Bank of Marin Bancorp's (BMRC) CEO Russ Colombo on Q4 2016 Results - Earnings Call Transcript

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Bank of Marin Bancorp (NASDAQ:BMRC) Q4 2016 Earnings Conference Call January 23, 2017 11:30 AM ET

Executives

Jarrod Gerhardt - SVP, Director of Marketing

Russ Colombo - President and CEO

Tani Girton - CFO

Analysts

Jeff Rulis - D.A. Davidson

Jackie Bohlen - KBW

Tim Coffey - FIG Partners

Matthew Clark - Piper Jaffray

Tim O’Brien - Sandler O’Neill & Partners

Don Worthington - Raymond James & Associates

Jarrod Gerhardt

Good morning. And thank you for joining us for Bank of Marin Bancorp’s Earnings Call for the Fourth Quarter and Year End at December 31, 2016. My name is Jarrod Gerhardt I’m the Senior Vice President, Director of Marketing for Bank of Marin. During the presentation, all participants will be in listen-only mode. After the call, we will conduct a question-and-answer session [Operator Instructions]. As a reminder, this conference is being recorded on January 23, 2017.

Presenting this morning will be Russ Colombo, President and CEO; and Tani Girton, Chief Financial Officer. You may access the information discussed from this press release, which went over the wire at 5:00 AM Pacific Time this morning, and on our Web site at bankofmarin.com, where this call is also being webcast.

Before I get started, I want to emphasize that the discussion you hear on this call is based on information we know as of today, January 23, 2017, and may contain forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set-forth in such statements. For a discussion of these risks and uncertainties, please review the forward-looking statements disclosure in the earnings press release we issued earlier this morning, as well as Bank of Marin Bancorp's SEC filings. Following the prepared remarks, our team will be available for questions.

And now, I'd like to turn the call over to Russ Colombo.

Russ Colombo

Thank you, Jarrod. Good morning, and welcome to the call. I'd like to welcome Piper Jaffray who has initiated coverage of the bank last week, and I also like to mention that today January 23rd is the 27th anniversary of the beginning of Bank of Marin.

We’re pleased to review our highlights with you for the fourth quarter and for the year. Let’s start with some highlights. The Bank generated record earnings of $23.1 million for 2016, that’s an increase of 25% from last year’s $18.4 million. 2016 benefited from higher earning assets, a large loan recovery, and higher gains on pay-offs of purchase credit impaired loans. The Bank earned $5.7 million in the fourth quarter of 2016 compared to $7 million in the third quarter when a large loan recovery occurred. Quarterly earnings were up 15% over the fourth quarter of 2015.

Gross loans increased $35 million and totaled $1.487 billion at year-end. Loan originations increased steadily each quarter, finishing the year with $62 million in originations in the fourth quarter and $192 million for the year. Loan pay-outs of $158 million for the year were down $11 million from 2015, and primarily the results of property sales, cash repayments, and successful completion of projects.

Total deposits grew 2.6% year-over-year to $1.773 billion from $1.728 billion the previous year. Non-interest bearing deposits grew by $47 million, and make up 46% of total deposits. Our success in deposit gathering has kept the Bank’s cost of funds best-in-class. Over the course of the year, we continue to build our team, including a number of strategic client facing hires. They are already contributing to Bank of Marin’s bottom-line and positioning us for future growth.

Our credit culture has always been a huge part of our success. Not only we’re on non-accrual still extremely low at 0.01% of the loan portfolio at year-end, but we already also result several problem loans this year, which positively impacted the loan portfolio and earnings. Diluted earnings per share were $0.93 in the fourth quarter of 2016 compared to $1.14 in the prior quarter and $0.81 in the same quarter a year ago.

Diluted earnings per share were $3.78 for 2016 compared to $3.04 in 2015. Our Board of Directors has declared a quarterly cash dividend of $0.27 per share. This is the 47th consecutive dividend paid by the Bank. When you combine that with a significant increase in stock price, 2016 turns out to be a tremendous year for our shareholders.

Now, let me turn it over to Tani for additional insights about our financial results.

Tani Girton

Thank you, Russ and good morning everyone. I am happy to be reporting on another earning’s record for Bank of Marin. Again, I think it’s important to acknowledge the team effort and discipline reflected in this latest success. Fourth quarter net interest income was $18 million compared to $19.4 million the prior quarter, and $17.2 million in the same quarter of 2015. For the year, net interest income totaled $73.2 million compared to $67.2 million in 2015. The higher earning assets, large loan recovery and gains on pay-offs of TCI loans that Russ mentioned earlier, are all reflected in these numbers.

The same factors affected net interest margin with lower cash balances partially offsetting the declines from 4.05% in the third quarter to 3.78% in the fourth quarter. Lower average rates on loans and investment securities tempered the year-over-year improvement from 3.83% in 2015 to 3.91% 2016. The Bank reported $300,000 reversal of loan loss provision in the fourth quarter and $1.85 million for the year. The $1.55 million reversal in the third quarter was largely related to the loan recovery. The loan loss reverse at year-end was 1.04% of total loans, which is deemed appropriate given our excellent credit metrics.

Non-interest income of $2.5 million increased over the prior quarter, primarily due to $347,000 special dividend from the Federal Home Loan Bank. For the year, non- interest income of $9.2 million was on-par with last year. We continue to maintain our expense discipline, non-interest expense of $47.7 million for the year was up 1.6% from 2015, only mostly to annual merit increases and additional staff. Key metrics, such as our 57.9% efficiency ratio, 1.15% return on assets and 10.23% return on equity are at superior level. In-spite of current interest rate, competitive and regulatory environment, this places us as a leader among our peers.

Our loan to deposit ratio was 83.9% at December 31, 2016, and we have plenty of liquidity and capital to support more growth in the coming years. Now, back to you Russ for some closing comments on 2016, and a look at where the Bank is headed in 2017.

Russ Colombo

Thank you, Tani. 2016 was a record year. We talked about the earnings as an obvious highlight. Clearly, that was a successful bank-wide effort. We've also mentioned new hires, especially in commercial banking, as another win for us this year. The hiring market in the Bay Area is always competitive, but we picked up a number of high quality commercial bankers in key markets, including Sonoma in Alameda County.

In addition, we’ve added a number of market clients in 2016. These successes energize our staff and keep us focused on new client acquisitions. It also shows the market that the Bank is well situated for growth. As we look ahead to 2017, there are many uncertainties in the market, from interest rates and corporate taxes to general economic growth. Despite these conditions, we believe we are well positioned for whatever might arrive.

This stems from our diligent risk management, which enables us to focus our attention on strategic issues. This may include acquisition as we actively look for opportunities. We remain committed to organic growth to fuel the Bank success. Growth opportunities will also likely include opening new branches and commercial banking options in 2017. Success in this business is a function of constantly looking for opportunities. Thank you for your time this morning. And now we would like to open it up to answer any of your questions.

Question-and-Answer Session

Operator

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

Jeff Rulis

The originations on loans continue to be pretty strong, and that net number obviously impacted by the pay-off activity. And, I guess, you had -- pay-offs were down by about 5% to 10% year over year. I guess, any sense that that trend will continue as in pay-off activity will continue to slow in the coming year, ideas on how that may trend?

Russ Colombo

Jeff, good question. When we do our planning for the year, we plan for about 10% of our portfolio to turnover. So that means originations have to be 10% plus in order to grow. And there is lot of reasons why things get paid-off. The good news is most of it, the vast majority over 80%, around 80% of the pay-offs are because of completion of construction project, or sale of properties and things like that, not because they're refinancing to go elsewhere. But they just continue to have more cash repayments.

So, from a planning standpoint, we always look to the next year as in order to grow the Bank's portfolio, we need 10% to stay even, and an addition of about 5% or 6%, or 7%, whatever the planning number is of growth. And it's continued that level for a number of years. As interest rates rise, I think that may slow somewhat, but we continue to plan for that number.

Jeff Rulis

And I guess a similar question on maybe visibility on potential future recoveries. You guys have brought in -- have had net recoveries for a while now. And just wanted to see about is that balance shrinking and maybe outlook for '17?

Russ Colombo

I don't think there's anything left to recover. The non-performing are so low that we look forward to the next year, there's not any big recoveries that we anticipate. This one that happened this year, we've been working on for a long time. And we knew eventually we would collect it. It just was a matter of time, and it happened in the third quarter. But I don't -- this is not a lot of non-performing assets there, very small number.

Jeff Rulis

And then maybe one last one for Tani, just on the FDIC insurance line and you mentioned the lower assumptions on that level. I wanted to see if Q4 was there a true up, and then when we get into the run-rate in Q1 may be lower than previous quarters, but greater than Q4's level. Any color on that?

Tani Girton

Yes, I think you hit the nail on the head. And that assessment, as you know, is based on the size of the balance sheet and the new rules that they adopted for institutions under 10 billion went into effect when the FDIC reserve ratio reached 1.15% on June 30. So, that's exactly correct, Jeff.

Jeff Rulis

So in Q1 we can see, expect to see that go back-up versus Q4, but lower than perhaps it had been the bulk of '16?

Tani Girton

Correct.

Operator

And our next question comes from the line of Jackie Bohlen with KBW. Please proceed with your question.

Jackie Bohlen

Sticking to expenses, just as you think about some of the new branches and loan offices you might open next year and some of the hiring you anticipate doing. I guess, how do you see that playing out and how much of your infrastructure can already -- is already ready for that growth in terms of expenses?

Russ Colombo

Well, in terms of the infrastructure in terms of additional regional type people or anything, that, we don’t have to add any more for that. It's adding to the existing infrastructure. If we talk about the retail side, if we added -- we added branches in Sonoma County, let’s say, those would get forward under our existing regional manager. And we’re looking at specific locations in Sonoma that we would like to be, and we haven’t been able to penetrate so far. So, we would potentially open branches.

But it won’t change the infrastructure at all. It’s just a matter of finding locations, the leases and the TIs that we have to do on the states, and then the people for those branches. On the commercial banking side, if we open a commercial banking office, it would just -- just a matter of lease base, it’s not necessarily will we open and it wouldn’t be a full branch, it would be a loan production office, and it’s about hiring a team. And so those are the costs.

Jackie Bohlen

And are you currently in any ongoing discussions with team?

Russ Colombo

Generally speaking, we’re always out looking for new talent. And we talked to a number of potential people that we could hire.

Jackie Bohlen

And then touching base on M&A, you’ve mentioned that you were acquisitive, just given valuation increases that we’ve seen over the last couple of months. Has that impacted any of your compensations or changed the pace of them?

Russ Colombo

I would say it certainly puts us in a better position, because our stock price, haven’t check it today, but we’ve stopped between 35%-40% depending upon when you looked at it .And when you’re talking about that high of an increase in new value, obviously, that’s going to make our currency more valuable in any kind of discussion with another bank. So, it makes our ability to make an acquisition puts us in a better position. Now, there is lot of banks that have the same umbrella, maybe our umbrella is a little bit higher. But the potential acquirers have all seen a nice run-up in stock prices.

Tani Girton

Could I just add a little bit to that? I think the recent run-up too is the move from a level where there haven’t been changed in quite while. And I think the staff that there is movement now is a good thing. And I think when you have the right combination at the right price, there is room for even further improvement of the stock as economies of scale and synergies come into play. And those are all benefits that we anticipate that shareholders of the selling company would take into consideration.

Jackie Bohlen

So would you say, and understanding that we’re coming off the holidays that the pace of the sessions you’ve been having has increased at all since this has come to be?

Russ Colombo

We’re always out there talking to potential acquisition targets. And there is not -- and we’ve defined it very well, it’s basically the bay area. So, we always talk to the banks that are there to see if there is interest. And as you know, banks are -- they are not bought they are sold. And so while we continue to talk to banks and talk about opportunities, they have to make a fundamental decision that they want to sell the bank. And so those discussions are continued -- they are ongoing we talked to a lot of people, but nothing new to report.

Operator

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

Tim Coffey

Russ, getting back to the outlook for higher interest rates and impact on the business. Now, you’ve talked about the pay-off activity, and what you would think for that. But what about the loan origination side, do you think higher rates might make it little bit harder?

Russ Colombo

I don't think so, because what we're -- I mean, we're not talking about huge interest rate increases. We’ve modeled in our models another couple of increases this year. And that benefits us because they’re as sensitive. So, and I don't believe -- reduced activity in the Bay Area is pretty strong. And despite even if we have interest rate increases, I don't think that's going to put a damper on the business activity in this area. So we're still pretty bullish about loan opportunities.

That being said, there has been a lot of pay-offs and most of the pay-offs are because people don't historically haven’t been looking at any great other opportunities, other investment opportunities. So with rates going up I think that we won’t see as much pay-offs from just cash and I don't think we'll see the pressure of refinancing from elsewhere. I'm pretty confident that this year will be another strong year for loan acquisition. And the real driver of that is having good people. And I'm pretty excited about the fact that we've added a lot of really good people in different key markets. So, as I look forward to this year, I'm confident that we're going to still continue to see good loan generation.

Tim Coffey

And then at deposit cost, given the quality of your deposits and with the current state of loan deposit ratio. Would you expect that your deposit costs that kind of have a lag from higher rates?

Russ Colombo

Yes, I would expect that. Historically, and in rising interest rate environment, we've been able to widen our net interest margin, and our deposit costs has not risen at the same as rapidly as our net interest income. So, yes, the answer is yes. I would expect that they would like.

Tim Coffey

And then on the pace of provisioning, going forward. Are you satisfied with where the reserves are right now? Or would you be looking to reserve at more on new loan production?

Russ Colombo

We don't -- we're pretty satisfied with where we are. Remember that when you're provisioning, the big challenge is you have to -- your provision is based on historical results. The good news for us is that we haven't had many loan losses. The difficult thing is to justify loan provisioning when you haven't had loan losses. So, we're very satisfied where we're. We're very comfortable that that's adequate, more than adequate, especially given our historical, and you could look back many years. And I think our biggest loss here ever was around $5.5 million of loan losses back in 2000 time frame. So I'm pretty confident our loan portfolio is adequately reserved as our loan loss provision.

Tim Coffey

And then just one final question on non-interest bearing deposits in the quarter. Was that as the seasonal decline?

Russ Colombo

Yes, it's just bounce around between 40 -- mid-to-high-40s. We've got a number of very large depositors that have some seasonal swings, and it was pretty hard to predict. There is nothing to be read into the fact, and went from 48% to 46%, other than a couple of the large depositors who keep many millions of dollars in bank. We’re on kind of a down cycle. But that does recover overtime. And it's probably half of dozen accounts that have fairly large swings, and they are deposits, some of which are, as an example, contractors who do a lot of municipal work. And they’ll have a big project, lot of money will come in from the municipality that we’re doing the work for. They start doing the work into deposits, and the deposits declined. So, it's hard to predict, but it's nothing we read negative into that.

Operator

And our next question comes from the line of Matthew Clark with Piper Jaffray. Please proceed with your question.

Matthew Clark

Maybe just first on the margin, I'm curious where you are putting new production on in the quarter. I'm sure if things may have changed in the second half of the quarter. But just trying to put your core loan yields for the estimate to be about 437, excluding purchase accounting, trying to put that in the context relative to the new production?

Russ Colombo

I'm not sure I understand the question, frankly, but Matthew…

Matthew Clark

I'm just wondering what sort of weighted average rate on new production in the quarter on news loan and new production…

Russ Colombo

It's pretty consistent. If you look back quarter-to-quarter the yield on new loan production nears the previous quarter, low fours, I don’t know exactly. And it's a little -- it's slightly down from last year, but very little. It's pretty -- that's the thing we are seeing that our loans margins stabilized. They were not seeing much erosion. And hopefully with interest rates increasing and potentially more this year, we’ll start to see a widening of that margin.

Matthew Clark

So, I guess, maybe that’s an area in 20-30 basis points of pressure there. But like you've said, higher rates, and obviously higher investment rates in the securities portfolio should call for a relatively stable margin going forward, and maybe…

Russ Colombo

Yes, one more -- and it's pretty solid in 2016. 2015 was slightly higher, but 2015-2016 was pretty solid, there wasn’t much decline.

Tani Girton

Yes, I think, Matthew, just as point of reference. If you look at the net interest margin year-over-year, the change in the average margin that was attributable to rates on loans not accounting for accretion and PCI pay-offs and so on, was about six basis points. So, as Russ said, not a lot of change.

Matthew Clark

And then just on the non-interest expense run-rate. If you look back to last year, I think there was a seasonal uptick. And should we expect something similar this year in the first quarter?

Tani Girton

Seasonal uptick in the first quarter on non-interest expense is something you can expect, because that's when we start putting merit increases into effect, and that sort of thing. And we also -- the tax rates start to refresh at the beginning of the year.

Matthew Clark

And then just on the C&I portfolio, balance is down a little bit here linked quarter, you’ve been bouncing around same level. Can you just talk to line utilization, and whether or not we can expect net growth in C&I lending this year?

Russ Colombo

Utilization has been pretty consistent on the C&I portfolio of around 44%-45%. And you could have year-end slight decline just in utilization, but that's pretty consistent. We've seen a pretty solid number over both the last couple of years in the mid 40%, 44%, 43%, 44%, 45% in that range, that hasn't changed recently. Now, if you go back a few years, it ran closer to 50%. But it's kind of running in that number right now.

Matthew Clark

And can you talk to your, maybe just your customer base in general, on whether or not you're hearing them, all the sudden, maybe more optimistic, more willing to expand, just given the change in administration here?

Russ Colombo

Well, change in administration it's hard to gauge that, so yes. Our customer base, we operate in a pretty strong economy. Here Marin is -- unemployment is under 3%. So, I think, people have taken a wait and see about how the economy will respond to the new administration. It's really too early to make any guesses about how that's going to affect our customer base. But I don't see anyone panicking certainly, or thinking this is going to be terrible times. It's just wait and see. We'll see what happens and we'll see what the new administration does, and see how the effective business plans go.

Matthew Clark

And then maybe just one last one, if I may, on M&A, just, can you remind me, you said the Bay Area. But can you remind us what your M&A criteria is in terms of the size and targets, and the earn-back to tangible book dilution earnings accretion, et cetera?

Russ Colombo

Well, first of all, the target. If we were to do M&A, it would be somewhere in the Bay Area, right. And we're not planning to jump markets to the Valley, or the Southern California, or to another state. That's just not where we want to go. So, that's number one. On the tangible book earn-back, I think everyone looks at five years as the outside limit. But I'm not sure that that's as important these days as generated returns, and we’d like to have a target of 15%. Who knows that we expect exactly where we are, but 15% is the initial target. You want accretion. Generally, you don’t want to do deals that aren’t accretive. So in your first full year, you love to see accretion for your shareholders, and whatever that number is, it depends on the size of the deal, I suppose.

We’re $2 billion Bank, and so it’s highly unlikely, we’ll acquire another $2 billion bank. But I think anything up into 1 billion or slightly over $1 billion is certainly in the ballpark for us. And we think that we have a very good story to tell historically and going forward, and we think we would be a great partner for a lot of banks in the Bay Area. But I think when you definitely move out our Bank with a number of others that you can pick out, it’s one plus one equals three, because I really do believe that because we’ve established the discipline and the consistency that we have, if you take another bank and integrate it into our organization, it would really be very successful merger of those organizations.

Operator

The next question comes from the line of Tim O’Brien with Sandler O’Neill & Partners. Please proceed with your question.

Tim O’Brien

Just couple of follow-up questions, one plus, and so with the December rate hike, Russ can you -- was there any benefit -- today your loans where you said higher with the December rate hike?

Russ Colombo

Those that are tied to price, certainly do. But you’re really not going to see the benefit. It's just been too soon. Overtime, you will. We have a lot of flooding rate loans that they’re fixed for a period of time, and they reset when they get to the end of that fixed period. So, it takes time for us to see the real benefit of rate increases. So, I think if we see one or two more rate hikes this year, you will see some impact. We’ll definitely benefit from higher interest rates at this organization, as you know, because we’re asset sensitive. But I think it's too early to see the real benefit of that in the numbers now.

Tani Girton

I think the good news on how the curve has responded is that the loan rates actually did pop as well, which people were not sure was going to happen. So, to the extent that the long end of the yield curve response when short rates go up, that’s going to be a positive for the Bank.

Tim O’Brien

And any chance you have the dollar amount of loans, total loans, that actually were impacted by that did see a reset from the December rate hike? Is it like 40 million, 50 million, or 100 million, whatever?

Russ Colombo

I don’t know the number for that, Tim.

Tim O’Brien

Just thought I’d try. And then another question, you talked a little bit about potential for opening another branch or two, particularly in Sonoma County. What’s the ideal size, or that you would like to, square footage wise, that you’d like to see these days in the new world order, perhaps relative to the size of branch that you've opened in the past, or acquired?

Russ Colombo

I think it's around 2,000 square feet, pretty small. There's really no need to have -- the old branches used to be massive. And we've got branch -- we have had leases come up in existing facilities, we view to try to give back some space or even move. And we've gotten a lot of examples of that into locations that are smaller. We do that in Sausalito a couple of years ago where we moved out of our space, which was, I think, 3,500 feet and we went through a space that was under 2,000 feet. And from an efficiency standpoint, that's terrific.

You just don't need that much space anymore for bridges. We need locations. We're still convinced that locations are important, but traffic isn't -- obviously, isn't as great it used to be. So you don't have to have bigger branch with 20 people, and then you probably need three people on a branch, or four. And interestingly enough one of our largest branch in our system for deposit is Corte Madera, and its 2,200 square feet. And that branch is over -- that’s over $220 million in deposits. So anyway -- so we have to -- we use that as a model. It's not about how big it is it's about how good a job we do in that market.

Tim O’Brien

And I think -- and you said -- and you mentioned the couple of county, Sonoma or Alameda County, would be of interest. Are there any other around the Bay Area County, say Solano, or San Maceio maybe, or San Francisco, where convenience would be make sense top end of the branch, small branch, contract cost…

Russ Colombo

Yes, we're interested in -- certainly in Sonoma County, it's in Napa County, Alameda. San Francisco is more personal banking market. We're not looking to open branches there. Ultimately, we'd like to be in the South Bay and certainly in the Peninsula too. But I would say we’re focused more on building out our market in the North Bay in terms of the retail side and the retail branches.

Tim O’Brien

And then one last question, as far as pay-offs were concerned. It seems like what's your guys, the hardest the past few quarters, has been more something along the lines of a client that’s either had a property, maybe an investor owned property or a business that they've sold. And so that's been a big factor in the pay-offs as opposed to refi's. But we've never really dug in on differentiating how much in pay-offs has been attributed to refi's versus those business sales. So, it would seem to me that if most of this is connected with somebody going to cash from a property that's appreciated really nicely in the Bay Area, we wouldn't see much of an impact on refi's that would probably continue as long as the economy stays strong, and real estate prices stay strong. But can you give a little bit more color on that, Russ? Or will refi volume slow down, or would we see a slowdown in 2017 due to that?

Russ Colombo

You're always going to get a portion refinanced. We have about 22% of our pay-offs are related to refinances last year. And some of that might have been -- we just decided, in fact most of it is we decided not to compete, because rates or terms were not acceptable for us here at Bank of Marin. That being said, we had $60 million paid-off because of assets being sold, that's a being number, as they have to replace them, it's not that being customer has a property or they have a business, or whatever it is, and they sell and they pay us off. And then hopefully we have a good client, so we continue to do business with them.

And then we have lot of construction activity, and you want those projects that they offer, and we had probably 10% of the portfolio in pay-off was construction projects that were completed and sold, and we got paid-off. So, there is going to be that activity .And again all these things, you can’t necessarily plan for anyone of them only at them or above, it always seems to come out about 10% of the loan portfolio. And so we plan for that, and we just used that as our number going forward. And we have to replace 10% to stay even and then we have to grow on top of that. And I don’t think 2017 will be any different, it could be price, but we still plan exactly the same way.

Operator

Our next question comes from the line of Don Worthington from Raymond James. Please proceed with your question.

Don Worthington

Just one question that maybe hasn’t been touched on, looking at non-interest income, both service charges on deposits and wealth management fees, were down let's say around 10% year-over-year. What's your outlook there for those components in non-interest income?

Russ Colombo

I'll talk about wealth management, first. Wealth management has given a lot of trust business, and in 2015, we had a really good year for the fee revenue side. And the reality of that was when one of our customer passes away we have to -- we finalize the trust and we distribute funds. And frankly what happened was we had a couple of very large states that we have to settle, that we settled in 2015. From a fee standpoint, that was good for us. From a ongoing business standpoint, not so good. And so we had a decline in fees on wealth management because we traveled to couple of the states in 2015. And that's -- so now you’re doing catch up to replace those, because those were two of our biggest accounts, individual accounts, that we had a couple of that that we had to finalize the estate.

Tani Girton

Don, on the service charges, services charges are intended to be a major component of our revenue stream. And many of our customers, who have analyzed accounts where the balances in your accounts, offset any of the fees that are incurred. Their balances tended to go up in 2016. So there was a greater offset of the fees that they incurred.

Operator

There are no other questions on the phone at this time.

Russ Colombo

Okay. I would like to thank everyone for joining us this morning. And we will look forward to talking to you again at the end of next quarter. Thank you.

Operator

Thank you.

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