Columbia Banking System (NASDAQ:COLB) Q4 2018 Earnings Call

0:01 Ladies and gentlemen, thank you for standing by. Welcome to the Columbia Banking System's fourth quarter and full year 2018 earnings release conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session through both the telephone and web. Instructions will be given at that time. If you are on the telephone and should require assistance during the conference, please press bar zero. Thank you, Omar. Good afternoon, everyone, and thank you for joining us on today's call as we review our fourth quarter in 2018 four-year results, which we released before the market opened this morning. and a supplemental slide presentation are available on our website at ColumbiaBank.com.

1:04 2018 was a landmark year for Columbia Bank. It was a year in which we celebrated our 25th anniversary and completed the integration of Pacific Continental, which has been our most significant acquisition to date. Through the hard work of everyone across the organization, 2018 was a year of record net income and record levels of loan production. Overall, Our business model performed well. We did face stiff headwinds with regard to net loan growth. Record production for 2018 of $1.4 billion was offset by unusually high levels of pay downs and prepayments during the year. Activity related to loans $2 million and above was led by business sales and the sale of commercial real estate. loans exited or charged down for credit reasons, competitive pricing or structure requests outside of parameters, followed by payoffs tied to non-bank competitors, namely credit unions and the Farm Credit Administration. We also saw a more pronounced seasonal reduction in line utilization in the fourth quarter.

2:13 Looking into 2019, economic fundamentals continue to support the expectation for favorable business conditions in the Northwest Nonetheless, we have noticed that the pace of economic activity has started to moderate. Business owners remain challenged in finding workers due to tight labor markets and are concerned about the future trajectory of interest rates, trade relations, and the growing risk of recession. The recent government shutdown has created additional uncertainty. At this time, the impact of the shutdown on most businesses in our footprint is anticipated to be temporary and small relative to the overall economy. continue to believe economic conditions in 2019 will support positive loan demand and expect solid levels of production in the coming year.

3:03 However, a 2019 outlook for net loan growth is tempered by uncertainty related to the volume of future payoff activity, which has declined modestly over the last two quarters. By 2019, we expect to generate meaningful levels of capital. Our total capital today is robust at nearly 14%. Capital generated in excess of the amount required to support organic loan growth will be available to invest in technology, increase dividends, potentially fund share buybacks, or be allocated to strategic M&A should the right opportunity arise. At this time, we're pleased to increase our regular dividend to $0.28 per share and maintain our special dividend at $0.14 per share. On the call with me today are Greg Zegrist, our Chief Financial Officer, who will provide details about our earnings performance, Clint Stein, our Chief Operating Officer, who will review our production activity, and Randy McDonald, our Chief Credit Officer, who will review our credit quality information.

4:06 Following our prepared comments, we'll be happy to answer your questions. It's important that I remind you that we'll be making forward-looking statements today. For a full discussion of the risks and uncertainties associated with the forward-looking statements, please refer to our securities filing, and in particular, our 2017 SEC Form 10-K. At this point, I'd like to turn the call over to Greg to talk about our financial performance. Thank you, Hadley, and good afternoon, everyone. 2018 was a strong year for us. as a record full-year earnings of $172.9 million and ETFs of $2.36 shows. We did see the benefit of both the larger interest earning balance sheet from our Pacific Continental acquisition and the rising rate environment. As you know, our deposit data has held up quite well.

5:00 Given the seasonality we typically experience across loans, deposits, and our expense base, the full year really tells the story of our ability to effectively deliver increases in shareholder value. We also reported fourth quarter earnings of $44.7 million and EPS of 61 cents. Pre-tax acquisition related expenses of $493,000 in the fourth quarter and $8.7 million for the year negatively impacted EPS by 1 cent and 12 cents respectively. The net interest margin was essentially flat on a linked quarter basis as our leverage strategy mitigated the benefit of the Fed's rate increase at the end of September. Our leverage strategy is an important component of our broader balance sheet management strategy, which is intended to reduce our exposure to falling interest rates.

5:49 On a year-over-year basis, tax-equivalent net interest income increased by $107 million, or 28%, due to the full-year impact of the Pacific continental acquisition and the rising rate environment. The cost of interest-bearing deposits rose by five basis points on a linked quarter basis, and is up 12 basis points for the year, driven by selected repricing of interest-bearing deposits. We are actively managing our deposit product offering, balancing market pressures and client relationships. Our deposit mix remains stable with 50% in non-interest-bearing products. This structural advantage kept our cost of total deposits very low at 15 basis points. Non-interest income declined by $617,000 in the fourth quarter, given lower levels of prepayment penalties. We also saw modest increases in deposit account fees and financial services revenue. Card revenues were essentially flat on a linked quarter basis and came in as expected due to Durbin Amendment interchange rate caps implemented effective July 1st. As we mentioned earlier, acquisition-related costs in the quarter were $493,000, which compares to $1.1 million in the prior quarter. Transition and retention agreements were responsible for most of these costs.

7:05 As of December 31st, all Pacific Continental acquisition costs have been expensed and overall were $4.3 million or 14% less than our original forecast. In addition, we achieved our projected cost saves ahead of schedule. After removing the effect of acquisition-related expenses, our core non-interest expense was up $4.8 million on a linked quarter basis. Implementation and consulting costs related to our digital strategy contributed $1.4 million of the increase. We also saw an $840,000 increase in our self-funded group insurance driven by elevated medical claims experience and a $600,000 increase driven by an additional day of payroll in the fourth quarter.

7:50 Looking ahead, we do typically see seasonal increases in the first quarter related to bonus payouts, including a discretionary 401k employer match and increased employer payroll taxes as caps reset. We would expect our non-interest expense, inclusive of our anticipated digital spend, to be in the high 80s in the first quarter. Although we do expect elevated spend on digital going forward, we believe that spend is manageable in relation to our ability to generate earnings and accrete capital. Many of the decisions that will frame the exact amount and timing of that spend lie ahead of us. We will continue to update you each quarter. Our quarterly core non-interest expense ratio, which excludes acquisition-related costs, was 2.67% compared to 2.55% on a linked quarter basis.

8:39 And for the full year, it was 2.61%, which improved from 2.67% in 2017. Our operating efficiency ratio was 58.1% as compared to 54.8% on a linked quarter basis. For the full year, the operating efficiency ratio was 56.6%, up from 56.1% in 2017. Our effective tax rate was 19.3% for the fourth quarter as compared to 19.7% in the prior quarter. And our effective tax rate is in the range we would expect for a full year, which is 19 to 20%. At this point, I would like to turn the call over to Clint to talk about our production activities. Thank you, Greg. Good afternoon, everyone. We experienced our normal cyclical behavior for both loans and deposits during the fourth quarter. The decline in deposits was due to our typical fourth quarter seasonality as we did not experience any material balance reductions due to pricing.

9:34 Loan balances also declined during the quarter but were up slightly for the full year. Loan production in the fourth quarter was $388 million, which is second only to the record set just last quarter and has propelled us to a new annual record of $1.4 billion. However, prepayments and payoffs, along with the decline in line utilization, offset the new production. One utilization declined by 2.4%, which is a bit higher than normal for the fourth quarter. The quarterly average tax adjusted coupon rate for the new production was 5.35%, compared favorably to 5.23% last quarter, and the portfolio rate of 4.96%.

10:19 But bankers continue to do an excellent job expanding existing relationships as well as developing new ones. We feel production is within our control and resulted in our bankers setting another production high mark for 2018. We only have limited control over prepayments and payoffs, which were 65% higher in 2018 when compared to 2017. During the year, we did some credit printing in the portfolio and maintained our pricing and structure disciplines. These activities lowered loan growth substantially but we felt they were prudent long-term decisions. The good news is that prepayment activity appears to be slowing on a linked quarter basis, down 8% in the third quarter and another 4% in the fourth quarter.

11:13 This slowing is a hopeful sign but it is still elevated from historic levels so at this point remains a headline for bottom line portfolio growth. C&I represents 41% of our loan portfolio, which is substantially higher than most of our peers. This results in more seasonal and business cycle variability than portfolios with a higher concentration of real estate loans. Our loan pipeline continues to meet our expectations, but remember our volume generally builds throughout the year, with the first quarter typically being the lowest production quarter. The other first quarter dynamic is the timing of when our seasonal line utilization kicks in. Historically, it is very late in the first quarter or early in the second quarter, and in the ag book, the timing is determined by weather conditions.

12:08 New production in the quarter continues to be predominantly centered in C&I and commercial and multifamily real estate loans. Term loans represented $218 million of total new production while new lines accounted for about $170 million. New CNI production was $211 million, which is similar to last quarter. However, total CNI declined during the quarter due to line utilization and payoffs. Industry segments with the highest net CNI loan decline in the fourth quarter include agriculture, wholesalers, and finance and insurance, which are all susceptible to seasonality. A bright spot is our Native American banking niche, which grew by $52 million during the quarter due to new and expanded relationships with tribal nations.

13:04 We are seeing some impact from the government shutdown, especially in the area of SBA lending. As of January 22nd, our current backlog lists 30 loans. Twenty-five of these loans are approved and simply pending final submission to the SBA. In the interim, we are working with lenders to mitigate the client impact by providing bridge funding where appropriate. During 2018, significant compression in the premiums generated by the sale of the guaranteed portion of SBA loans occurred. In the near term, we anticipate holding most of our production on balance sheet until such time as the premiums return to a satisfactory level. This will have a short-term impact on our non-interest income that we believe will result in better long-term economics.

13:57 As mentioned in last quarter's call, we have begun to accelerate our digital strategy with the vision of giving clients a choice of how to interact with us, whether that be in person, through digital channels, or some combination of the two. Over the past four years, we have positioned the bank to remain competitive by deploying front and back office solutions, including a new digital consumer platform, improving sales and servicing with new CRM and marketing analytics. And in early 2019, we were scheduled to roll out a new business digital platform. With the help of an outside consultant, we spent much of the fourth quarter validating and refining our roadmap and strategy.

14:42 Throughout our history, we have consistently invested in the future of our franchise and feel it is important for you to have the visibility into these investments as they unfold. As Greg mentioned, we will continue to update you on our progress each quarter. Now, I'll turn the call over to Andy to review our credit performance. Thanks. Our fourth quarter provision for loan and lease losses of $1.8 million compared favorably to the $3.2 million in the prior quarter. This included provisions of $1.1 million for the originated portfolio and $1.3 million for the Pacific Continental portfolio. Offsetting these provisions were releases from the West Coast portfolio of $450,000 and $50,000 from the Intermountain portfolio and a release of $81,000 from the PCI portfolio.

15:37 The provision for the quarter was principally driven by net charge-offs of $2.2 million along with negative migration in the PCBK portfolio offset by positive migration in the originated and West Coast portfolios. As of year end 2018, our allowance to total loans was 0.99% as compared to 0.98% last quarter and it was 0.91% as of December 31, 2017. This ratio is impacted by our acquisitions and the associated loans that were recorded at fair value. Invented in those valuations is approximately $25 million of net discount, for which approximately $19 million is associated with the Pacific Continental Portfolio.

16:30 Net charge-offs for the quarter were $2.2 million, with most of it occurring in the originated and PCVK portfolios. 1.6 million and 716,000 respectively. Charge-offs were centered in the ag portfolio for the originated and the dental portfolio for PCPK. The ag charge-offs were associated with long-time problem assets which are now close to resolution. The dental deals were unique situations and are not considered systemic. For the quarter, non-performing assets decreased $6.9 million, primarily due to a $5.5 million decline in non-recrual loans. All in, the non-performing assets total asset ratio decreased to 46 basis points, down from 52 basis points last quarter and 63 basis points as of the year end 2017.

17:29 In summary, we continue to enjoy above average credit metrics. For this, I have to give credit to our bankers for the hard work they've put in over the past several years. It's a team effort by all involved, and their diligence and dedication is clearly reflected in the numbers. Past due loans were 35 basis points. NPAs are 46 base points. Classified loans to total loans is only 2%, and our impaired asset to capital ratio is only 15%. All thanks to the hard work our bankers put in day in and day out. Okay, Hadley. Thanks, Andy. As I previously stated, we're pleased to be able to increase our regular dividend this quarter to $0.28 and maintain our special dividend at $0.14, which together constitute a payout ratio of 69% for the quarter and a dividend yield of 4.36% based on the closing price of our stock on January 23, 2019.

18:31 This quarter's dividend will be paid on February 20, 2019 to shareholders of record as of the close of business on February 6, 2019. This concludes our paired comments this afternoon. As a reminder, Greg, Clint, and Andy and I are here to answer any of your questions. And now, Omar, we'll open the call. At this time, I would like to remind everyone, in order to ask questions, Please press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. The first question comes from the line of Jeff Rooley.

19:16 Your line is open. Thanks. Good afternoon. Hello, Jeff. You guys have alluded to in the past a portion of loans that you've identified as whether it was brought over from Pacific Continental that you're kind of actively pushing out of the bank or identified. Is there an update on that balance still yet to go or is that down to zero? I'll jump in, Jeff. This is Clint. I don't have it broke out necessarily by legacy portfolio in front of me. What I do have are some numbers that what I refer to in my prepared remarks as credit pruning is about 96 million, a little over 96 million for the year that we moved Andy and his team and special assets moved out the bank. I don't know, Andy, if you have additional details on anything left to go with some of the stuff that we didn't think was a great fit from Pacific Continental or if most of that's already out.

20:30 Yeah, I think that, again, it wasn't all special credits. It was, again, as I alluded to before in my comments, it was a team effort. I think there is some residual, but for the most part, that activity has been concluded. Okay. and then those loans that haven't pruned or it's not a line utilization decline. I guess where's that business going or where are you seeing the most competition on? Is it payoffs or are they leaving for other institutions? Well, there's a variety of things and I think that to... Steel Hadley's line, which in order of magnitude, you know, the big driver of a lot of the additional payoff activity was the sale of businesses.

21:27 And, you know, that was over $125 million of payoff activity in 2018. and we've talked about that not necessarily the number but that that's been a dynamic that we've dealt with for many years really since we came out of the downturn. There's about another 100 million of things that either we stepped back from because of structure or pricing and for really good Solid Deals. We'll sharpen our pencil for pricing, but we've often stated that structure for us, especially at this point in the cycle, we're not going to deviate from that. So there's about $225 million of additional payoffs in addition to the $96 million of credit premium. That's really the biggest factor. The other things add up and in total they're less than just the impact from the sale of businesses.

22:42 Maybe one last one on the expense side. I think, Greg, you alluded to higher sort of seasonal items in Q1. I wanted to match that up with you had some seasonal increases in Q4 on the comp, legal, and professional fees. Sequentially, I think you're guiding to up from Q4. Is that what we said? Well, you know, to be clear, I think taken one by one, I think the legal and professional is really mainly driven by some of the digital spend. Some of that has been around consulting fees and the like, so I wouldn't view that as seasonality as much as it was episodic in the fourth quarter around our digital initiatives.

23:27 On the common benefit side, over half of it, probably closer to two-thirds, were the items I alluded to or that I specifically mentioned in my prepared comments, which were also episodic. Medical experience went up just given claims below our stop-loss levels and having the additional payroll day in the fourth quarter. But as you know, when you kind of look at our business quarter-on-quarter, there is seasonality in the first quarter related to Next question comes from the line of Matthew Clark. The line is open. Good afternoon.

24:26 Maybe just sticking on expenses, how should we think about the progression of this tech reinvestment systems conversion project as we move throughout the year and maybe even next year? And maybe if you could also Put into context how we should think about the efficiency ratio on an adjusted basis, however you want to measure it, or the overhead ratio, if that's easier to guide to and control. Sure, Matt. I'd be happy to take it. I think you saw we had $1.4 million of spend in the fourth quarter related to digital, and the total run rate for the first quarter inclusive of what we expect in the first quarter. It's going to be in the high 80s.

25:24 I think your takeaway from that should be maybe the 1.4 starts to head up toward the 2 million range, give or take. I want to give you some comfort that that number doesn't dramatically expand from there. I think as we think about our historic run rate for our digital spend, and as we've talked in many forums, it's a journey. It's not a destination. So we clearly had spend in the past. What's different now is the depth and the additional things we're trying to bring on, and more importantly, the strategic benefits we're trying to get out of it. I think when you add that together this year, you might start to see, versus our historic levels, some increase. It's probably going to be more a magnitude of 30% to 50% over our historic spend, not 200% over our historic spend. So I want to give you some comfort that there's not a tremendous expansion here. Banking System, Inc.

26:31 Thank you very much. I still longer term, especially when you start to normalize for the double count and you start to see some of the other benefits we expect. I do expect longer term it comes back into the mid-50s. I think where we were this quarter is probably not far off where we're going to be over the balance of this year. I do expect it to maybe tick up a little bit with the seasonality in the first quarter and just Some of the spend, but keep in mind, the spend's still within our control on the digital. You know, we're still in the chartering process and the approval process and the like. So I'm, again, more focused on the balance of the year for 2019 and then, you know, what that looks like into 2020 versus, you know, quarter on quarter, whether or not we're going to have some lumpiness just based upon some of the decision-making that comes out of that process.

27:40 Yeah, Matt, this is Hadley. I want you also to have the context of what... What we're looking at right now, and Greg alluded to it, is that we're in the chartering process of a number of the projects. And in that chartering process, we're breaking it down into an implementation plan. And with that, we have a budget, and we'll be able to break down things much more specifically as it relates to capital, expense, et cetera. And we also have a sensitivity to Feathering in these projects at the point in time that they make sense. And we're on a journey, and we're going to be investing in the bank. And those investments also have returns to them.

28:29 And those are downstream, of course, likely 24 months following the implementation of the stabilization. But the returns in the way of, of revenues, and there's returns in the way of expense saves that restore the cost of the project plus add incremental revenue. And those are the types of things that we'll be able to share more directly with you as we go forward. Okay, great. And then on the leverage strategy, can you just maybe speak to what you specifically added In reverse order, I think that the impact of the leverage strategy on the fourth quarter margin was about five basis points, so it was noticeable.

29:23 The leverage strategy as a whole, we're getting pretty close to where we thought we would be. I wouldn't expect much more based on what we have approved at this point in time. Thank you very much. Thank you. I would also add, even though it's 5 BIPs reduction in the net interest margin, it is accreted to net interest income because we are doing this at a spread to what we're borrowing at overnight. So there are the benefits to it as well.

30:12 Okay, and then your deposit betas are still really well-behaved. I assume that will continue to some degree, but I guess how do you think about, you think you can, the margin expansion could resume here? Is that a fair way to think about it? Well, I mean, broadly, I do feel like, especially with the late December increase in rates, I mean, we have started to, you know, through the leverage strategy, we've increased duration on the investment portfolio side. If you look at the balance of 2018, we certainly had a little bit of duration on the loan side, but we're still asset sensitive. So you think about it from that perspective, there should be some benefit coming through. And since we're kind of near the end of the leverage strategy, we really shouldn't see the offset. On the deposit side, we continue to benefit from just our structural benefit of having half the portfolio and non-interest-bearing deposits.

31:07 And we are obviously very attuned to the market dynamics and to our client relationships. You know, I would still be cautious and say continue to think that, you know, whatever your market, your data is, assumption is for banks as a whole, put us at half to two-thirds of what that number is, and that's probably a good place to be. Okay, and then just a quick one. How much did the SBA gains contribute to the fourth quarter fee income, just to make sure we strip it out going forward? Yeah, I think it's about $150,000. Yeah, I think it's right around that. You know, historically it's been roughly a half a million.

31:57 You know, maybe one quarter it might be $400,000, the next quarter it might be $600,000. But what we saw was, you know, the second half of the year, the premiums really compressed, you know, almost in half from roughly 12% to about 7.5%. And so in the fourth quarter, we started winding down our sales activity of that. And so the fourth quarter was, I think it was about $150,000 is what we had in there. Okay. Thank you. Thanks, Matt. Your next question comes from the line of John Armstrong. Your line is open. Thanks. Good afternoon, guys. Hello, John. Hey, a few follow-up questions here. Greg, I think you were maybe alluding to this, but I wanted to clarify it. You are seeing some momentum on loan yields.

32:48 I noticed it was up just a couple of basis points this quarter. You mentioned the December hike, and I'm just curious if you've seen a little bit more momentum there. And I think you guys alluded to some higher production yields. Just curious your thoughts on that. Yeah, I'll start, and Clint can weigh in if he sees fit. But definitely the production in the fourth quarter was above portfolio yields on the coupon side, so you'd expect to see something from that. The other thing that kind of held down the fourth quarter a little bit, quite frankly, was some of the seasonality we saw in mine utilization. That typically comes from higher-yielding facilities, so there's a bit of NIM attached to that as well. But from what we've seen in early stages so far since the rate increase, I would expect a little bit of an uplift as the predominance of our variable rate loans reprised in the first quarter.

33:43 I think you covered a pretty good period. Okay. Well, I'll pick on you then, Clint, for the next one. You alluded to some slowing prepayment activity in the third quarter and the fourth quarter, still elevated, but maybe there's some hope there that that's slowing. Any specific drivers that you would point to on that? Well, I think some of it is back to our earlier discussion, I think, in response to Jeff's question about the credit pruning that we've done and some of the things that were in the Pacific Continental portfolio that we moved off our balance sheet, and a lot of that is wound down.

34:40 The pruning is something we consistently do. It was elevated in 2018. We'll continue to do that, especially as we move closer to the next downturn. But I think that the divot created from it, my expectation is it won't be as deep going forward. The sale of businesses, that's just something that maybe if The economy starts to slow a little bit more. Maybe that type of activity heading into a downturn will slow down. I don't see an easing in the non-bank competition.

35:27 The GSEs and life companies, the credit unions in certain markets have continued to be pretty aggressive. So I do see some of that type of activity. But that's been on the smaller side of what really drove the payoffs. So that's where we're optimistic that it's starting to slow, but it still is elevated. I think that's the other key. For 2018, that activity was about $418 million higher than what it was in 2017. I addressed most of that, you know, roughly just under $400 million with the things that we've already talked about.

36:14 But, you know, I think that, you know, we're still not back to what I would say our normal course of business run rate is. Okay. Okay. I misunderstood a couple of those comments. I apologize for that. I guess the other side of it then would be the loan production. You talk about your record production. You've alluded to typical seasonality in the first quarter, but do you see anything out there in terms of the economy changing? I hesitate because I think there's a lot of different levers or inputs that impact that. One of the things that we continue to do, and it's been a focus of ours for several years, is our capacity and how do we increase the capacity.

37:28 We've been fortunate that we're viewed as an employer of choice in much of our footprint, and we've been able to attract a lot of good talent. and I think that as we have opportunity to bring folks on that will produce at a higher level and maybe have a different niche than what our current focuses are, that that gives us the potential, the opportunity to continue to have that upward trajectory in the production area. The other side of it is that You know, we're at year end.

38:14 We're only nine months on the other side of the core conversion and integration for the Pacific Continental portfolio. And it takes time. We usually see that it's usually that second year where those pipelines start to rebuild and that production capacity hits full speed. So I think that there's opportunities there that will drive production. When I think about 2019 and knowing what our bankers have in their pipelines and what they can control, I'm very optimistic on the production side. It's the uncontrollable, which, you know, our The prepayment activities and those elements of that that we can't control.

39:07 That's what gives me pause. Okay. All right. Thank you. I appreciate it. Thanks, John. Your next question comes from the line of Aaron Deer. Your line is open. Good afternoon, everyone. Good afternoon. Maybe if I can just kind of follow up on that line of questioning with respect to kind of growth and capacity. I think I saw some recent press releases that suggested that maybe a competitor had picked off a few of your bankers. And I'm just wondering, I know there's always kind of churn on the front line, but To what extent are you guys successfully recruiting new producers and where does your capacity stand today relative to, say, a year ago?

40:10 We've had some attrition. Competition for talent right now is very aggressive and it's heightened, particularly during disruptions that Great uncertainty in an M&A scenario. An important part of the story, too, is resilience. I'm very proud of our team members who have stepped up and have ensured that customers impacted by some of this attrition have received the level of support and service that they expect and deserve. We've been very successful in replacing lenders who have left within about 60 days and I've also found that we're able to reallocate account loads among existing relationship managers and that translates into a reduction in the number of replacement officers that are required.

41:01 Right now I believe we have four or five open positions and in those positions, particularly in Portland, customers are aligned with existing PCB officers who have relationships with them. And so there's an ongoing connection. We've been pretty successful overall in being able to quickly attract the people we need in this scenario. So I feel pretty confident that we can stabilize any disruption that has occurred and might occur. I'll just add that along those lines, We look at where we recruited talent and where it joined us from in 2018 and even here in early 2019.

41:57 You can pretty much pick any large national bank or super regional that's operating in our footprint, and we've been able to bring folks over from there. and pretty quickly, I think Adley alluded to under 60 days, we had the team in the Portland, just outside the Portland metro area. Matt did a great piece on that, I thought, if you have access to it. We replaced that group from day one to them hitting the ground here in less than 45 days.

42:42 And so I think it's not only that we're able to attract the talent, but we're also able to do it pretty rapidly. And that's a credit to really our internal recruitment team as well as just our folks that are in the market and the reputation they have. And we have had these individuals that want to come and work alongside the talented individuals that we have in all of our markets. Sure, that's great. And, Hadley, I might have missed it. I jumped on the call a little late, but I'm not sure if just in terms of your general outlook, did you provide any sort of guidance in terms of the growth expectations for 2019? I didn't provide specific expectations other than I thought that 2019, the economic backup looks pretty good. There are some things on the horizon that create concern for our business owners.

43:40 The things that I hear when I'm out talking with our clients is that they want a little more clarity about where rates are headed. Everybody thinks that Fed's backed off a bit, but we need some time to go by to validate that. are concerned about the ability to attract the employees they need to increase their revenue streams. There's a very tight job market, as you know. There's more conversation, frankly, about how deep we are in the business cycle and that there's concern with the government shutdown and the volatility in the stock market and potential for recession.

44:29 Those things I hear pretty consistently. However, the fundamentals still look pretty good. We've got inbound migration. Our unemployment rates are pretty low. Business activity is still good. I want to think optimistically. I would think that we would have the at-bats that we need to create the levels of production that would drive net loan growth favorably in the coming year. But I have to temper that with we have had a lot of prepayment activity, some of it self-imposed and some of it driven by the market.

45:15 It has eased a bit, but it's higher than it has been in the past. I have that in the back of my mind as well. and many more. Are you still able to manage this on a one-off basis, or are you finding it necessary to start leveling up some of these different account types?

46:00 I think as we've talked about over time, we've been in pretty much constant dialogue, especially with our larger clients, and really just trying to be in tune with the needs on that side as well as the market dynamics and Thank you for taking my questions. Your next question comes from the line of Jackie Bolin.

46:49 Your line is open. Hi. Good afternoon, everyone. Most of my questions have been answered, but I have a few last little ones. I'm just wondering, with the increase in funding in the Native American space, does that provide you with deposit gathering opportunities as well? Yeah. Actually, it's a great source of of our deposit gathering opportunities. And so, you know, I don't have that number in front of me on what we brought in in terms of the fourth quarter, but it's pretty substantial. And I would guess a lot of noninterest bearing accounts? Yeah, there's noninterest bearing. I mean, there's a lot of, I mean, essentially a whole array of products that we can, that you take advantage of, our treasury management services, their operating accounts.

47:50 When we bank a tribe, it's generally the full relationship. And is there anything that's shifted in terms of the increase here, or is it just a continued focus on your part? No, I think that first we have a group that's been focused on this for over a decade. They're well established and well known in this space. Our ability to execute is critical. And what we really saw an uptick was with the Dakota Access Pipeline and a lot of the tribes really stepped away from anybody that was involved in that financing.

48:43 And that opened up some doors for us, and that continues to have a ripple effect in terms of access to different tribes. Okay. Thanks, Clint. That's helpful. And then just one last one. In terms of the – and I know that it was very small and not systemic, but the dental loan that was charged off in the quarter, was that related to the local portfolio or the national portfolio? The National Portfolio. And was it, I guess do you see any other loans within that portfolio with similar characteristics or was it just very specific to the one borrower? It was multiple borrowers. And they were really just, I mean, very unique instances.

49:38 that one would never expect. Ben is somewhat public because he was on YouTube on a hoverboard practicing. That didn't work out so well. So I would say that that's not a systemic issue in our portfolio. Hopefully not. Okay, Ben, that takes care of my questions. Thank you. Thanks, Jackie. Again, if you would like to ask questions over the phone, simply press star, then the number one on your telephone keypad. Your next question comes from the line of Matthew Clark.

50:24 Your line is open. Hey, just a quick follow-up. Heavy on your growth commentary and also in the context of the Because payoff activity, I mean, for the low growth outlook, is low single digits on average for the year the right way to think about it? And maybe you could do a little better if payoffs were to continue to subside. Is that the right way to think about it or not? Well, I think that low single digits is what's in my mind. But since I'm going to hold Clint accountable for delivering everything, what's on your mind, Clint? Well, generally, Hadley and I are on the same page, and, you know, that's where my mind's at, is that it's probably going to be low single digits, with the wild card being what happens with the payoff activity.

51:22 And, Matt, you have to put that growth in the context of the seasonality of... of our year, which starts off low point first quarter, third to fifth, and second. Third's typically the strongest. And then fourth quarter can vary sometimes just depending on the timing of some of the opportunities we have, but it typically drops. And so, you know, average outstandings are kind of what I measure the success of the year by. Great, thanks. No more questions at this time. Please continue. Okay, there are no more questions. Thank you all for your attendance this afternoon.

52:14 Appreciate it. Bye-bye. This concludes today's conference call. You may now disconnect.