Enterprise Financial Services' (EFSC) CEO Peter Benoist on Q4 2015 Results - Earnings Call Transcript

| About: Enterprise Financial (EFSC)

Enterprise Financial Services Corp (NASDAQ:EFSC)

Q4 2015 Results Earnings Conference Call

January 28, 2016 03:00 PM ET

Executives

Peter Benoist - President and CEO

Scott Goodman - President, Enterprise Bank & Trust

Keene Turner - Executive Vice President & CFO

Analysts

Jeff Rulis - D.A. Davidson

Michael Perito - KBW

Brian Martin - FIG Partners

Andrew Liesch - Sandler O’Neill

Operator

Good day everyone and welcome to the Enterprise Bank & Trust Enterprise Financial Services Corp. Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Peter Benoist. Please go ahead, sir.

Peter Benoist

Great. Thank you very much and I’d like to welcome everybody to our Q4 and year-end earnings call. I’d like to remind everybody on this call that a copy of the release and accompanying presentation can be found on our website. The presentation and earnings release were furnished on SEC Form 8-K earlier today. Please refer to slide number two of the presentation titled forward-looking statement, and our most recent 10-K and 10-Q for reasons why actual result may vary from any forward-looking statements we may make today.

Moving on to slide number three, our fourth quarter and year-end year-over-year results were a strong indication and a continuance of maintaining our focus on the core fundamentals of the business. We grew reported earnings per share 40% and core earnings per share 29% year-over-year. Strong loan growth 23% annualized in the quarter and 13% for the year was a primary driver of these results. Originations and advances were strong in the quarter with all markets contributing. Of particular note, our enterprise value lending or senior debt segment grew 24% in the quarter and Arizona showed particularly robust growth in the commercial real estate segment as that market continues to recover. Our growth however did not come up at the cost of margin declination, as core margins expanded 9 basis points and core portfolio loan yields were stable linked quarter.

Our core net interest margin expanded 4 basis points over the year, as we continued to remain disciplined on pricing on both sides of the balance sheet. Deposits increased a healthy 12% for the year. Non-interest bearing deposits increased just under 4% linked quarter and 12% year-over-year. We added 300 new business banking relationships in 2015, an increase of 62% over the prior year and our cross sell ratio increased 20% to 4.75 services per household.

In addition, over a 100 new commercial relationships were originated during the year, representing over 250 million in new core deposit funding. Credit quality remains strong with net recoveries in the quarter. And a year-end non-performing asset ratio of 48 basis points including the PCI portfolio acquired under loss share. Our reserve coverage to non-performing loans at year-end exceeded 3.5 times as non-performing loans declined 59% during the prior year period.

We have no significant concentrations of risk in the core portfolio, but we continue to remain diligent as criticized asset levels while low comparatively [ph] stabilized from the year ago level. Core expenses decreased again year-over-year and our core efficiency ratio showed continued strong improvement from 63% year a ago to 56% in the fourth quarter. Moving the needle further here will depend primarily on our ability to increase fee income over time. Recent senior management additions in our wealth management and mortgage divisions are concrete steps in that direction.

We successfully exited all of our loss share agreements with the FDIC during the quarter. We expect the termination of our agreements should have a positive effect on future earnings, based on our historical experience where we recovery income and gains on sales have exceeded net charge-offs and losses on sales.

With the intangible common equity ratio of 8.9% of at year-end, we are well-positioned to support continued strong growth. As we enter 2016, we anticipate another very competitive banking environment. Our management team and all of our associates continue to execute flawlessly as we look forward to another successful year.

I would like now to turn it over to Scott Goodman to give you more detail on our performance, both in terms of business segment and geography.

Scott Goodman

Thank you, Peter. As you heard from Peter and as shown on slide number four, we were able to execute our loan growth strategy successfully in 2015, resulting in aggregate growth of 13% for the year. Q4 net growth of $149 million was particularly robust, representing increases in most major sectors of the portfolio including general C&I, CRE, consumer residential, and the niche lines of business.

Breaking out the C&I segment of the portfolio on slide number five. Our pace of growth remains consistent and strong with an annual net increase in loans of $220 million or 17%. C&I continues to be a significant driver of our growth. For the quarter, roughly 80% of the increase is attributable to C&I loans, reflecting seasonal upticks in several of our niche lines of business and continued momentum in originations of new relationships across all markets.

The components of our loan growth for the fourth quarter and for the year are broken out on slide number six. General C&I registered healthy growth for the quarter, resulting from elevated originations in the St. Louis and Kansas City markets. Activity included expansion of existing relationship as well as the on-boarding of several significant new clients in both markets.

Q4 was also relatively strong for commercial real estate, bolstered by higher origination activity in Arizona, as well as funding on a number of construction loan closed early in the year. And while we did post decent growth for the year, we have been disciplined overall on our approach to this sector, particularly in regard to client profile, credit structure, pricing and a relationship based lending philosophy.

Relative to the niche lines of business, enterprise value lending, our senior debt offering to private equity in the M&A space had a seasonally strong fourth quarter, closing 11 new deals, representing over 100 million in commitments. Activity remains diverse with fourth quarter deals across nine states and in various industries including consumer products and medical supply distribution, specialty manufacturing, and professional services.

We have been strategy in our approach to growing this business, expanding geographically in the markets that we can service effectively and targeting specific sponsors with which we can develop relationships that align with our credit culture. As a result, EVL posted 64% growth year-over-year and is positioned well to capitalize on continued momentum in the lower middle market M&A space.

Life insurance premium finance has also grown steadily, as we leverage our relationships and establish network of planning firms. We are also selectively expanding this network through referrals of our existing contacts. The growth has been a combination of new policy opportunities combined with a funding tail associated premiums paid on the existing policies. These premiums tend to be stronger in the fourth quarter, leading to some seasonality in our growth from the niche.

The tax credit loan balances declined slightly for the quarter and for the year, reflecting refinance of several low income housing or LIHTC [ph] loans into the secondary market, and the expiration of the tax benefit life cycle or the new market tax credit deals.

On a positive side, some of these new markets deals followed [ph] to traditional loans of the bank. And the pipeline for fundings of new LIHTC [ph] projects is solid. We also expect our increased 2015 $65 million new market tax credit allocation to spur additional lending and new relationship opportunities this year.

Our market level performance is profiled on slide number seven and demonstrates positive growth for the year for all of our regions. All groups also posted loan growth for the current period except Kansas City which was level in Q4. I’ll note that beginning with this report, we break out the specialty lending group from the geographic regions to better illustrate regional performance.

Specialty lending which primarily includes the niches, life insurance premium finance, and EVL, our regional and national businesses and scope and generally not heavily dependent upon clients within our core footprint of Kansas City, St. Louis and Arizona.

St. Louis market growth for the quarter was primarily centered around existing C&I relationships, revisiting our capital structure through expansion, planning and M&A activity. We continue to add several new relationships as well spurred by refinancing and construction activity.

In Kansas City, we have successfully landed several significant new C&I and CRE relationships and saw elevated fundings on several larger lines of credit.

Arizona’s activity for the quarter was weighted toward successful conversion of a pipeline of commercial real estate deals which were developed through a prescriptive calling plan and partnering [ph] with the investors.

Moving now to slide number eight, deposits grew $293 million or 12% for the year. Our focus has been developing strategies to grow core deposits while managing the overall cost of funds. And that regard, we have been very prescriptive in our sales process to incorporate deposits as a standard component of loan proposals. The increase in deposits is resulted from our success in landing new C&I, CRE and EVL relationships. We’ve also used a focused calling strategy targeting deposit-rich industries with particular success in the financial services and private equity spaces.

The competitive environment is steady and intense in all markets. CRE seems to generate the most attention from large and small competitors, and we’re seeing willingness stretch on terms such as length and maturities up to 10 years, no personal guarantees, and aggressive fixed rate structures, primarily from the community banks. Larger C&I deals, those above 10 million, are extremely competitive, highly coveted by the larger regional and national players who are willing to office slim pricing with very little credit structure. We have been successful in moving depository relationships from these larger players, as this is getting less of their focus and leverages our strong treasury management expertise.

We’ve also had some recent success in St. Louis moving several C&I relationships from smaller banks that have been impacted by M&A. Terms and pricing in the niche spaces are relatively stable with a higher focus from these clients on expertise and ability to execute. The market for banking talent, particularly proven originators remains competitive. We continue to recruit opportunistically in all markets experienced bankers that can move relationships or help us build teams.

Peter mentioned our success in business banking with 300 new relationships in the St. Louis and Kansas City markets during ‘15. With the relocation of a branch in north Scottsdale, we have recruited our first business banker in Arizona in the market during the quarter, and we will build out a small team in early 2016.

Additionally, subsequent to year-end, we announced the acquisition of roughly 25 million in loans and the related list out of an aircraft finance team to focus on the private aircraft niche. These are professionals that we know well and a company that we’ve financed for 13 years. Consistent with our target market, typical loan sizes in the 1 million to 5 million range with a client profile of high net worth individuals and private businesses such as charter operators, aircraft dealers and government service providers located throughout the country. Much like our other lending niches, the specialized nature of this business garners more attractive yields than that of standard CRE or C&I loans and requires an expertise and equipment, valuations and industry practices which our partners have developed over 20 plus years in the industry. The business will fit well alongside our other specialty lending niches, further complementing our core geographic markets.

Now, I’d like to turn the call over to Keene Turner for financial commentary.

Keene Turner

Thank you, Scott. Our 2015 results reflect continued execution on our focused priorities. Slide number nine demonstrates the drivers of the changes in our core earnings per share from 2014 to 2015.

During 2015, we greatly improved our core earnings power which grew 30% compared to the prior year to $1.66 per diluted share. Not only did we improve core earnings but we did so in the way that was revenue focused, maintained our already high-quality balance sheet, and positioned our Company to continue to drive quality earnings growth. Most notably, our revenue gains were driven by double-digit growth in both loan and deposit balances. Our earnings improved by $0.29 per share alone from continued well-funded earning asset growth primarily from core deposits.

Improvement in already favorable asset quality results yielded a relatively stable provision for loan losses, as we continue to provide the growth and potential losses while as problem loans resulted in reduced loan, legal and workout expenses improving non-interest expense by $0.06. Additionally, we made some modest gains in our service charge income and for tax credit related businesses to contribute another $0.03 per share in 2015.

On the next slide 10, purchase credit impaired loans contributed additional $0.23 per common share, including the successful exit of loss share coverage on acquired assets during the quarter. Reported earnings totaled $1.89 for 2015 and our return on average assets was 1.14%. Additionally, we grew tangible common equity by 13% during 2015, tangible book value by 12%. Our stock appreciated nearly 45% and we rewarded shareholders with a series of dividend increases that reflect our elevated earnings profile and attention to capital level.

As you can see on slide 11, we ended 2015 with strong momentum. We continued to deliver a steady progression of high quality core earnings which totaled $0.49 per share for the quarter. Our core return on average assets increased to 1.13%, reflecting a 31 basis-point improvement from just a year ago. Also our return on average tangible common equity was 12.7%, up over 3% from the fourth quarter level in the prior year.

The linked quarter core earnings trends are summarized on slide 12 of the presentation and as follows. Growth in non-interest income dollars increased core EPS by $0.05 a share. Seasonally higher fee income from tax credit sales increased core EPS by $0.04. Operating expenses decreased core EPS by $0.02. And the discreet income tax item in the prior quarter drove a sequential variant also $0.02 a share.

Slide 13 depicts our sustained growth in core net interest income which has been the key driver of our successful core earnings growth over the past eight quarters. Core net interest income increased to $28.7 million for the fourth quarter and totaled $108 million for 2015. Net interest income grew nearly 10% from 2014 and the growth rate accelerated in the linked quarter. Core net interest margin expanded 9 basis points in the linked quarter to 3.50% and was 3.46% for the full year. Strong loan and deposit growth, stable yields on portfolio loans, and improving funding costs all contributed to the strong net interest income growth as well as to the favorable core net interest margin trends.

Additionally, we are increasingly encouraged by how well we have maintained and defended portfolio loan yields throughout 2015. And as such we have grown more optimistic about our ability to expand core net interest margin over the next several quarters. Nonetheless, we remain much more focused on growth in net interest income dollars than net interest margin percentage which is influenced by a variety of factors.

Our trends are bolstered by a modestly asset sensitive interest risk profile and our variable rate loans remain at 62% of the total. Strong fourth quarter loan growth drove the loan to deposit ratio back to 100% but we remain highly focused on deposit gathering and maintaining strong liquidity in support of future growth. We have been successful in both over the last two years and expect to continue the success.

Credit metrics on slide 14, continue to trend favorably and support our current and continued strong profitability. We experienced net recoveries totaling 10 basis points in the fourth quarter, which muted the provision for new growth. Longer term net charge-off trends continue to be favorable as are the level of non-performing loans and assets. We continue to provide for credit losses that maybe inherent in the portfolio. However, strong asset quality over a prolonged period has caused the reduction in the allowance for total loans to 1.22% at December 31, 2015. The resulting provision for the quarter was $0.5 million and the allowance to non-performing loans is in excess of 360%.

On the next slide, operating expense trends have contributed to our success during 2015. Operating expenses increased slightly to $20 million during the fourth quarter, impacting the results by an additional $0.02 per share, as I noted earlier. The run rate for investment in personnel as well as some accrued severance drove the increase in employee compensation and benefits while the remainder of the increase was distributed among several categories, primarily within other expenses.

Strong revenue for the quarter further improved the core efficiency ratio to 56%. We expect to continue to maintain this discipline throughout 2016, as we target total quarterly expenses to be between $19 million and $21 million.

Using our financial priorities as a guide as outlined on slide 16, has kept us focused on the highest impact items and ensure that we had driven accountability for our performance along the way. We have grown core EPS by 48% since the prior year period including strong growth in net interest income at 12%. Compared to the beginning of 2014 or eight quarters ago, our quarterly earnings per share has grown 75% when it was less than $0.30 per share. We are quite pleased with the low double digit in net interest income dollars and our outlook for 2016 remains at or above 10% growth in portfolio loans, and we are also increasingly optimistic for some modest expansion of core net interest margin. We have funded the balance sheet desirably as our deposit gathering has also been successful. We have maintained a high proportion of DDA, both of which have allowed us to translate our stable portfolio loan yields and strong growth to dollars of net interest income.

We have also preserved the similar interest rate risk profile that is modestly asset-sensitive as we focus on growing the amount of net interest income we expect in the future irrespective of what happens with interest rates. We are vigilant to maintain the highest quality balance sheet by keeping credit standards first and foremost, which is demonstrated by the favorable level of problem loans and prudent allowance coverage levels. And we are certainly proud of our demonstrated trends in increasing returns we have delivered to our shareholders. We eclipsed the 1% core return on average assets for the full year and we are positioned to go from there. Additionally, we continue to prudently manage capital levels to translate the earnings to efficient returns for our shareholders. We are committed to further building profits and returns and are looking to continue to refine our focus for 2016.

Slide 17 outlines an even more simplified approach for the upcoming year, while continuing our progression of growing core earnings. We have had tremendous success over the last few years growing not only our balance sheet and funding capabilities but using both to transform our earnings tower. In the upcoming year, we expect to continue to augment our loan and deposit generation capabilities to ensure sustained, reliable growth in future periods. Additionally, we improved the profits of certain fee businesses over the last several years. However, we’re becoming more thoughtful about how we can also reliably grow the revenues of the remaining fee based businesses.

We believe our enhanced focus will help to better round out our business model, enhance the value we provide to our customers and ultimately drive shareholders value as we execute on our strategies.

We appreciate your interest in our company and thank you for joining us today. And at this time we’ll open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] We’ll take our first question from Jeff Rulis with D.A. Davidson. Your line is open.

Jeff Rulis

Thanks, good afternoon. Question on the just the termination of the loss share, I just wanted to make sure, in the P&L that is I guess in ‘16 completely, the receivable lines goes away, no other gains or charges, is that correct?

Keene Turner

That’s correct. So, that accounting goes away, you still get the incremental accretion if we get a an early payoff potentially. You still have the extra provision line item related there too and there could be some gain or loss on exists of real estate from that. But we expect that to generally be positive over the next year, as we indicated, we expected are on that charts back. But yes, the other income and other expense accounting goes away with the call back and the write-off of the II. [Ph]

Jeff Rulis

And then on that provision, it’s a combination of things. But I guess on the baseline, you guys have been $1 million to $2 million a quarter and then the PCI impact is swinging. Any expectations I guess for ‘16, either on a baseline or a combined total?

Keene Turner

I guess what we would say, right now what we said is we took that $0.07 charge and we expect that to come back over the next 12 months. So right now that’s our expectation sort of everything playing out as we anticipated a few weeks ago when we announced that. So, we don’t have anything incremental at this point. And we will continue to report on that. But I’d just point out that those assets have generally performed better than we expected and we are hopeful that we’re conservative in that prediction.

Jeff Rulis

And then I guess a last housekeeping just on the tax rate is 34 unchanged, would that be a number for ‘16?

Keene Turner

Yes, we are at that 34% to 35% range for next year, we expect it to be.

Operator

Thank you. And we will move next to Michael Perito with KBW. Your line is open.

Michael Perito

Peter, question for you maybe just on strategy. As we start 2016 here now, capital levels are pretty robust and you have the FDIC loss share termination behind you. I mean maybe give us a rundown outside of obviously the organic growth target as Keene mentioned. How do you guys are thinking about capital deployment going forward?

Peter Benoist

Sure, I would say a couple of things. One, if you look at organic growth rates, obviously they’re running double-digit; we expect that to continue. So clearly that’s our primary focus and we think we are pretty confident in that respect.

M&A is a question that comes up from time-to-time. Our response historically has been we’re focused on it; I’d say we are focused on it. Our thought process there is traditionally in footprint as opposed to not in footprint, but opportunities that would extend our franchise value, particularly in the core deposit and fee income arenas. And I would say in that regard, we are probably a little more intentional this year than we have been in prior years, A, given our capital levels; and B, giving our current valuations.

Third, as you know we’ve had a series of increased dividends which from that perspective we think just gets us to more what I’ll call peer levels in terms of payout ratios. And then finally in terms of the authorization on buyback that’s an opportunity for us and we’ll take advantage of it opportunistically when the occasions arise.

Michael Perito

And how would you describe I guess the pipeline of maybe deposit-driven or fee income wealth type acquisition as it stands today? I mean, is this something where you’d be hopeful that you can at least announce something this year or is it really just more aspirational?

Peter Benoist

There is no way to predict that Michael in terms of timing. I mean I really can’t say more than we are focused and we are pretty disciplined in terms of our process. That’s really important right now. We are in no hurry, I think it’s fair to say given our current performance and we’ve got tremendous momentum. So, on the other side of the coin, we don’t want to disrupt momentum but we will certainly take advantage of the good opportunity.

Michael Perito

Okay, thanks. And then on the -- in the prepared remarks, you guys mentioned a couple of times kind of a focus on organically building the trust and wealth business. I mean, what kind of penetration do you guys have with your C&I clients I guess today? And what do you guys think is a realistic kind of target/growth rate for next year, if it kind of plays out the way you guys are hoping?

Peter Benoist

Yes, I’d say penetration is an opportunity for us. That’s clear; I think that’s true for any organization. So that’s a focus for us. I think the other area that we are spending a little more time trying to get maybe better understanding of from a client perspective is literal private banking initiatives, and Scott is taking a lead on that this year. We think that will provide an opportunity for us to grow assets from a wealth perspective. We really haven’t been that intentional in that respect and I think we feel there is an opportunity to do that really in certainly two of our three markets this year. In terms of growth rates, between swings and market values and everything else that goes on and that’s pretty tough to predict.

Michael Perito

Just asking another way, do you guys -- I mean your non-interest income, a portion of your operating revenues is running around 15% today plus or minus. I mean do you guys have any internal targets that you would like to -- that you think your business model should be able to achieve?

Keene Turner

I guess I would say differently. We don’t necessarily have a target. I mean the good news is that we are growing net interest income pretty substantially, so we have eclipse the double digit growth rates and make a dent in that. So, we’re really looking at just trying to make sure that we’ve got a complement of services and that we’re selling as deep as we possibly can be. Once we get a little bit more of that infrastructure build, I think I indicated that we’ve gotten to a point where we -- may be gotten to the point of profitability and scalability in some of our businesses. We’re now more focused on that. So, we don’t -- we’re not out there telling you what the growth rate would be or what our goals are yet, we’re still defining some of that. I think the good news is that we had really strong revenue growth, we expect continue that. And we’re excited about it and the amount of customers we’re introducing to the platform. So, that tends to be our focus. But I wouldn’t expect us to make absent M&A activities or something like that, a meaningful shift in that contribution just because of the pace we expect the total revenue line to grow.

Operator

Thank you. We’ll go next to Brian Martin with FIG Partners. Your line is open.

Brian Martin

Maybe you guys mentioned a couple of times the same about the -- your optimism on the core deposit or the core margin expansion. And just I guess part of my question was, I mean are you guys seeing much in the deposit pricing pressure but obviously it sounds like that’s not the case, if the -- or optimistic about expanding at even beyond what we saw this quarter. Just can you give a little thought on what gives you the optimism on the core margin expansion from current level where we are sitting today?

Keene Turner

There’s a couple of components that we’re seeing, the most immediate that gives us the optimism of that we have some higher cost deposits that are going to roll off over the next couple of quarters. So, we think that’ll be helpful. And those were longer term four and five-year deals that are coming out. So that’s a pretty heavy pricing. We’re seeing some pressure in certain segments of the deposit markets but we expect net-net that it’ll still be positive, plus you have the big wave of Q4 loan growth coming in. So, we’ve got a lot going for us. The margin expanded nine basis points in the quarter, so starting the year at 350 plus growth. We feel pretty good about that. Much beyond the next couple of quarters, it’ll be hard to predict but we’re more optimistic than we were a few quarters ago.

Brian Martin

And maybe just one other question on the loan this quarter. It sounded like Kansas City was flat, and I guess anything keeping, holding back Kansas City at this point or is it just payoffs or something in the quarter restrained, and maybe you that and I just missed it? Sorry.

Scott Goodman

Kansas City performed well. I think the one thing we did is we split the EVL. As I mentioned, we split the lending segments out this quarter. Here we have a lending team, EVL lending team in Kansas City. They’ve done well but that really shows up more in the specialty lending piece. And then I think Kansas City had some good business development on new relationships for C&I and CRE but they also had some line pay downs and a couple of payoffs of construction loans that went to the permanent market. So, I’m still optimistic that Kansas City can continue on a decent growth pace going forward.

Brian Martin

And just as you guys look to the 10% growth, if you will, in 2016, can you just kind of talk about where whether it’d be -- just break it out kind of by Kansas City, St. Louis, Phoenix and then kind of the niche businesses where -- I guess where you expect most of the growth to come from? It sounds -- it looks like unless I looked at the slides wrong, they were about 317 million in growth in the niche businesses this year. So, just kind of any thoughts or color you can give on just where the optimism you see in the pipeline would be helpful?

Keene Turner

Yes, I mean that’s a lot of detailed guidance for us to give. I guess I say our plan is probably to continue to leverage where we’ve been successful. Scott mentioned some opportunities we took advantage of to bring some new origination capabilities on line and that might augment our growth a little bit. But I think it’s going to be a little bit more of the same for next year but we’re not giving guidance by line or region or anything like that.

Brian Martin

I wasn’t looking for guidance as much just where are you seeing more strength versus any weakness today? It sounded as if Kansas City might not be quite as strong but just I was looking more in general than specific.

Peter Benoist

I don’t know that we expect any major shift over prior year trends. There’s nothing that we see on the horizon that would cause us to think that on a commentary basis would be a significant change year-over-year.

Operator

Thank you. [Operator Instructions] We’ll go next to Andrew Liesch from Sandler O’Neill. Your line is open.

Andrew Liesch

Your loan growth forecast for this year is still pretty optimistic and it sounds like be a lot more the same but there have been some concerns elsewhere in maybe the broader economy. So, Peter, I am just curious if you’re seeing -- anything that concerns you in the markets that you guys are operating in?

Peter Benoist

No, I mean I said in my formal comments in terms of concentrations, we think the diversification of the portfolio is in very good shape and the geographies are performing well. I indicated that we continue to be disciplined around risk management; we think that’s really important. Classified test levels -- I’m sorry criticized test levels, classifieds are down. So, I don’t know no there’s anything that we’re overly concerned about. At this stage I think we are optimistic relative to growth. I think part of that is really just to do to the fact our business model is being executed really well in all markets. And as Keene mentioned, number of our specialty niches continue to drive some pretty good growth outside of our footprint. So, I mean I think what we try to do with all of you is indicate that management is focused on consistent execution and we’re continuing to be focused on consistent execution. From a credit risk perspective, obviously our metrics are very good; we would expect them to continue to be good. And I’m not aware of anything that would give us any significant concern from a risk perspective that’s out of the obvious.

Operator

[Operator Instructions] Eric Grubelich, an investor. Your line is open.

Unidentified Analyst

Hi. Good afternoon. I just had a macro question for you. At the beginning of the presentation, you talked about it, I think it was adding 300 commercial banking relationships in 2015. I was curious if you could help us with -- when you look at what you added, how does it compare from a profitability perspective compared to the average of the bank? Is it -- will it take you like a few years to get it up to the average of what the rest of the bank produces and do you anticipate adding that level in 2016 or better?

Scott Goodman

Those were business banking relationships that Peter mentioned. Those are little bit smaller size relationship for us. But typically the way that we look at relationships is we have to meet certain return thresholds to even bring them into the bank. So typically it’s not approve and expand relationship. So, you’ve seen us expand our returns in recent years with the growth and the reason for that is because we are requiring hurdle rates on all bars, new business and exceptions are very limited?

Operator

Thank you. And we have no further questions at this time. I’d like to turn the call back to our presenters today for any closing remarks.

Peter Benoist

Great. Thank you very much. Again, thanks to all of you for joining us on the call. I think I’d just reiterate, we entered the year with positive mindset and we are looking forward to a good year. So, thanks for your interest and hopefully we will see you next quarter.

Operator

This does conclude today’s program. Thank you for your participation. You may disconnect at any time.

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