CVB Financial Corporation (NASDAQ:CVBF)
Q1 2016 Results Earnings Conference Call
April 21, 2016, 10:30 AM ET
Christina Carrabino - Investor Relations
Christopher Myers - President and Chief Executive Officer
Richard Thomas - Executive Vice President and Chief Financial Officer
Aaron Deer - Sandler O'Neill and Partners
Matthew Clark - Piper Jaffray
Julianna Balicka - KBW
Gary Tenner - D.A. Davidson
Good morning, ladies and gentlemen, and welcome to the First Quarter 2016 CVB Financial Corporation and its subsidiary, Citizens Business Bank, Earnings Conference Call. My name is Mike and I'm your operator for today. At this time, all participants are in a listen-only mode, later we will conduct a question-and-answer period. Please also note, this event is being recorded.
I would now like to turn the conference call presentation over to your host for today, Ms. Christina Carrabino. Ms. Carrabino, the floor is yours ma'am.
Thank you, Mike, and good morning everyone. Thank you for joining us today to review our financial results for the first quarter of 2016. Joining me this morning are Chris Myers, President and Chief Executive Officer; and Rich Thomas, Executive Vice President and Chief Financial Officer.
Our comments today will refer to the financial information that was included in the earnings announcement released yesterday. To obtain a copy, please visit our website at www.cbbank.com and click on the Investors' tab.
Before we get started, let me remind you that today's conference call will include some forward-looking statements. These forward-looking statements relate to, among other things, current plans, expectations, events and industry trends that may affect the company's future operating results and financial position. Such statements involve risks and uncertainties, and future activities and results may differ materially from these expectations.
The speakers on this call claim the protection of the Safe Harbor provisions contained in the Private Securities Litigation Reform Act of 1995. For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from our forward-looking statements, please see the company's Annual Report on Form 10-K for the year ended December 31, 2015, and in particular, the information set forth in Item 1A, risk factors therein.
Now, I will turn the call over to Chris Myers.
Thank you, Christina. Good morning, everyone, and thank you for joining us again this quarter. Yesterday, we reported net earnings of $23.4 million compared with $28.6 million for the fourth quarter of 2015 and $15.8 million for the year ago quarter. Earnings for the first quarter of 2016 were impacted by higher than normal expenses.
These expenses included $849,000 in nonrecurring acquisition expenses related to the County Commerce Bank merger and about $1.7 million in additional expenses related to payroll taxes, healthcare costs and the hiring of new employees, and/or sales teams.
On February 29, we announced the completion of our acquisition of County Commerce Bank. Our financials for the first quarter of 2016 included 31 days of County Commerce Bank's operations. At close Citizens Business Bank acquired $168 million of loans, assumed $80.6 million of non-interest-bearing deposits and $224.2 million of total deposits.
Earnings per share were $0.22 for the first quarter compared with $0.27 for the fourth quarter and $0.15 for the year ago quarter. The first quarter represented our 156th consecutive quarter of profitability and 106th consecutive quarter of paying a cash dividend to our shareholders.
Our tax equivalent net interest margin was 3.52% for the first quarter compared with 3.52% for the fourth quarter and 3.59% for the year ago quarter. We continue to see competitive pressure on rates at all classes of loans, particularly commercial real estate secured loans.
Total loans grew by $156.5 million or 3.9% for the first quarter to $4.17 billion. This included $167 million of loans acquired from County Commerce Bank. During the first quarter, our commercial real estate loans increased by $168.7 million, our commercial and industrial loans increased by $32.5 million, construction loans increased by $21.1 million consumer loans increased by $7.3 million and small business administration loans increased by $6.8 million.
Our dairy and livestock and agribusiness loan portfolio decreased by $79 million primarily due to seasonal paydowns which occur in the first quarter of the calendar year. Loan demand remained strong and new loan production is ahead of last year's pace. The low interest rate environment continued to put pressure on loan portfolio retention.
After eliminating the acquired County Commerce Bank loans and the dairy and livestock and agribusiness loans, loans grew by $66.9 million for the first quarter or about 1.8%. Price competition remains challenging as the big banks are trying to preserve market share.
From a year-over-year perspective net loans increased $45.7 million or 12.3%. Organic loan growth accounted for $290.1 million of the growth or 7.8%, while County Commerce Bank loans accounted for $167.3 million or 4.5%.
In terms of loan quality, nonperforming assets defined as nonaccrual loans plus OREO were $24.7 million for the first quarter of 2016 compared with $28 million for the prior quarter. The amounts for loan and lease losses was $59.3 million or 1.42% of total loans at March 31, 2016 compared with $59.2 million or 1.47% of total loans at year-end 2015. Net recovery on loans for the first quarter were $180,000.
At March 31, 2016 we have loans delinquent 30 to 89 days of $900,000 or 0.02% of total loans. Classified loans for the first quarter were $83.4 million a $6.5 million increase from the prior quarter. This increase was due to a $6.6 million increase in dairy and livestock loans. We will have more detailed information on classified loans available in our first quarter Form 10-Q.
Now I'd like to discuss deposits. For the first quarter of 2016 our non-interest bearing deposits totaled $3.35 billion compared with $3.25 billion for the prior quarter and $3.13 billion for the year ago quarter. This represents $102 million increase or 3.14% quarter-over-quarter and a $225.2 million increase or 7.2% year-over-year. Non-interest bearing deposits represented 53.93% of our total deposits at quarter end.
Our total cost of deposits and customer repurchase agreements for the quarter was 11 basis points compared to 10 basis points for the prior quarter. At March 31, 2016 our total deposits and customer repurchase agreements were $6.84 billion compared with $6.46 billion for the same period a year ago and $6.61 billion at year-end. Our ongoing objective remains to maintain a low-cost, stable source of funding for our loans and securities.
Interest income, interest income for the first quarter of 2016 totaled $64.5 million compared with $65.1 million for the fourth quarter of 2015. Income from our securities portfolio was $18.1 million down $380,000 from the prior quarter representing the majority of the quarter-over-quarter decline. Non-interest income was $8.7 million for the first quarter of 2016 unchanged from the prior quarter.
Now expenses. Non-interest expense for the first quarter was $34.4 million compared with $31.9 million for the fourth quarter. The $2.5 million increase was primarily due to a $1.7 million increase in salaries and employee benefits principally due to higher payroll costs, higher healthcare costs and new hire expenses.
Additional costs included $849,000 in expenses related to our acquisition of County Commerce Bank. These costs are nonrecurring. Non-interest expense was 1.79% of average assets for the first quarter compared with 1.64% for the fourth quarter.
Now I'd like to turn the call over to Rich Thomas, our CFO to discuss our effective tax rate, investment portfolio and overall capital position. Rich?
Thanks Chris. Good morning to everyone. Our effective tax rate was 36.50% for the first quarter compared to 30.48% for the prior quarter and 34.50% for 2015 as a whole. Our effective tax rate varies depending upon tax-advantaged income as well as available tax credits.
Now our investment portfolio, during the first quarter of 2016 we sold an average of approximately $84.9 million in overnight funds to the Federal Reserve and received a yield of approximately 50 basis points on collective balances.
We also maintained an average of $52.3 million in short-term CDs and money market accounts with other financial institutions yielding approximately 85 basis points. The majority of these CDs and money markets were acquired in the acquisition of County Commerce Bank.
At March 31, 2016 our combined available-for-sale and held to maturity investment securities portfolios totaled $3.11 billion down $112.1 million from the fourth quarter of 2015. Quarter over quarter decrease was the result of our strategic shift of access liquidity into loans with higher yields and currently available in investment securities.
Investment securities represented 39.23% of total assets at quarter end. This is the lowest percentage level since the second quarter of 2013. At quarter end investment securities available-for-sale were $2.29 billion and we had a pretax unrealized gain of $59 million. Virtually all of our mortgage-backed securities are issued by Freddie Mac or Fannie Mae which have the implied guarantee of the U.S. Government.
At March 31, 2016 our held-to-maturity investment securities totaled $812.9 million and consisted of $313.7 million of municipal securities, $272.9 million of government agency and government-sponsored enterprises, and $226.3 million of mortgage-backed securities and collateralized mortgage obligations.
We continue to monitor the interest rate environment carefully weighing current rates and overall interest rate risk. During the first quarter we purchased $12.3 million in municipal bonds with an average tax equivalent yield of approximately 3.14%. We did not purchase any other securities during the quarter.
Prepayment speeds in our investment portfolio have accelerated in recent months. Based upon the current interest rate environment, we are presently receiving approximately $40 million to $45 million in monthly cash flow from our portfolio.
Now turning to our capital position. Shareholders' equity increased by $48.5 million to $971.9 million for the first quarter. The quarter-over-quarter increase was due to $23.4 million in net earnings, $21.6 million for the issuance of common stock for the acquisition of County Commerce Bank, $15.8 million increase in unrealized gain on the available-for-sale securities, and approximately $600,000 of various stock-based compensation items. This was offset by $12.9 million in cash dividends.
I will now turn the call back to Chris for some closing remarks.
Thanks Rich. One thing I want to clarify, earlier in my discussion, I think I mentioned that from a year-over-year perspective net loans increased by $45.7 million. I meant to say $457.4 million and that's 12.3% from the first quarter of 2015 to the end of the first quarter of 2016. So $457.4 million, I didn’t want to short change this on that.
All right, now let's talk about economic conditions. In terms of the California drought we continue to see little effect on the repayment of our loans. The El Nino effect is somewhat less than the drought short-term impact, but long-term issues still remain. Notwithstanding, the state will continue to closely monitor water usage.
Turning to the California economy, according to various economic reports, California's labor market continued to improve during the first quarter and hiring in the next two years is predicted to outpace hiring rates for the U.S. as a whole. California's Employment Development Division reported the unemployment rate was 5.5% in February 2016 compared with 5.7% in January and 6.7% back in February 2015.
Higher levels of employment and consistent job growth have led to higher incomes. The construction industry is expected to continue to post healthy job gains as builders try to meet demand for housing and the leisure and hospitality sector is still a bright spot in job gains and has been one of the fastest growing sectors in the state over the past year.
Turning to the dairy industry, milk prices continued to fall in the first quarter of 2016 dropping below the cost of production for many dairies. The short-term outlook appears somewhat challenging. However, the long-term outlook appears good as the majority of industry analysts predict a steady rise in global dairy trade for the next decade due to population growth and rising income in developing nations.
According to the California Department of Food and Agriculture, feed costs in California represented 56.7% of total milk production cost for the fourth quarter of 2015 compared to 58.1% for the third quarter of 2015 and 61% for the fourth quarter of 2014. Feed costs continued to decrease as feed supplies were abundant.
In closing, we are pleased to complete the acquisition of County Commerce Bank and are looking for other exciting opportunities to expand our geographic footprint in the California marketplace. We remain equally focused on hiring new teams of bankers to help us expand our marketing presence in new geographic areas. We continue to believe a balanced growth plan of acquisition and organic growth is the right corporate strategy for CVBF.
And that concludes today's presentation and Rich and I will be happy to take any questions that you might have.
Thank you, sir. [Operator Instructions] The first question we have comes from Aaron Deer of Sandler O'Neill and Partners. Please go ahead.
Good morning, guys.
Chris, you ended your comments right where I'd like to go back to which is on the subject of the new hires and growth. In the press release you've mentioned that you did some strategic hires in the quarter and you sounded pretty optimistic with respect to the pace in your production. With the new hires just hired, can you talk about any specific lending specialties that are there and in what geographies those folks are targeting?
Yes, if you look at really and let me speak to you over the past call it two years and then I'll speak more specifically about the recent two quarters. Over the past two years we added teams in Santa Barbara, Oxnard which is Ventura County, downtown Los Angeles, San Diego and South Orange County.
So those five teams have been all added on to the acquisitions that we've done, which is American Security Bank which is almost two years ago now and the County Commerce Bank which we just closed in February.
The most recent team acquisition was in January of this year with South Orange County. So we added a team down there. The C&I team, they do a lot of middle market manufactures, distributors, that type of business, owner occupied real estate, little bit investor real estate, but very relationship focused team and we're excited because we spent – we're really putting some significant resources in South Orange County.
Remember we bought American Security Bank. They had two offices down there. Now this team is layered onto that office and has gone into the headquarters of where American Security Bank once was. So that team is really leading the charge there in South Orange County.
That's great and then is my followup here, in the past you've kind of talked an 8% kind of annualized growth rate, is that still kind of a target for this year?
Absolutely, and I think if we could get a little more rise in the ten-year treasury rate, I think we can even do better than that, but I want to hedge my bets and say 8%. If you look at what I just said a little bit earlier about our quarter-over-quarter from 2015 to 2011 first quarter, 2015 we grew organically 7.8%. So we almost made that 8% target. And I think that in 2016 I would be disappointed if we didn’t grow organically by 8% separate from the County Commerce Bank loans.
That's terrific. Thanks Chris.
Next we have Matthew Clark of Piper Jaffray.
Good morning guys. May be first on your loan yield, looked like they held up well, just curious how much in the way prepaid penalty income or interest income reversals are in there this quarter and last just refresh our memory here?
Yes, last year for the full year I think we had about $4.9 million in prepayment fee income. For the fourth quarter of 2015 we had $546,000, $547,000. The first quarter was $919,000. So prepayment fees are still elevated. They are not running as high as they were on average for last year, but I would say normal level for us is $500,000 to $600,000. So at $900,000 it definitely impacted our loan growth and now the good news is we get a little bit more income on it but the bad news is we either refine our own loan at a cheaper rate or we loss the lone.
And there are – we've got to work harder on loan production because with real estate prices up where they are right now, some of these investors are taking their money off the table and selling properties as opposed to continue to just look to refinance them. So we've got to be on top of that and we've done some unique things, or not on how unique they are but we've done some things to, when a seller, one of our customer sells a property somewhere else we are using our prepayment penalties on those, we'll offer them discounts if they introduce us to the buyer and we get that loan on their prepayment penalty. So it is a way that we can try to keep it in there. The prepayment penalties are great, but I am more interested in keeping the loans.
Got it. And then in terms of the accretion, there were meaning accretion you expect with this latest deal, are going to like loans. Can you just update us on the accretion that you expect to pull in the interest income here over the next few years?
Yes, you know, what's kind of interesting is we talk about our and this all relates to, I look at this it relates to our loan loss reserve. And our loan loss reserve at the end of the quarter was 1.42%. And if you look at the loans from our three acquisitions that we've done over the last, call it six years, starting with San Joaquin in 2009, the ASP [ph] in 2014 and the County Commerce Bank in 2015.
If you just look at our legacy portfolio, our reserve is, as look at it as 1.57% our reserve. So that, the other $400 million issued loans are loans that were still originated by ASB, American Security Bank, County Commerce Bank or San Joaquin Bank. And so there are some different accounting treatments to those by the way they are handled, so I would leave that to our accounting experts to explain in detail.
You are certainly welcome to call them off line here, because I don’t want to get into too much detail. But roughly we have a little over $6 million in discount with the American Security Bank and the County Commerce Bank acquisitions remaining and the San Joaquin Bank gets a little trickier. But I kind of look at it all we're in about a little over $9 million on that $400 million in loans.
So I know we're not supposed to look at that as a reserve, but if you did you'd say that kind of has a two and a quarter percent reserve on it, but you have to look at interest rates in there as well. So it is not apples-to-apples, but I hope that answers your question.
Okay, and on the securities portfolio, should we expect that portfolio in terms of dollars continue to come down here or to stabilize?
What we'd really like to do and we talk about this is, if we could take, even if we had zero deposit growth, which is not our goal, we want to grow deposits, but we want to grow quality deposits that are sticky and low cost. But even if we had zero deposit growth, if we could re-engineer $1 billion of securities over time into $1 billion in loans, we in general will pick up about 2% yield on those loans.
Now we have to reserve for them to some extent and all that, but our recoveries are kind of helping our reserve along the way here because we still are experiencing net recoveries. So I think that's what's going to ultimately protect our net interest margin is the ability to transition securities into loans.
And if you look at over the last year, our loans are up 12.3%, our securities are only up to 2.6% from a year ago quarter. So the concentration of investment securities as a percentage of our total assets is below 40% for the first time since June 2013. So while that isn’t any great milestone, it is something that we are looking for because we'd love to have more mix of loans and ultimately I'd like to have 80% loan-to-deposit ratio and we're in the low 60s right now.
Got it, last one from me, just the tax rate and expectations for the rest of the year here?
I'll let Rich answer that one.
Okay Matt, clearly our tax rate is dependent upon our tax-advantaged interest that we recognize primarily from our municipal securities portfolio. There are a few other items that are in there, but they have smaller impact on our tax rate. And you also probably understand that in California we had tax credits that a couple years ago Governor Brown discontinued the enterprise owned credit, so those have been coming down a little bit. But we try to estimate our annual tax rate every single quarter and I think this, without being forward looking I think is this 36.5% is reason close end up for the year.
Okay, thank you.
Yes I think we're for the year 2015 we're at 35.5% tax rate and our first quarter was 36.5% tax rate. So there is a little bit of an adjustment there. If we feel like we are conservative at the 36.5% right now, but we do think there is a little bit of move up on the tax rate effectively.
[Operator Instructions] Next we have Julianna Balicka of KBW.
Good morning, how are you?
Good, how are you?
A couple of quick questions on the dividend it has been stable, now I know EPS itself is not increasing rapidly, but given your rising capital levels could you comment about potentials for increasing dividends or your thoughts around that?
Yes, the Board meets monthly, but we really talk about the dividend quarterly and we just talked about that last month and at this point I think with the payout ratio kind of running at 50%-ish We feel it is the right level. You are absolutely right. As capital levels build we will have to assess that on an ongoing basis.
But again, our first priority is to use that capital to fund growth and whether that growth is through acquisition or through organic growth one way or the other. So that hasn’t really changed from where it was a year ago. We are still optimistic that we are able to deploy that capital to grow the bank at a more rapid rate than what we have done over the last couple of years.
Well then, the implications what you just said that when the EPS will start to grow faster because maybe the growth economic conditions improve over other regions or rates [indiscernible] or whatever, will you then plan to increase your dividend in a more rapid pace than you would have done historically to maintain a 50% payout ratio or how should we think about that?
I don’t think that 50% payout ratio was cut in stone and this is something that again discuss quarterly and that can move. I mean a couple of years ago we talked about 40% payout ratio and he elevated that to more of a 50% payout ratio. But I think given a static universe then yes, I think we would look to increase our dividend over time.
And I think, whenever we look at increasing the dividend we want to make sure it is something that is sustainable for us and sustainable through different economic cycles and through acquisitions and so forth because we don’t want to get in a position where we have to back off on our dividend.
And as you know, we've done 106 consecutive quarters of paying the cash dividend and we want to make sure we continue that streak and we don’t want to downsize the dividend if at all possible.
Okay that makes sense and then switching gears, in your press release you remarked about shifting into relative higher yields than what the securities were offering in the first quarter. Now does that imply that because of what the securities yield did in the first quarter, you picked up loans maybe at lower yields than like a quarter or two ago you would have picked up or were you picking up loans at the same kind of yield levels that you were doing from last several quarters?
The loans that we’re putting on today are at a lower yield in general than the loans that we were putting on a year ago. Not significantly, but there is no question that price competition and when you see a 10 year treasury rate of 1.78% I guess it is up to 1.88% now that is the very competitive rate environment for us particularly since 60% of our loans are commercial real estate loans.
And that is and they all tend to be fixed rate loans of five years or seven years or 10 years along the way. So that 10-year treasury is a good benchmark to look at what that does. So the answer to that is that our yield on loans is going to be challenging to keep at the same level and our yield on securities is going to be challenging to keep at the same level.
But if we can take security dollars and put out in the loans the average securities yield is 2.5%, the average portfolio loan yield is 4.5%, but say for argument sake the new stuff we are putting on is half percent lower in each of those categories. I would rather have a 4% loan than a 2% security in that 4% loan is still higher than the 2.5% average yield we have on our securities portfolio today.
So that is where I think we can protect the net interest margin through loan growth even in the absence of deposit growth, but I would say deposits will continue to grow because we've got a lot of sales deeds out there.
But, I guess where I was going with this was there is pricing competition in other on loans, but have you also expanded your kind of tolerance for the lower price loans that maybe you are holding out before hoping things would change or everything hasn’t been that much a significant change in your tolerance?
No we are definitely competing, but we are it is almost on our - we really haven’t changed our stock rates in the banks in terms of what we present out there to our people on a daily basis. But when we see the stronger credits, we see lower loan to values that gets the low 60% or 50% on commercial real estate.
We will compete on price on those and we will lower our price to compete yes, because we are almost looking at those what we refer to as maybe bullet proof loans if you will that are that will should withstand a recession with the very, very de minimis [ph] amount of credit problems.
We look at those as almost a replacement for our securities. So the answer to that is yes. We are competing more to price basis but we are looking very carefully at credit quality because when you are lending out money at 4% or 3.5% or whatever the number is, you need to be right.
Okay, that makes sense and then last question I will step back it looks like twitch towards the end of the quarter you had a build up on cash and excess liquidity, so is that something you are going to look to redeploy in the second quarter and we should [indiscernible] margin level or was that just a blip at the end of the quarter and back out right now.
No I think we've got a, we're going to receive more cash flows from investment portfolio going forward. In fact, we've seen, we were talking about 35 million a month before. Now we're looking at 40 million to 45 million a month. County Commerce Bank acquisition did provide more cash as well, so that was part of that blip if you will.
We didn’t buy any mortgage backed securities or collateral mortgage obligations in the first quarter because we felt the rates were not attractive enough to us to want to go ahead and take that you to get the yield [indiscernible] interest rate risk we feel we feel guilt was worth the interest rate risk taker so that remains a challenge that even put more importance on growing low because we're not getting the yield on the securities portfolio.
We're trying to buy as many municipalities as we can so we do get the yield on municipal bonds. But we're not seeing those on the mortgage-backed and the CMOs, in fact we haven’t bought our mortgage-backed to our CMO this year, where as we've tried to accelerate somewhat o four buying of the municipal bonds but there has also been some rental for municipal bonds. But there has also been some run off of municipal bonds too as some of these are getting repriced to the marketplace. We're trying not to accumulate too much cash, but that will be a challenge going forward and ultimately I'd like that cash to go in the wells.
Got it, thank you, very much.
Next question we have Matthew Clark of Piper Jaffray
Just want to follow up on question on your pipeline and recoveries and reserve coverage in general, just try into get a sense for whether or not we can continue to see some net recoveries here throughout the year and where do you think that coverage ratio on loans Mike, obviously understand there is a mark there?
And that game will eventually end where we're getting recoveries off of loans and the pace we've been getting them and the first quarter was actually kind of a weak quarter in terms of [indiscernible]. I think given the pipeline we have for the rest of the year I think right now I think the first quarter will probably end up being one of our weaker quarters in terms of recoveries.
It is looking good for the second quarter and third quarter. The timing of these things is not always easy to predict, but we do have some good dollar recoveries that we believe are going to realize here in the next couple of quarters. And I said on our last call and I believe this is, I think last call. But I believe this to be the case as a guest not necessarily a higher prediction that our loan growth, in 2016 assuming we achieve this 8% loan growth in 2016 which is our goal.
I think that we will not have to add to our reserves because I think our recoveries will be sufficient even to provide the reserves to support that 8% growth in loans. So if you look at that, 8% on $4 billion of $320 million at 1.5% on our reserve that is about $4.7 million. So I would hope that we would have $4.7 million in recoveries between now and the remainder of the year to support that. That is a guess. It is not a prediction.
Got it, thank you.
[Operator Instructions] Next we have Gary Tenner of D.A. Davidson.
Good morning. Chris, I popped on the call a few minutes late, and I don’t know if you went into the detail, but you've had a comment regarding improving production at the newer markets, I just wonder if you could go into a little more detail there?
I think I said earlier in the call that we hired now five or six new teams over the last year and a half two years, those teams are getting acclimated. They are producing good business. Our other teams in the bank are very focus on long growth and relationship growth and so we are seeing higher productivity levels. In fact the last year the first quarter was by far our weakest quarter. And this quarter we were significantly ahead loan production over last year and the first quarter, so we feel good about it.
Pipeline is still good , good going into the second quarter and I think a lot of that is the new teams but also our existing teams are our are doing a good job of producing loans in the in the focus is important. We're not changing the type of loans we're going after it really is the same credit underwriting and the same thing we've done all the way along were simply have I think elevated our resources committed more resources to it and are very focused on how important this is for the organization to do in a very high-quality way.
Okay with regards to the folks maybe were not part of the newer teams so that they are also may be more engaged on the lending front than they have been is that a fair way of talking about. Did anything change with regard to their markets or the kind of drive for generating new assets.
I don’t know if anything has really changed there. I think our incentive programs are very focused on that loan production and in fact that's changed in the last couple of years and they get a greater percentage of bonus based on their loan production as a whole than they did a few years ago. So I think that gets them more focused as people are economically driven. Hope you are economically driven. Right?
If working for a bank should be. All right, thanks very much Chris.
Next we have Julianna Balicka, KBW. Please go ahead ma'am.
Hi and I just had one followup, I am sorry if I missed that in your prepared remarks, but your average deposit growth was declined in the quarter, so did you address that in your remarks, I'm sorry?
I did not address that, but it seasonally the targets are soft in January and February of every year and so I don’t attribute any of that deposit average to average, softness as being anything other than seasonal. I mean we're deposits are running well right now. There is not a concern that we're seeing run off of deposits or any substance and deposit production is good. I think we're very attentive to the cost of deposits which has a little bit of pressure.
We haven’t seen pressure in a long time [indiscernible] and we're starting to see a little bit of pressure on deposits as the Fed funds rate has moved up 25 basis points and as pure as our deposits are we'd like to think they are, there are people who are watching those rates pretty closely.
Okay, that makes sense, thank you.
[Operator Instructions] At this time, it appears that we have no further questions. We will go ahead and conclude today's question-and-answer session. I would now like to turn the conference call back over to Christopher Myers for any closing remarks. Sir?
Well thank you very much. We appreciate your interest and look forward to speaking with all of you again on our second quarter 2016 earnings conference call in July. In the meantime feel free to contact me or Rich Thomas, our CFO. Have a great day and thank you for being part of this call.
And we thank you sir and also to the rest of the management team for your time also today. Again, the conference call has now concluded. At this time you may discount your lines. Thank you, take care and have a great day everyone.
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