPS in the back half of the year. It also will dramatically improve our asset sensitivity as we move forward. This really does underscore our strategy to increase our scale through acquisitions. They continue to be very opportunistic and look for acquisitions that will enhance the franchise value of the bank and also provide an attractive return. Importantly, our infrastructure has the capacity to acquire some smaller banks and still meet the requirements that a larger bank needs to do.

Right now, what I would like to do is just reiterate our goal, which has remained consistent over the past few years. We want to deliver regionally in organic loan growth and market share. We want to achieve a very, very strong ROA and we want to continue to grow Cascade to $5 billion in assets as a community bank. I believe that ultimately what we are creating here in the Northwest is a very, very valuable franchise, an incredible deposit engine and one that is positioned in fastest growing regions in the country.

Now, I would like to turn the call over to Chip Reeves, our Chief Banking Officer. Chip?

Chip Reeves

Thanks, Terry. As Terry touched on, our organic growth strategy is to capitalize on the strong economic tailwinds of the Pacific Northwest by leveraging that low cost deposit base into existing and new lines of business where we see opportunities to take profitable market share. Now, we focus our efforts on identifying markets and products that we find attractive and then hire those talented bankers to originate the business.

Through our customer value proposition and delivering unique solutions quickly, we have been able to win business from our larger and too-big-to-fail competitors and believe that we can continue to deliver loan growth in many segments more quickly than our peers. To that end, the healthy market backdrop, our bankers experience and the bank’s value proposition continue to deliver annualized organic loan growth of 8.5% in the fourth quarter and 11.8% for the full year. A little bit more color there in the fourth quarter, our lending operations continued to experience robust volume with organic originations across all platforms totaling $170 million. We experienced net loan growth in all of our regions which was the first for us throughout 2015. Derivative activity remains extremely strong and mortgage volumes while seasonally lower versus the linked third quarter increased 15% from Q4 of 2014. In addition, previously we have mentioned our aircraft lending space that units originated $80 million of volume in the eight months of operations in 2015.

Deposits also experienced strong growth in 2015 rising $100 million or 5.1% to $2.1 billion. This increase was achieved even as time deposits reduced $62 million throughout 2015. As Terry mentioned deposits were constant in the fourth quarter on an end of period basis. However, average deposits were up 8% and checking deposits represented 57% of the total deposit base. Due to the aforementioned deposit mix change, we have reduced our cost of deposits 4 basis points in 2015. The success of that deposit strategy resulted in a year end cost of deposits of only 8 basis points and highlights the value and sustainable competitive advantage of Cascade’s core deposit franchise.

Turning our attention to the loan side of the balance sheet, we entered the year with about 70% loan to deposit ratio and we exit 2015 with almost 80% loan to deposit ratio. Let’s take a few moments to speak about one of the important drivers of that strong organic loan growth, truly the success of our commercial banking strategy, center strategy in our major metro markets. We have spoken previously about our Portland office, but let’s give a little bit more color to what happened there in 2015. We currently have nine producing bankers in that marketplace and since Cascade retuned to profitability in 2012, 2013, we have been successfully leveraging our low cost deposit base into this attractive Pacific Northwest major metro. In 2015, Portland grew loans 22% and currently has a loan portfolio of $240 million. As we look into 2016, we fully expect this double-digit rate of growth to continue.

Replicating this formula in October of 2015, we opened our second commercial lending office in Seattle staffed with an experienced local banking team of six producing bankers. We have been impressed with their initial success as they ramped their loan pipeline probably about a quarter ahead of our internal projections giving Terry, Greg and I increased optimism on our full year target of $50 million to $60 million of loan production. I would note that we expect Seattle to begin contributing to growth in Q1 of this year. Overall, we believe Seattle will scale even faster than our Portland office and be a major contributor to Cascade in 2016. Given the success of Seattle and Portland in the major metros there, we believe it’s a repeatable strategy and we will continue to evaluate other MSAs on the West Coast to determine future in further commercial banking office opportunities.

To conclude – our value proposition is resonated across our Northwest markets. I am very pleased with the execution of our talented bankers, market share they have taken, the loan to deposit growth that they have delivered. Kind of looking a little bit forward into ’16 while our first quarter is typically a seasonally slow quarter, our current loan pipeline is approximately 25% higher than entering 2015 provides good visibility and confidence for that first half. As Terry mentioned we see the core Cascade franchise delivering high single-digit organic loan growth with Seattle being accretive to that number as it begins to ramp loan production.

Now, I would like to turn the call over to our CFO, Greg Newton. Greg?

Greg Newton

Thanks Chip. Our fourth quarter and full year 2015 results showcased the continuation of Cascade’s growth story. For the quarter, we delivered net income of $5.6 million or $0.08 a share driven by organic loan growth of 8.5% for the quarter. This translates into a return on tangible assets of 91 basis points, up from 85 basis points in the prior quarter. For the full year 2015, we delivered net income of $20.6 million or $0.29 a share on 11.8% organic loan growth. The fourth quarter also continued to demonstrate Cascade’s solid credit quality. We had a sequential decline in NPAs to just 34 basis points. This quarter we took $2 million credit to provision reflecting our full year net recoveries of over $6.4 million. The ALLL remains above peer banks at 1.45% of total loans. This solid credit quality profile is in part a result of the company’s strategy to diversify its loans by type, by industry sector and by geography, this to mitigate any credit concentration risks.

Now let me give you some color around the contraction of our NIM during the fourth quarter. Three relatively equal factors played into this decline. First, loan fees were seasonally lower as compared to the third quarter. Second, the yield on loans declined slightly due to the cumulative effect of our actions to prepare for a cycle of gradually increasing short-term rates. And third, lower NIM ratio was impacted by an increase in earning assets held in low yielding Fed funds during the quarter, thus increasing the denominator of this ratio. We look for a rebound in the NIM to the low-3.60 range for 2016 that would for the core bank. However, this was a good segue to an update on the prospective impact of the BofA branch acquisition. Clearly, the NIM will be consequentially impacted by the approximately $700 million in new funds arising from the transaction. These funds will initially be held in low yielding overnight Fed funds markets. From there the NIM will be impacted by the pace of our program to invest those funds into securities and other wholesale assets such as mortgage arms.

We anticipate then the NIM will reach its trough in the second quarter of 2016 at level 25 basis points to 40 basis points below the 3.52% NIM we reported in the fourth quarter. From there we would expect to exit 2016 with the NIM of 3.35% to 3.50% in an unchanged rate scenario. The yields we expect on our deployment of these funds should reach around 2.25% give or take 10 basis points. Importantly an ongoing strategic opportunity of the acquisition is that as we replace these lower yielding securities with community bank loans, our net interest income will continue to rise more rapidly than would otherwise be the case. Of course our assumptions did not embed any benefit of such migration at this time. The branch acquisition also affords us an opportunity to increase and diversify our sources of fee income.

Non-interest expense will also increase with staffing and occupancy expenses. However, the efficiency ratio will benefit as we leverage our existing infrastructure to lower average costs of delivery. We are targeting an efficiency ratio into the mid-60% range under pretty conservative assumptions in the back half of 2016. More importantly the combination of these factors should drive earnings accretion, but to $0.01 a share each quarter on the back half of 2016.

Now, back to some observations on Cascade’s fourth quarter, it’s important to underscore that we remain asset sensitive. We have positioned the bank in that respect to benefit from rising short-term interest rates. For each 25 basis points of rise in rates, we estimate that net interest income will increase by about $1 million on a full year basis. One of the Cascade’s biggest strengths continues to be as unique core deposit franchise. The $2.1 billion in deposits, 57% of which are in checking accounts, these funds costs us 8 basis points. This low cost granular deposit base is a primary benefit of Cascade’s significant market share in the metropolitan growth markets in the Northwest. It also positions us very, very well to fund our future growth and to enjoy any benefits of future rate rises.

For the quarter, non-interest income was sequentially lower in part doing to non-recurring revenues in the third quarter including $500,000 gain on investment securities. Q4 saw increased revenues from swap fees and other income, while service fees, SBA, mortgage and card related revenues were seasonally softer. As mentioned earlier, the BofA transaction will further grow and enhance non-interest revenue sources.

Non-interest expenses for the quarter were sequentially lower. This decrease was driven mainly by human resource, professional services and marketing expenses. Salary and benefits decreased due to lower annual performance accrual as well as a $300,000 one-time true-up of our liability for paid time-off liability. The decrease in professional services continues to be related to our finishing up our project to create a single imaging system for the bank. As a result of these factors, our fourth quarter efficiency ratio improved from 71.2% to 70.9%.

Finally, I would note that we had a higher tax provision in the quarter due to a $400,000 true-up relating to our state tax payable. Our estimate of the 2016 tax rate remains approximately $38.5 million to $38.6 million or $38.7 million for that year.

Now, I would like to turn it back to Terry.

Terry Zink

Great, thank you. So, what I would like to conclude our comments with is just a restatement of what probably you just heard. And you hear that our markets are very robust. You heard Chip talk about the business pipeline being up strongly from a year ago level and that Seattle is running about a quarter ahead of projections right now. So, that will be icing on the cake for us. The BofA branch acquisition is going to drive earnings accretion in the second half of the year. Our low cost deposit base remains our competitive advantage with 8 basis points and 57% checking account balances. Our credit metrics remained very, very strong. So, as you can see, we are well-positioned for 2016 and are currently expecting the year to be a solid one for us.

Operator, if you could, could you please open the call to any questions now?

Question-and-Answer Session

Operator

Thank you very much. [Operator Instructions] Our first question comes from the line of Jeff Rulis from D.A. Davidson. Please proceed with your question.

Jeff Rulis

Thanks. Good afternoon, guys.

Terry Zink

Hey, Jeff.

Chip Reeves

Hey, Jeff.

Jeff Rulis

Just a follow-up on the – I guess the loan growth and maybe a little more color just to try to get by segment what was particularly the driver of growth in the quarter and I think Chip had mentioned, it was pretty widespread geographically, but were there some areas of outsized production?

Chip Reeves

Yes, hi, Jeff. This is Chip. So, across the regions, each region actually had net positive loan growth for the fourth quarter leaving the segments or the geographies was Portland followed by Central Oregon, followed by Idaho, but all experienced increases for the quarter.

Jeff Rulis

And then within the category, loan segment?

Chip Reeves

It’s fairly broad-based and you can see that from the overall release, but overall, CRE, construction, residential all moved up. C&I, while it will appear flat, our SNC portfolio actually reduced throughout the year. So, we actually have a positive organic C&I production as well. So, I just call it very broad-based across all regions. We feel very good about that core franchise loan growth at this point.

Jeff Rulis

Okay. And then Greg, I just wanted to try to back into the – on the fee income side, just that line item and the impact of BofA, did you outline what your outlook on I guess fee income growth for the full year or in other words any indication of what you expect layering in BofA?

Terry Zink

One of the things we talked about was the service fee income. Jeff, this is Terry. Service fee income should be up about somewhere around 30% to 35% from the BofA deal. That was I think the biggest thing that we talked about. And maybe a way to help you with it is again we had a couple of one-time deals, some branches that were sold in during the year and that kind of thing. But we think our – if we can talk about what our destination might be that once we get through the phase, the conversion and such that we think our non-interest income to average assets should be in the mid-80% range. That’s 85 basis points, excuse me, and so with a much larger earning asset base.

Jeff Rulis

Got it, okay. And Terry on the – so on that 30% to 35% on the service fee income, does that sort of layered in kind of way till Q2 to, I mean, as soon as you roll these customers in do you hit it or Q2 is probably the first time you will see that fully instituted?

Terry Zink

Yes, there will be a little bit of a – there won’t be much. We closed on March 4. There won’t be much in March or April because of some waivers and stuff that we are putting in place during the transition. But I do think Jeff you get a pretty good look at it in second quarter. You will get a pretty good glimpse of what it’s going to look like.

Jeff Rulis

And then lastly, Terry, just on your discussion of looking around for additional deals that augment the franchise, could you just remind us of the, I guess, the typical region that you would be looking for and the type and size just kind of the appetite for your deal?

Terry Zink

Well, we love to find something in that $500 million to $1 billion space. As you know in the Northwest, they are kind of too far between, but I would say, we are looking at probably smaller banks within our footprint. We are also looking to augment what we are doing in the Seattle market with the LPOs. So, we are kind of hunting around up there and talking to different people, but we probably won’t do too much or anything that I know of right now that would be out of footprint. It will be more infill and trying to subsidize both the Portland and Seattle markets.

Jeff Rulis

Right. Thanks, guys.

Terry Zink

Thanks.

Operator

Our next question comes from the line of Russell Gunther from Macquarie. Please proceed with your question.

Russell Gunther

Hi, good afternoon guys.

Terry Zink

Hi, Russell.

Russell Gunther

Hi, I appreciate all the color in the release and prepared remarks. It sounds like ‘16 is setting up quite nicely for you guys. One of the areas in particular is loan growth. So, you mentioned the high single-digit organic for ‘16 and gave us some good color on the Seattle group. As that group matures, just how accretive to the overall growth rate of the company do you think they can be? So, for high single-digits now, as we are looking out into even ‘17 and these guys further ramp, how would you expect that to contribute?

Chip Reeves

Russell, I think even in the prepared comments we mentioned that our expectation in Seattle is probably $50 million or $60 million of loan growth in 2016. And so that would be on top of that high single-digit that our core franchise is producing today. So, they work through the math on that, but it would end up being obviously double-digit – low double-digit.

Russell Gunther

That’s great. Thanks. That’s helpful clarification. Thanks Chip. And then just a quick point in time but where are the SNC balances stand today?

Chip Reeves

I think that as of today they are $168 million.

Russell Gunther

Okay, great. And then switching gears to the provision, there are obviously reversal in the quarter. Given that, could you just remind us where we stand with the B note recoveries and an outlook for that going forward?

Chip Reeves

Yes, we are pretty much done with the large B note recoveries we have. There is – I would say there is probably going to be additional recoveries in 2016, but nothing probably along the magnitude of what we have had in the past. We believe that that strategy actually worked out pretty well for us and the thing was helpful was when the economy turned around these things all became pretty good for us. So we believe that right now, there is nothing on the horizon that I would say is going to be at the magnitude of the $14 million, $15 million we have in B note recoveries from the past.

Russell Gunther

Okay. And given that and given the type of loan growth that we have just been talking about, just give us a sense for where you are providing for new loan growth and obviously the reserve that won four or five is pretty darn healthy, if you could just give us a sense for you are providing for this commercial aided growth and I would expect that provision to trend?

Terry Zink

Well, we expect that I am trying to think of what would be the right way to put it. We don’t expect initially to be increasing the provision at all or adding to the provision. We believe that we are amply reserved right now. We still have a little bit more as we have talked about in recoveries that are coming in. And so I don’t anticipate in the next couple of quarters anyway having to do any provision, it will depend on how those recoveries go. We will determine what would be like the second half of the year.

Greg Newton

And Russell it’s Greg, just to add on that, part of our deployment plan will probably be include some additional wholesale loans probably mortgage arms and the like of that. So those are relatively low reserve assets as you know. However, we would expect that the net ratio would be drifting down as a percent of that loan growth.

Russell Gunther

Got it. Okay, helpful. And then just lastly and Greg I apologize for having to ask this, but would you mind just clarifying the NIM guidance sort of that walk through 2016?

Greg Newton

You bet. So day one, if you would think about it we are going to – we will end up with $550 million to $600 million of literally Fed funds sold in the month of March, right. As those funds from deposits come in. And so we are thinking that in Q2 we will probably deploy what’s called a third maybe more, maybe 40% or 50%. But we want to take our time in deploying that, so we don’t lock in sub-2% to 10-year for example. So, we are going to – we have given ourselves a little lead way to – in terms of the deployment strategy. But right now it would be – we have probably $400 million – $300 million to $400 million in Fed funds sold for a good chunk of the second quarter as we are engaging in that deployment and just by virtue of that we think the NIM will probably in the second quarter be 3.15 to 3.25 depending on the pace of deployment. Then, as more and more is invested we think the fourth quarter absent anymore Fed should be in the 3.50 – maybe the mid to high-3.50s. Right now, it’s a bit of a far reach to give you precise guidance. But we think that’s certainly achievable on obviously a much larger earning asset base.

Russell Gunther

Okay, that’s very helpful guys. That’s all of my questions. Thank you.

Greg Newton

Thank you.

Operator

Our next question comes from the line of Jacque Chimera from KBW. Please proceed with your question.

Jacque Chimera

Hi, good afternoon everyone.

Terry Zink

Hi Jacque.

Jacque Chimera

I probably understood the press release correctly, it said that the deposits of Bank of America are still around $700 million?

Terry Zink

That’s where they were when we announced the deal.

Jacque Chimera

As of announcement, okay. So that’s not an updated number, that’s a three months old number that was apparent?

Terry Zink

Yes. I mean they had tended all the way through the end of the year to hold pretty steady. We hadn’t seen too much in the way of attrition, it kind of bounced up and down.

Jacque Chimera

Okay. I am just kind of gauging what could happen in the next month or two months and I am surprised of how the run off has been so long so that’s positively…?

Terry Zink

Well, one of the things I would tell you Jacque is that the BofA customers were notified via mail on January 12. And so if they hadn’t read the paper or they didn’t out of contact or stuff they didn’t know about this because there really was no reaching out to the customers. On January 12, they have sent their letter out and on the 19 of January we sent out our welcome package. So my expectation is if we are going to see any kind of attrition we will probably see it in the number that we get towards the end of this month.

Jacque Chimera

Okay. I didn’t realize they hadn’t yet been aware of the change though. Okay, that makes much more sense to that. And then a question for Greg, to the extent you are able to quantify that and I realize that there are a couple of different moving parts here, I am just trying to get a sense for the loan yields compression that still creates in the quarter, I understand the parts that went into it, so I am looking for the impact of the individual part had on it so that I can kind of extrapolate what was seasonal, what was core pressure?

Greg Newton

Yes. Let me state – let’s call it the coupon yield was down about 6 basis points or 7 basis points.

Jacque Chimera

Okay.

Greg Newton

Okay. And maybe another way to really simplify thinking about this is I had on average because of the volume of loan growth or deposit growth we had in the third quarter a lot of those deposits stayed all the way through. So I had $100 million more in Fed funds than what my target was, which is $35 million to $50 million. So if you actually compare to the prior quarter it was only again we have had two quarters of really strong deposit growth that was only about $25 million. But if you – if we get back to our target in terms of deployment which Chip – thankfully Chip helped with considerably towards the end of the fourth quarter we should see easily get into that 3.60 range for the core bank, let’s call it.

Jacque Chimera

Okay. So a lot of the loan growth was in the latter half of the quarter then?

Greg Newton

Absolutely.

Jacque Chimera

Thank you.

Operator

Our next question comes from the line of Tim Coffey from FIG Partners. Please proceed with your question.

Tim Coffey

Good afternoon gentlemen.

Terry Zink

Hi Tim.

Tim Coffey

So the commercial real estate loan growth in the quarter, can you an idea how much that was?

Terry Zink

We are searching for that number Tim.

Tim Coffey

Okay. My second question and I am sorry if I missed this some earlier, but do you plan to do any re-balancing within your own deposit portfolio in advance of these Bank of America deposits coming over?

Chip Reeves

Yes. Hi Tim, this is Chip. So what we have said looking we have run at the 8 basis points cost of deposits right now. BofA is about the same level, so it’s a terrific match of product set as well as we have just didn’t updates there, but a couple of things that’s, it really goes all into the redeployment strategy as well as we have municipal deposits within our deposit base. And so frankly what we have just been doing here in the last quarter is taking a look at our I want to call it re-balancing I will call it our primary operating relationships. And then what is more of investment dollars from some of our customer base and really trying take a look at what is optimal for the structure as we bring on another round of number to $600 million or so of BofA coming on to our sheet in March.

Tim Coffey

Okay, alright, that’s helpful. Yes, and then those are my two questions, everything else has been asked.

Terry Zink

Did we find the commercial real estate? Can we give you a call? Can we just send that to you?

Tim Coffey

Yes, you bet. That’s no problem.

Operator

Okay. There are no further questions at this time. I would now like to turn the conference back over to management for any closing remarks.

Terry Zink

Thank you, Chris. Well, thank you for joining the call and we are looking forward to 2016. We believe that bank is pretty well positioned and hope you feel the same way and we look forward to talking again with you at the end of the quarter. Take care, everyone. Bye.

Operator

Ladies and gentlemen, this does conclude tonight’s teleconference. Thank you for your time and participation. You may disconnect your lines at this time and have a wonderful evening.

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