Columbia Banking System Incorporated (NASDAQ:COLB)
Q1 2016 Earnings Conference Call
April 28, 2016 04:00 PM ET
Melanie Dressel - President & CEO
Clint Stein - CFO
Hadley Robbins - COO
Andy McDonald - CCO
Joe Morford - RBC Capital Markets
Aaron Deer - Sandler O’Neill
Matthew Clark - Piper Jaffray
Jacquie Chimera - KBW
Jeff Rulis - D.A. Davidson
Ladies and gentlemen, thank you for standing by. Welcome to the Columbia Banking System’s First Quarter 2016 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the call over to your host, Melanie Dressel, President and Chief Executive Officer of Columbia Banking System.
Thank you, Sherrill. Good afternoon, everyone and thank you for joining us on today’s call to discuss our first quarter 2016 results, which we released before the market opened this morning. The release is available on our Web site at columbiabank.com.
As we outlined in the release, our financial results were negatively impacted by an increased provision expense and the last of the expense from our recent acquisition of Intermountain as well as lower accretion income. On the plus side our loan production was the highest we've ever achieved in a first quarter of the year over $250 million and we remain confident in the overall quality of our loans. I think it's important to remember that even with the uptick in non-performing assets to 0.55% compared to 0.39% at the end of last year, we still operate at a very low level of NPAs in comparison to our peer group.
I'll share with you that our credit portfolio doesn’t keep me up at night. The things that do worry me are the effect of prolonged low interest rate environment on both our industry and the national economy. I am also concerned about cyber and other sort of threats that are evolving continually posing new risks to the financial services industry and general commerce and the ever increasing expense related to regulatory environment.
I'm very confident in our own performance fundamentals including the quality of our loan portfolio, the relative long-term resiliency of our net interest margin as we have seen for a long time and the year-over-year improvement we have made with our PM expense bases. Although the first quarter of the year has customarily been the slowest for gathering deposits we were pleasantly surprised to see good growth in deposits including core deposits. Our priorities going forward continue to be growing quality loans, improving operating leverage and the effects of the utilization of capital.
On the call with me today are, Clint Stein, Columbia’s Chief Financial Officer, who will begin our call by providing details of our earnings performance. Andy McDonald, our Chief Credit Officer, will review our credit quality information. And Hadley Robbins, our Chief Operating Officer, who will cover our production areas this afternoon. I will conclude by providing a brief outline of the economy as we see it here in the Northwest including Washington, Oregon and Idaho and then will be happy to answer any questions you might have.
And of course, I need to remind you that we will be making some forward-looking statements today, which are subject to economic and other factors. For a full discussion of the risks and uncertainties associated with the forward-looking statements, please refer to our Securities filings and in particular our Form 10-K filed with the SEC for the year 2015.
At this point, I will turn the call over to Clint to talk about our financial performance.
Good afternoon everyone. After two consecutive quarters of record earnings our first quarter performance wasn’t what we had hope it would be. We reported earnings of $0.37 per diluted common share which was impacted by both acquisition and provision expenses. Acquisition expense of $2.4 million lowered our reported earnings per share by $0.03. Our provision expense of $5.2 million had a $0.06 per share impact on our diluted EPS. Our reported net interest income was down $1.6 million from the prior quarter. The linked quarter decline was the result of 1 less day for interest accruals combined with the reduction in incremental accretion income of $1.3 million.
Non-interest income before the change in the FDIC loss-sharing asset was $21.7 million in the current quarter, down from $25.8 million in the prior quarter. The decrease was driven by the $3.1 million mortgage repurchase liability adjustment recorded in the prior quarter as well as declines in interest rate swap income which were a record in the fourth quarter and miscellaneous volume sensitive line items.
Reported non-interest expense was $65.1 million for the current quarter, a decrease of $1.8 million from the prior quarter. We achieved the linked quarter decline in expense despite a $564,000 increase in acquisition related expense. After removing the effect of acquisition-related expenses, OREO activity and FDIC claw-back liability expense, our non-interest expense run-rate for the quarter was $62.3 million. This is a $1.9 million decrease from $64.2 million on the same basis during the prior quarter and is primarily attributed to lower occupancy and advertising expenses as well as reduced legal and professional fees.
Last quarter I discussed the financial impact of shuttered branch facilities working their way off our balance sheet. In this quarter we are seeing the improved run rate materialize. Our reported occupancy expense of 10.2 million includes 2.4 million of acquisition related expense. After removing the effect of acquisition related expense, our occupancy run-rate for the first quarter was $7.8 million down from 9.2 million on the same basis in the prior year quarter. Excluding acquisition-related expense, OREO activity and FDIC claw-back liability expense our non-interest expense to average assets ratio declined by 10 basis points to 2.79% during the first quarter.
We are pleased to see this ration trend downward even as we continue to make infrastructure investments in areas we believe will further enhance our long-term competitiveness and profitability. However some of the reduced expense and corresponding improvement in the NIE ratio is in line items that can fluctuate from period-to-period because of volumes, seasonality and discussion. As a result this ratio will likely bounce off the bottom and move within the 2.79% to 2.89% range we have experienced the last two quarters which currently is a quarterly expense run-rate of roughly 62 million to 64 million.
The level of acquisition expense for the quarter was in line with our expectations. As I mentioned on our fourth quarter call, this is the last quarter that will be impacted by expenses stemming from the Intermountain acquisition. Total transaction costs were $18.2 million which was basically in line with our announced estimate of $18 million. With respect to cost savings we achieved 10.3 million, which compares favorably to our merger model estimate of 8.6 million. The resulting expense reductions exceeded our goal by $1.7 million or nearly 20%.
The operating net interest margin compressed 6 basis points during the quarter declining to 4.03%. 4 basis points of the linked quarter decline was the result of 1 less day in the current quarter. The remaining 2 basis points was primarily the result of increased amortization of premiums within the investment portfolio.
Now I will turn the call over to Andy to discuss our credit metrics.
Thanks, Clint. For the quarter, we had a provision for loan loss of 5.3 million. As you know we maintain separate allowance accounts for the different portfolios. The breakout of the provision expense by portfolio is as follows. The originated portfolio had a provision of 5 million, the discounted portfolio had a release of 400,000, and the purchase credit impaired portfolio had a provision of 654,000. The provisions were driven by charge-offs and impairments in the originated portfolio, net recoveries in the discounted portfolio and a change in expected cash flows in the purchase credit impaired portfolio.
We had net charge-offs of 4.1 million for the quarter, split between the originated portfolio, which had net charge-offs of 3.3 million and the purchase credit impaired portfolio, which had net charge-offs of 1.3 million. The discounted portfolios had mixed results, with the consolidated net recovery of 443,000. So when you put it altogether for the quarter, the net charge-offs amounted to about 28 basis points on an annualized basis, up slightly from last quarter's 22 basis points. These metrics reflect a more normalized credit environment.
I would like to give you a little more color concerning our provision for the quarter. In aggregate as detailed in our press release total charge-offs were about even with what we have been experiencing for several quarters now. The change in the current quarter's net charge-offs had more to do with recoveries much like our OREO portfolio which is now down to 12 million there are not a lot of recoveries left coming out of the great recession. So when we look at the originated reserve where we had a provision of 5 million that portfolio had charge-offs of 3.9 million but recoveries were only 694,000 leaving us with net charge-offs of 3.3 million. So while the provision was clearly impacted by this the originated portfolio also experienced 131 million in loan growth. So growth in the portfolio also necessitated about 1.4 million in provision as we kept the reserve level relative to total loans essentially unchanged.
The purchase credit impaired portfolio had 2.9 million in total charge-offs, offset by 1.6 million recoveries for net charge-offs of 1.3 million for the quarter. Unlike the originated portfolio though this is a liquidating portfolio, which has been steadily declining over the past several years, as such there is no need to increase the provision for loan growth this it only required a provision of 654,000. So the dynamics of our loan provision really vary from portfolio-to-portfolio. I think it's also important to note that a year ago we had an exceptional quarter benefitting from several large recoveries that originated from write downs that occurred during the great recession. This greatly benefited the originated allowance for loan losses.
As a result annualized net charge-offs amounted to only four basis points in that quarter, clearly a level not sustainable through the normal course of business. Throughout 2015 and into 2016 we have migrated back to a more normalized level of activity relative to charge-offs and provisioning. As for the two credits mentioned in our press release both are associated with relationships that predate the great recession. The largest was in the originated commercial portfolio and is associated with a commercial contractor which is in liquidation. We anticipate the liquidation will be essentially complete by the end of the second quarter.
The other was a commercial real estate loan housed in our purchase credit impaired portfolio in which we accepted the proceeds from a short sale. So as of March 31, 2016 our allowance to total loans was 1.18% compared to 1.17% as of December 31, 2015. The modest increase in the provision to total loans continues to reflect the overall credit quality of our loan portfolio. This quality can be seen in our impaired asset quality ratio which remains extremely low at 15.7%. Our reserves still cover non-performing assets by a margin of 1.9 times and OREO is a modest 12 million. In addition as you will note from our call report criticized and classified assets remain relatively unchanged from the prior quarter at around 199 million. As such we are very comfortable with how our loan portfolio is behaving.
For the quarter non-performing assets increased 14 million primarily due to an increase in non-performing loans. The increase is attributed to one credit which has been impacted by the decline in commodity prices. Obviously the same credit impacted our provision. At quarter end 30 loans or more past due and not on non-accrual were about 8.4 million or less than 15 basis points. This is down from last quarter when past dues were around 11 million or 19 basis points. With that I'll turn the call over to Hadley to discuss our production results.
Thank you, Andy. Total deposits at March 31, 2016 were 7.6 billion, an increase of 158 million from 7.44 billion at December 31, 2015. About 46 million of this increase was in non-interest bearing DDA. Core deposits were 7.29 billion holding steady at 96% of total deposits. The average rate on interest bearing deposits was unchanged from the prior quarter at seven basis points. The average rate on total deposits also remained unchanged to 4 basis points. Loans were 5.88 billion at March 31, 2016 representing a net increase of about 62 million over the fourth quarter of 2015. The first quarter increase was largely driven by solid levels of new production in the amount of 254 million exceeding first quarter 2015 production volume of 217 million. Line utilization was essentially flat during the first quarter at 52.5% as compared to fourth quarter line utilization of 52.6. During the second quarter we expect to see line usage begin to increase as seasonal borrowings become more active, most notably in agriculture.
New production was largely centered in the C&I, commercial real estate and construction loans. The weighted average tax adjusted coupon rate for new production during the quarter was 4.14%. New production volume continues to be priced at lower coupon rates than the overall loan portfolio which was 4.39% at the end of the quarter. Term loans accounted for 184 million of total new production during the quarter while new lines represented approximately 70 million. The mix in new production was fairly granular in terms of size, 13% of new production was over 5 million, 34% was in the range of 1 million to 5 million, and 53% was under 1 million. In terms of geography 56% of new production was generated in Washington, 34% in Oregon and 10% in Idaho and a few other states.
First quarter net loan growth mirrored new production with growth concentrated in C&I, commercial real estate and construction. C&I loans ended the first quarter at 2.4 billion up about 39 million from the previous quarter. Industry segments with the highest loan growth first quarter included finance and insurance, real estate, rental and leasing and healthcare. Commercial real estate including multifamily residential and construction loans ended the first quarter at 2.7 billion up about 45 million from year end 2015. Net loan growth was well diversified across real estate asset types. For the quarter asset types were the most significant increase for multifamily, office and warehouse. The bank's deal flow remains active and the loan pipeline volumes are very comparable to levels seen in the recent quarters and we believe this will help fuel continued loan growth in the second quarter.
It concludes my comments. I will now turn the call over to Melanie.
Thanks, Hadley. Our Northwest economy is such an important factor in our success and then the in health of the communities we serve. I will just briefly given an overview of the major economic trends we're seeing. It's important to know that we cover a very large geographic area and our three states featured many diverse economies. We're closely watching market conditions and our leading economic indicators in light of concerns about internationally economic conditions particularly in China as well as more regional concerns such as upcoming job cuts expected for Boeing and Intel. Most economists see positive economic trends in the Northwest with slower but continued and steady improvement. Our major metropolitan areas are leading the way and our three state regions continues to do well.
During the first quarter Washington, Idaho and Oregon where we respectively listed first 11th and 13th in the ranking for best state economies by Business Insider based on measures such as GDP, wages, job growth, housing prices and unemployment rates. Speaking about employment rates, the rate here in Washington is a bit misleading, it helps held steady at 5.8% in March for the fourth consecutive month. However, steady and significant job gains have continued across most sectors but almost 11,000 jobs added last month. Washington has gained nearly 100,000 jobs in the past year, but a fresh influx of approximately 10,000 jobseekers every month is keeping the unemployment rate from decreasing.
Robust and healthy economy not to mention beautiful surroundings is also the primary driver of population growth in Oregon. Oregon's population hit 4 million last year. The state currently leads the nation for in migration. Their unemployment rate is at the lowest level in over 20 years following to a record low of 4.5% in March. The half of a percentage point lower than the national rate, this is the case despite rapid growth in the labor force. Oregon tied for the second in the nation for year-over-year job growth with a 3.4% gain. Idaho's economic indicators continue to be healthy as well. The state’s unemployment rate was 3.8% in March, declining another 10th of a percent from February.
Over the year, new jobs in virtually every sector grew by 24,000 or 3.6% the largest increase since 2006. We regulatory survey our business customers throughout our market area to better understand economic conditions and identify their challenges and opportunities. A recently completed first quarter’s survey revealed that almost 90% of those responding are confident about their future and they continue to be optimistic about general business conditions; however, we know the real concern is about the political climate which was the second most frequently sighted reason to postpone expanding their business. While there was a bit more optimism about the economy, business owners remained reluctant to make capital investments. Government regulations and taxes continued to be the top issues most of our customers face in their businesses. To summarize while some economic indicators have slowed somewhat the economy in our area continues to perform better than the country as a whole and along with our business customers, we're very optimistic about the future of the Northwest.
We continue to feel our opportunities in the Northwest which helps us to support our decision to increase our regular dividend from the prior quarter by 6% to $0.19 per common share and to pay a special cash dividend of $0.18. The dividends will be paid on May 25th to shareholders of record as of May 11, 2016. The total dividend payout of $0.37 is a 9% increase from the $0.34 paid during the same quarter a year ago and constitutes the payout ratio of 100% for the quarter and a dividend yield of 4.67% based on yesterday's closing price.
With that this concludes our prepared comments this afternoon. As a reminder Clint Stein, Andy McDonald and Hadley Robbins are with me to answer your questions and now Sherrill we'll open the call for questions.
Thank you very much. [Operator Instructions] Our first question comes from Joe Morford of RBC Capital Markets. Your line is open.
I guess my first question would be on the margin, Clint you mentioned well I guess I’d have to be curious to the Fed rate hike in December helped your margin that much and given it's a day count cost you four basis points, you're expecting a more stable margin in the second quarter or is there still from steady pressure from reinvestment rates in the securities portfolio and competitive loan pricing etcetera?
I'd say all of the above. So what we got from the Fed hike was about 2 basis points of bump in our coupons for things that re-priced so that obviously helped the flattening of the yield curve caused our prepayment speeds and the investment portfolio to kick up from roughly 16 to 18 that drove about 450,000 of additional premium amortization which impacted the margin so I guess all things being equal depending on what happens with the yield curve relative to the investment portfolio if the tenure would have -- go up a little bit and slow the prepayment speeds down a little bit we could get some tailwind in the margin from that the extra day count would be beneficial. And then it comes down to our deposit growth and how does that compare to loan production and not any cabbies got some thoughts on the outlook can’t get into a lot of that because we don’t give guidance but if I guess in short if deposits continue to grow at very strong levels that we've seen in the past few quarters and we put that to work in the investment portfolio that does create pressure on the margin but if we can grow net interest income and revenue as a result of that then I would take that trade off.
Then the other question is just on credit would you consider the two commercial credit prompts you talked about more kind of one off type of situations or are you indeed starting to see some broader systemic deterioration given where we are in the cycle that may cause you to start building boosting reserves again?
Joe I don’t think we see anything that is systemic as I mentioned these are both credits that we've had on the books for a long time one is a commercial contractor it is kind of a unique situation as you can imagine with a contractor when that doesn’t go well, nobody really wants to pay for half of anything that's built and so that toggles a lot of problems. The commercial real estate line really was a large office building it had a single tenant the tenant moved out it had to do with deferred maintenance and some issues with the building so lack of tenant and then the increased expenses associated with getting the building back to a condition in which you could attract a tenant just was we didn’t want to deal with that so we were happy to take the short sale so you can call them one off but it certainly was not systemic.
Thank you. Our next question is from Aaron Deer, Sandler O’Neill and Partners. Your line is opened.
I just -- two on following Joe’s question regarding the in some of the margin thoughts you guys have mentioned the new loans coming on at 414 versus the average portfolio at 439 I was wondering if you can also maybe share to what extent or maybe what first what volume of pay downs you had in the quarter and then of the loans that paid down in the quarter what was the average rate on those if you have instrument and what's the spread differential between new loans coming on versus loans that are paying off?
Well I can speak to pre-pays and payoff loans. Prepays were 81 million and loans paying off were 43 million. And that's not two different from what happened in the fourth quarter. But I don’t have the spreads to respond to the second half of your question.
And I would just add Aaron that as we've talked about in prior quarters sometimes there you kind of have to peel back the layers of the onion for new production based on especially given our focus on C&I lending and loans that are tied to LIBOR and other variable rate loans that we originate that come in at a lower rate today but we feel help maintain our asset sensitivity in the long-term about 50% of our production in the first quarter was in those types of loans that are variable rate. We also had one loan that was cash secured and it was a fairly good sized loan and that impacts the overall number on new production so I guess when we look at taking out and just looking at where we're, where we're at say on the variable rate loans. Those came in I think a little higher than what we've seen in the previous quarters, and that's you know probably a result of the rate hike we had in December.
When we look at the fixed rate loans, those I'd say broadly are coming in a little higher but then we have the noise created by a cash secured loan, so with the information I have in front of me I can't get that granular and I don't know that Hadley has any more information either, but I kind of feel like we're at about a point where all things being equal, we're not really seeing a significant decline in say what we're getting on LIBOR, three month LIBOR loans or if do a five year finance, and so how that factors into additional pricing pressure, or margin pressure, I really view our ability to maintain the margin more from the liability standpoint and the deposit growth that we've had and how that impacts our earning asset…
Okay, thank you Clint, and then switching to the -- also to credit, I was just curious, Andy mentioned the commodity prices is having an impact, is that decline, is that the timber industry or what is it that drove that?
The commodity prices are associated with the fishing industry, okay so predominantly it’s salmon.
It was just a curiosity, but then if I recall correctly there was also an uptick in losses in the consumer book. What drove that?
One of the banks that we purchased originated a bunch of hillock they were interest only and that portfolio began converting to a P&I payment and that started in the first quarter of this year so it basically revolves around that hillock portfolio, most of that repayment activity will be done by the time we get to the end of the third quarter.
Thank you. Our next question's from Matthew Clark of Piper Jaffray, your line is opened.
A question on your reserve coverage, kind of going forward you know what the uptick and the reserve ratio going from 1.17 to 1.18 just I guess first can you remind us of the mark that exists so we can just double check the adjusted reserve ratio, but also just curious. When you think we're going to stabilize here at that 1.18 or whether or not there might some additional reliefs going forward?
What is the mark, the mark in the purchase credit impaired and the TCI portfolio we've got still about 15 million in discount.
Yes I would say 14.
And then we've got of reserves set aside of about 13 million so those combined are about 28 million.
And then the discounted book?
The discounted book we've got roughly 29 million of net discount remaining.
Yes Matt I think you're probably right we're probably just going to bump around at this level for the next couple of quarters. Hopefully all the way through 2016 the economy seems to be it is not like totally robust but it's not going the wrong direction either. So that would be my expectation, in general our level of problem loans really hasn’t changed much in the last six months.
Okay. And then just Hadley maybe I missed your comments on the pipeline but can you just update us on how the pipeline looks kind of year-over-year and linked quarter, and then going into 2Q here?
Pipeline is over last year at the same time and pipeline is over last quarter and it's not materially larger but it remains well diversified between C&I and real estate and it's holding fairly steady in a range that is driving the changes in loans that you're seeing on our balance sheet, so I'm feeling pretty good about it.
Okay, and then just on fees and some of the activity, it sounds like there was some seasonality here in the first quarter overall just miscellaneous fees and also the interest rate swap income I think was down too. Is there I guess is there some sense that some of that will bounce back here in the second quarter or not?
Well I think that the swap income is a function of really kind of the loans we're booking at the time and I feel that we're going to be seeing increased swappings throughout the year. Last year in the fourth quarter it was a record and so we had probably the highest level of swap income that we've had in that fourth quarter. So comparing to the first quarter, you're going to notice the difference. I do feel that a number of the components in non-interest income are doing just fine, we have year-over-year gains in a number of categories and we have a few of those outliers that have been an issue. One of which has been financial investments and trust. We've had some volatility in the market in the first quarter early on that impacted fee generation and bringing people into the markets. Some of that has kicked back up and our trust business was off a little bit. So we've got plans to try to keep moving those forward and up, but I remain fairly confident that we'll see the core levels of our business, have continual upward movement, it's just I can't predict some of these changes that are coming through.
Thank you. Our next question comes from Jackie Chimera of KBW. Your line is open. Jacquie Chimera your line is open.
If I look at the level of gross charge offs that you had over the last three years or so, I assume right around that $24 million to $35 million level, is that kind of just a steady good economy level that we should look at and then obviously the net level has fluctuated based on your recoveries but given your comments the pool of recoveries available is declining should we look for charge offs to move more towards that level?
Yes, I think the charge-off are going to be close to the number that you're talking about and it is really more of the recoveries. I didn’t quite come up with the same math that you did because I guess I haven't calculated that. But the fourth quarter of 2014 and the first quarter of 2015 were actually low in terms of the net charge offs, so I would simply say the last four quarters that we've experienced and use that as a guide post for looking forward.
Okay, just very…
Does that help?
Yes it does, thank you. And just to clarify was any of the tick ups in NPL in the quarter, did that have anything to do with the two credits that were referenced. I am assuming the CRE loans is where the short tail is now gain but maybe the commercial contractors did that drive part of the increase, or were they separate loans that were added?
No we had the commercial contractor has some residual exposure. We believe we've got charged down so that we won't have any further loss and then the other one has to do with the fish business I alluded do.
Okay, so pretty much on those tails.
And then just lastly you know I mean wonder if you could give us an update on some of the M&A conversions, that you've been having in kind of what you're seeing in the market. We had two small deals announcement for the first time and it is really almost a year now so just kind of how conversations are going what you're seeing and what it looks between buyers and sellers and the disconnect there?
Well I think a level conversations continues to -- they're really steady and I think that pricing is still an area where there is a little bit of difference between buyers and sellers and I am just talking about so I am been talking with others that are acquirers that just seems like pricing continues to be a little bit of a challenge. But I don’t see any difference in the level of conversations that are going on. I think that they're healthy and I think we also have to remember that banks for the most part are pretty healthy right now, so they're just really normal conversations.
And do others share your concerns in terms low rate, cyber security and everything else and do not think about it?
Okay. And does it weigh more heavily on them now especially now that it looks like rates are not going to do what maybe people thought they were a year ago?
No I think that there are probably three things that are driving conversations and it would be the rising cast of technology and regulation and then the third thing is just you know the -- you have to work really-really hard to increase here your revenue in this interest rate environment I don’t think that anybody thinks that we are going to see material increases in rates this year. So just getting your revenue up and your net income up is just going to be challenging for a lot of banks.
Thank you. Our last question in the queue at this time is from Jeff Rulis, D.A. Davidson. Your line is opened.
Andy back to the just the mechanics of the -- all we've talked about on the, I guess the reserves levels and bouncing along kind of this reserves coverage. I guess in the comments of higher net charge offs can we equate the same amount of growth essentially that the provision would be more elevated given that that number being larger on losses?
Well the losses were about the total charge offs have been relatively steady. The recoveries have declined so.
Yes the net number I guess drawing on the reserve you have got to put more in to maintain at the coverage level?
Right, so if you think about the originated portfolio are you thinking about 3.5 for losses out of 1.5 million for growth. So you are probably somewhere in that range going forward in aggregate.
And then maybe just last one last one on the again on the loan yields and how it's matching up with the legacy book. Maybe one comment on just the competition out there on the loan yield front and if you are seeing a lot of pass through from the rate hike and I guess how competitive up or down is the environment sequentially or year-over-year?
I think that it hasn’t changed that much in my view it's just been very competitive for quite a while and particularly around those pieces of business that offer an opportunity to grow loans with high quality client a lot of the operating lines for good clients are based on LIBOR and we’re seeing spreads anywhere from typically around 200 but they can drop down below and to 175 and we've seen them go lower than that, so I just I would say that it's remained competitive and it looks like it's going to remain competitive in the future and that my expectation is, is that our coupon rates for new production are probably going to bounce around but in the range they had been over the last quarter a couple of quarters and that we will continue to see the book move more towards new production throughout the year.
I do think that one thing that has been working in our favor is because obviously we’re putting on our fair share of loans so we have to be competitive but I really think when it comes down to it that just the quality of people that we have as resources for our customers really allow us to continue to grow business and rate isn’t always the most important factor.
Thank you very much. That concludes the questions in the queue at this time. I will turn the call back over to the presenters.
Thank you so much for joining us today and we will talk to you again in July.
Thank you very much, ladies and gentlemen. This concludes today's conference call. You may now disconnect.
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