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Heritage Financial Corp/WA  (NASDAQ:HFWA)
Q4 2018 Earnings Conference Call
Jan. 24, 2019, 2:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

See all our earnings call transcripts.

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Heritage Financial Fourth Quarter Earnings Call. At this time, all the participant lines are in a listen-only mode. There will be an opportunity for your questions and instructions will be given at that time.

(Operator Instructions) As a reminder, today's call is being recorded.

I'll turn the conference now to Mr. Jeff Deuel, CEO, please go ahead sir.

Jeffrey J. Deuel -- President

Thank you, John, and good morning to everybody on the call. Welcome and welcome to those who may call in later or listen-in later. This is Jeff Deuel, President of Heritage Financial and CEO of Heritage Bank.

Attending with me are Brian Vance, CEO of Heritage Financial; Don Hinson, CFO and Bryan McDonald, COO. Our earnings press release went out this morning pre-market, and hopefully, you've had an opportunity to review it prior to the call. Please refer to the forward-looking statements in the press release.

It has been a good quarter for us as we continue to make progress integrating Puget Sound Bank and Premier Community Bank. We completed the conversion of Premier in early November. So both banks are now on our core systems.

In addition, we recently announced a new team of bankers in Portland, who joined us in early January. We are pleased with our core operating metrics as they continue to show nice improvement from prior quarters. We are also pleased to announce that we are increasing our regular dividend to $0.18, which is an increase of 5.9% from the $0.17 regular dividend in the prior quarter.

Don Hinson will now take a few moments to cover our financial statement results, including color on our core operating metrics.

Donald J. Hinson -- Executive Vice President & Chief Financial Officer

Thank you, Jeff. Although there was some noise in our numbers this quarter, we liked the continued improvement in our core profitability metrics. Reported earnings per share for Q4 was $0.45, which is an increase of $0.03 from Q3.

Q4 earnings were negatively impacted by $0.02 due to $1.3 million of merger-related expenses from the Puget Sound and Premier mergers. Adjusting for the net income impact of these expenses, would bring our Q4 earnings to $0.47. In addition, Q4 was impacted by adjustments to income tax expense, which negatively impacted earnings by about $0.03. I'll review this further in a few minutes. Although we did not have significant balance sheet growth in Q4, we did see nice increases in non-maturity deposits.

Total non-maturity deposits increased $71 million or 7% on an annualized basis in Q4. Leading the way in this growth was non-interest bearing demand deposits, which increased $50 million or 15% on an annualized basis. Overall, deposit growth was muted by a decrease of $36.7 million in CDs, which was due mostly to the maturity and non-renewal of $30 million of brokered CDs.

Due to continued high prepayments, loan growth was muted in Q4. Bryan McDonald will further discuss prepayments and loan production in a few minutes. To offset the lack of loan growth, we purchased additional securities resulting in an increase of $55 million of investments during Q4. Overall credit quality improved in Q4 with reductions in non-performing loans and potential problem loans. The ratio of our allowance for loan losses to non-performing loans stands at a very healthy 256%, up from 233% in the prior quarter.

In addition, included in the carrying value of the loans are approximately $12 million of purchase accounting fair value net discounts, which may reduce the need of an allowance for loan losses on those related purchased loans.

We continue to benefit from core net interest margin expansion. Pre-accretion net interest margin increased 4 basis points from the prior quarter, driven primarily by a 5 basis point increase in pre-accretion loan yields. Both reported net interest margin and reported loan yield decreased from the prior quarter, due to a decrease of $934,000 in accretion income.

Cost of total deposits increased only 2 basis points to 29 basis points in Q4, due partly to the previously mentioned strong growth in non-interest bearing demand deposits and the reduction of higher costing brokered CDs. Overall, we're very pleased with our continued net interest margin expansion this past year. The strength and make-up of our balance sheet has resulted in an increase in our pre-accretion net interest margin of 48 basis points from Q4 2017 to Q4 2018.

Due to the change in the yield curve, forecasted 2019 rates, and competitive pricing pressures, we do expect margin expansion to slow substantially in 2019. Non-interest expense for Q4 decreased $2.3 million from Q3 levels due primarily to a $2.1 million decrease in merger-related expenses. Adjusting for the combined impact of merger-related expenses and the amortization of intangible assets in Q4, non-interest expense to average assets was 2.60% versus a non-adjusted 2.78% and decreased from an adjusted ratio of 2.64% in Q3.

In addition to some smaller year-end adjustments, income tax expense was impacted by additional expense of $898,000 related to low income housing tax credit projects. Our investments in these projects have increased from $4 million at the end of 2015 to $51 million at the end of 2018. Changes in cash flows and occupancy of units can change the current tax benefits from these projects. The total tax benefits from the projects are still expected to be realized but over longer periods.

Well we haven't had this type of volatility in the past. We don't expect it in the future. These adjustments can occur due to the nature of the credits. We expect the effective tax rate in 2019 to settle into the mid-to-high 16% range.

Our tangible common equity ratio increased to 9.9% from 9.6% at the prior quarter-end. The increase was due to a combination of a reduction in unrealized losses in investment securities and our solid earnings for the quarter. Due to our increased earnings and strong capital position, as Jeff mentioned, we are increasing our Q1 record dividend to $0.18 from $0.17 in the prior quarter.

We continue to believe our capital position sufficiently supports our balance sheet risk, our total growth and potential future growth, both organic and M&A.

Bryan McDonald will now have an update on loan production.

Bryan D. McDonald -- Executive Vice President & Chief Operating Officer

Thanks, Don. I'm going to provide detail on our fourth quarter lending results by production area, starting with our commercial lending group. In the fourth quarter, our commercial teams closed $187 million in new loans, which is down from $196 million of new loans closed in the third quarter of 2018 and up from $161 million closed in the fourth quarter of 2017.

New production during the fourth quarter was centered in King County at $82 million, with Portland, Pierce County, and Northwest regions each contributing $22 million. Commercial team pipelines ended the fourth quarter at $340 million, which is up from $335 million last quarter. Largest concentration of the pipeline is in King County and Portland, which comprise a $196 million and $77 million respectively.

Net loans increased only $5.1 million during the fourth quarter, due in part to a continuation of the higher prepayments and payoff activity we have been experiencing since the second quarter of 2018. Loan payoffs and prepayments during the quarter totaled $140 million versus $167 million in Q3, a $152 million in Q2, and $109 million in Q1.

2018 average payoffs per quarter at $142 million represents a 43% increase as compared to the 2017 average of $99 million per quarter. This compares to a 28% increase in loan balances during the same period.

Similar to the last two quarters, payoff and prepayment activity in the fourth quarter was elevated by a higher level of business and real estate sales, customers using cash to pay off debt, and client's paying off loans due to our active portfolio management efforts.

SBA 7(a) production in the third quarter included nine loans for $7 million, and the pipeline ended the quarter at $25 million. This compares to last quarter, where we closed 15 loans for $8 million and the pipeline ended the quarter at $21 million.

Consumer production during the second quarter was $49 million, relatively flat with $50 million last quarter. The mortgage department closed $28 million in new loans versus $44 million last quarter and $36 million in the fourth quarter of 2017. The mortgage pipeline declined primarily due to seasonal factors and ended the quarter at $23 million, down from $41 million last quarter and $27 million in the fourth quarter of 2017.

Moving to interest rates, average fourth quarter interest rate for new commercial loans was 19 basis points higher, increasing to 5.62% versus 5.43% last quarter, and rates are up 23% in the last year or 105 basis points from 4.57% in the fourth quarter of 2017. In addition, the average fourth quarter rate for all new loans was 5.66%.

I'll now turn the call back to Jeff.

Jeffrey J. Deuel -- President

Thank you, Bryan. I'd like to add some general observations. We continue to be comfortable with the overall Pacific Northwest economy. Valuations are stable for CRE and single-family. However, competition continues to be strong in all loan segments. In spite of the positive economic environment in our region, we continue to be cautious about all loan segments, relying on our robust concentration management process to provide guidance.

Currently, our non-owner occupied CRE concentrations are at 258% of capital compared to 263% in the last quarter. And construction is at 39% of capital, compared to 44% last quarter.

Operating at these levels provides us with flexibility and also allows the Bank to take advantage of high quality opportunities while still being able to maintain discipline, focusing on loan quality and yield.

As you can see, our concentrations in certain categories are opening up to -- opening up a bit due to the ongoing payoffs. Our overall loan growth in Q4 was flat quarter-to-quarter due to higher than normal pay-offs, which again, muted the good work done by our expanded production teams. I think it's important to note that our risk profile overall also limits our loan growth to a certain degree.

As you know, we experienced pressure from loan payoffs for the last three quarters of 2018. In contrast to the flat loan growth, our ability to manage NIM is contributing to our positive overall -- our positive performance overall and although we have seen higher than normal level of payoffs, the new loans we have originated are being booked at higher rates.

Also, now that we are past the distraction of two conversions in 2018, we can see the acquired teams contributing in a more significant way as the pipeline builds and we are happy to be seeing the benefits of our larger scale following the integration of both acquisitions. We're well positioned for 2019 with our largest concentrations of production teams located in Seattle, Bellevue and Portland, the two markets in our footprint with the most growth opportunity.

We continue to benefit from the flexibility provided by our quality deposit composition. While the cost of deposit is up slightly quarter-over-quarter, the betas are still relatively low and the loan-to-deposit ratio is holding steady in the low 80s, which provides us with flexibility to optimize pricing while managing the balance sheet. We continue to focus on maintaining and growing our deposits across the footprint and we are pleased to see the non-maturity deposit growth continue in the last quarter.

After adjusting for merger-related expenses, we continue to see a positive trend in the overhead ratio. We expect that to continue to trend down. Right now, we're sitting at something -- we are sitting at something of a crossroads with regard to expenses. We have a full complement of production people. Many who are relatively new to the organization having joined in 2018, we need to give them a chance to perform in a stable environment, without the distraction of a conversion and having had some time to get acquainted with our culture and processes.

Additionally, we have been building up our technology team to address the need for more automation in the back office. I would also like to remind you that we've been building a strong enterprise risk platform over the last three years in order to support the growing organization. As a result of these actions, we will need to be vigilant managing expenses during 2019, while the broader production platform reaches its potential.

During Q4, we initiated the closure of our branch that will bring our total branch count from 64 to 63 locations by March 31. As Don noted, credit quality remains quite good as we continue to actively manage the portfolio by either managing underperforming loans up or out which, coincidentally, also contributes to our payoffs.

We continue to manage our capital position to support risk in our balance sheet and planned organic growth as well as positioning the Bank so we can respond to M&A activities as they present themselves.

I'll now turn the call over to Brian Vance for some closing comments. Brian?

Brian L. Vance -- Chief Executive Officer

Thank you, Jeff. As I reflect back on 2018 and the two mergers we closed and integrated, I'm reminded that we grow our assets by 29% year-over-year. This growth is a significant accomplishment, especially considering that we integrated two banks and executed two successful conversions all in one calendar year. I would like to thank our experienced and capable bankers and especially the back office teams of our organization that we do not sufficiently talk about on these calls. They were all rock stars this past year.

Jeff and others have talked about the prepayment activities that continue to plague us and many other banks. Prepayments, for the most part, are uncontrollable, but we do have a greater control over the production of new loans and we are pleased with the production numbers and our prospects for 2019.

We are pleased with our core net interest margin expansion, but we're also cautious about the pace of NIM expansion going forward due to increasing competitive deposit pricing, which we are beginning to see more of.

I'd like to reiterate a data point that Don mentioned and highlighted and that's our continued growth in DDA deposits. Since 2015, we have had compounded annual growth rate of non-interest bearing deposits of 21%. In Q4, we still grew DDA deposits by an annualized rate of 15% at a time when DDA deposits across the industry are being moved to higher yielding interest bearing products.

As Jeff has noted, loan growth has and will likely continue to be impacted by our overall risk profile. We have never sacrificed loan quality for loan growth and we are not going to start now, especially at this point in the cycle. I continue to believe that on balance sheet liquidity along with credit quality will set apart strong performance from the rest of the pack as we head into more challenging interest rate and overall economic environments. I am pleased with our historic performance in these two areas.

Now I'd like to turn the call back to Jeff for closing comments.

Jeffrey J. Deuel -- President

Thanks, Brian. I'd just like to conclude our update with the comment that, overall, we feel very good about what we accomplished as an organization in 2018 and we're looking forward to taking advantage of all the great opportunities that are in front of us for 2019.

So, John, with that, we're ready to open up the call now for questions that anybody may have.

Questions and Answers:

Operator

Certainly. (Operator Instructions) And first from the line of Jeffrey Rulis with D.A. Davidson. Please go ahead.

Jeffrey A. Rulis -- D.A. Davidson & Co. -- Analyst

Good morning, Jeff.

Jeffrey J. Deuel -- President

Good morning.

Jeffrey A. Rulis -- D.A. Davidson & Co. -- Analyst

I guess, a question on the payoff activity, just to kind of get in there a bit. Jeff, you mentioned a bit of that and I guess Brian alluded to it as well. It's just kind of the risk profile and how much is partly on year-end kind of forcing it out or trying to stick to concentrations, is there another way to interpret the payoff level to say, look we have increasingly driven more payoffs from forcing out versus kind of what's been pay off. Is there a way to kind of gauge, if you've been more active in pruning the portfolio versus just straight pay offs?

Jeffrey J. Deuel -- President

Yes, I think there is a way to do that and I think Bryan McDonald may want to add to this, but we went through our analysis of the numbers and I think we could probably point to less than 10% of the payoffs were related to us actively managing the portfolio, which we've always done. It's just that -- it is a part of the function of the payoff process.

And -- but a good portion of it is also just general activity with our customers and if we tracked the payoff activity, you'd see any number of reasons why they're being paid off and in some cases we may be just waiting for the next year to fall and then the next loan to come back to us. Bryan anything you'd like to add to that.

Bryan D. McDonald -- Executive Vice President & Chief Operating Officer

The only thing I'd add on to Jeff's comments is, with the competitive environment that we're in, if we're even a little less than accommodative, even on the lower quality credit, they immediately refi out and so that's been a trend we've seen last year, but it's really accelerated this year. So it's easier to move out anything at this point in the cycle.

Jeffrey A. Rulis -- D.A. Davidson & Co. -- Analyst

Helpful, thanks guys. And maybe just on the expense run rate then, I guess you're kind of pointing to a $36 million base, if you back out the merger stuff this quarter. How does that look for -- is that a good number, I guess, to grow of off in '19?

Jeffrey J. Deuel -- President

Well, just -- I'm sure Don will want to jump in on this, but I think the way that we tend to present our view on a -- on the run rate of the expenses is where we are going to come out on our overhead ratio and Don has been pretty consistent with his response to this question that it's in the 2.60% range by the end of the year. We tend to see our expenses, maybe expand a bit at the beginning of the year, and then we worked real hard to bring them down by the end of the year. So, Don, you want to add to that?

Donald J. Hinson -- Executive Vice President & Chief Financial Officer

Sure. Again, I think year-over-year, we're always looking for overhead ratio improvement. We've had, I think in Q1, we always have a little bit of uptick to things like payroll taxes increasing in Q1 and some of the other things that tend to happen. I would say, also, we just did hire a new team and that impact will be -- Q1 will be the first quarter on that.

So I think that, again our overhead ratio improved, I think, for year-over-year even with the teams and other investments we're making on the technology side and other production we did -- other production people we brought on this last year, some later in the year. So, I continue to see that we'll improve that overhead ratio, but there are other investments we're making that are going to slow down that improvement.

Jeffrey A. Rulis -- D.A. Davidson & Co. -- Analyst

Don, I missed your tax rate guidance. What was that number?

Donald J. Hinson -- Executive Vice President & Chief Financial Officer

The mid-to-high 16s.

Jeffrey A. Rulis -- D.A. Davidson & Co. -- Analyst

Mid-to-high 16%. Okay, great, thank you.

Jeffrey J. Deuel -- President

Thanks, Jeff.

Operator

Next question is from Matthew Clark with Piper Jaffray. Please go ahead.

Jeffrey J. Deuel -- President

Good morning, Matt.

Matthew T. Clark -- Piper Jaffray -- Analyst

Hey, good morning. Want to get your thoughts on the loan growth outlook given the teams you brought over. Acknowledging the seasonality to some degree in the fourth quarter, as you look out to 2019, is 6% to 8% kind of still feel like the right range this year?

Jeffrey J. Deuel -- President

Yes, Matt. I know it sounds familiar to you. But, yes, the 6% to 8% range is what we would look to -- what we would expect to see in the New Year. But obviously, that's with a more normalized rate of pay-offs which we can't predict or control. A portion of the response could also point to the added team. Brian has done some analysis on the Portland team and what their run rate was last year and that will be at a higher rate, obviously because they're newer. Brian, you want to talk a little bit about that?

Brian L. Vance -- Chief Executive Officer

Yes. I would just say, we saw the pipeline move up a little bit at the end of Q4 and as was articulated in some of the opening comments, you know we're really -- with the conversions behind us, we're really focused on supporting the ongoing efforts of the sales team and so we'll be looking at focusing all our resources on getting that pipeline growth to continue to move up.

As for the new team, over the course of the next few quarters, we see them adding to that pipeline down in Portland, in addition to the Premier Banking Group being through the systems conversion which happened late last year. So we're already seeing good results from all those efforts down there in the Portland market.

Matthew T. Clark -- Piper Jaffray -- Analyst

Okay. And then, when we think about that range of 6% to 8%, would it -- should we assume the lower end of the range, maybe if the curve remains this flat, given how difficult it might be to retain business and the competitive pricing with that type of environment or would it be -- maybe below that, I don't -- I'm just curious with the -- how you think about the curve and the ability to normalized payoffs.

Jeffrey J. Deuel -- President

Yes, you know the piece we control is the production side, so we tend to focus on that and the actual net difference between 6% and 8% when you look at it from that standpoint, it's hard to get that finite in the analysis, because when you look at the dollars production versus the payoff, it's a small range when you get to those net numbers. But we feel -- again if you look at the pipeline down there in Portland at $77 million at the end of the year, with the group of bankers we have down there, we could see significant increases down there as we go through 2019. So, that's what's really different say now than Q4.

Matthew T. Clark -- Piper Jaffray -- Analyst

Okay, and then just on the deposit pricing pressure, it sounds like you feel like it's increasing, but do you feel like -- doesn't sound like there is a meaningful step up necessarily in deposit betas to come. Is that still the right way to think about just kind of...

Jeffrey J. Deuel -- President

Well, I think anecdotally Matt, I could point out to you that we're having a lot more conversations about exception pricing for specific situations and that's just -- using that as an indicator, we're having more of those conversations than we were in the last quarter. But Don, you probably have some comments you'd like to add?

Donald J. Hinson -- Executive Vice President & Chief Financial Officer

I think the betas will increase some. I don't think they're going to skyrocket, but I think they'll -- we've been keeping them down so well this last year that I think there's always a little bit of a lag effect. Of course when you talk about betas to short-term rates, I don't know if the short-term rates are going to go anywhere. So I think the betas are definitely going to increase compared to what the short-term rates are going to do over the next year or so. But as far as the overall rates, I think they'll probably increase more than they have in the past, but I still think that we can still manage them to reasonable levels.

Matthew T. Clark -- Piper Jaffray -- Analyst

Okay, and then, just last one from me on expenses. Are there any cost saves left from the Premier deal?

Brian L. Vance -- Chief Executive Officer

There are few, but quarter-over-quarter, there will be some cost saves, but there are also other expenses, again, bringing up the new team. And again, I've mentioned some other technology investments we're making this year that will probably offset a lot of that.

Jeffrey J. Deuel -- President

Yes, Matt, well another piece to that is that I think as we look back on the two transactions we did. We feel pretty good about achieving the cost saves that we expected to get out of them. But at the same time, in parallel, we have to keep -- we have to maintain an overall platform for the organization that keeps up with the growth and the development of the organization. So that's why you're hearing us reference the enterprise risk platform and the IT platform, those are kind of investments to the side of the -- of the two transactions we did.

Matthew T. Clark -- Piper Jaffray -- Analyst

Okay, great, thank you.

Donald J. Hinson -- Executive Vice President & Chief Financial Officer

Thanks, Matt.

Operator

The next question is from Tim O'Brien with Sandler O'Neill, please go ahead.

Donald J. Hinson -- Executive Vice President & Chief Financial Officer

Good morning, Tim.

Tim O'Brien -- Sandler O'Neill & Partners LP -- Analyst

Good morning, Jeff. So, with the team hire and the branch close, do you expect any one-time items to -- expense items to impact in 1Q related to those two activities?

Jeffrey J. Deuel -- President

See, I don't see us having any kind of significant one-time expense related to the branch.

Donald J. Hinson -- Executive Vice President & Chief Financial Officer

I think we still have probably $100,000 or $200,000 of, let's say, merger related expenses left to clean up in Q1. So that will probably show up. Other than that, there's not a lot else at this point. The branch is related to a...

Jeffrey J. Deuel -- President

A lease termination.

Donald J. Hinson -- Executive Vice President & Chief Financial Officer

Of a lease operations (ph) coming to an end. So there is not really any -- too much to write-off there related to that.

Tim O'Brien -- Sandler O'Neill & Partners LP -- Analyst

And have you guys characterized the savings that you expect, kind of quarterly savings to come from that branch closure. Can you talk about -- are you willing to talk about that?

Jeffrey J. Deuel -- President

I can't imagine, that's a huge number...

Donald J. Hinson -- Executive Vice President & Chief Financial Officer

Usually these branches that they're not overly large and these aren't because it is probably $200,000, $250,000,

Tim O'Brien -- Sandler O'Neill & Partners LP -- Analyst

A year?

Donald J. Hinson -- Executive Vice President & Chief Financial Officer

Yes.

Tim O'Brien -- Sandler O'Neill & Partners LP -- Analyst

And then, were there -- are there any one-time costs that you expect to hit in 1Q as a result of the team hire?

Donald J. Hinson -- Executive Vice President & Chief Financial Officer

No Tim.

Tim O'Brien -- Sandler O'Neill & Partners LP -- Analyst

Okay. That gets -- OK, very good. And then, another question that I have for you is, as far as the elevated payoffs are concerned, a different kind of tact on that. The payoffs that were not planned, I guess I'd call it, can you rank reasons behind -- drivers behind those payoffs. Is it businesses selling, is it Investor owner selling property at high levels, is it more just getting refi-ed away due to attractive pricing on a new loan elsewhere. How would you rank kind of what the big driver behind the unplanned payoffs is?

Jeffrey J. Deuel -- President

I don't think it's a good -- I don't think the last item you brought up, which was refinancing elsewhere is a big component of it. We do see some of that, we always see some of that, but it's not tied to us necessarily losing customers because they're going elsewhere for better rates or better service, it's more along the lines of what Brian mentioned earlier, is the selling businesses had a big impact in the last year that, as I think through it, the selling properties at high prices is also another big one Tim. And then, there is a category of miscellaneous stuff. It's a piece -- a property that's been on the market for two years and it finally sold or its partners that are disbanding and they're selling, it's just category of oddball stuff.

Tim O'Brien -- Sandler O'Neill & Partners LP -- Analyst

Okay. Those are my two questions. Thanks a lot.

Jeffrey J. Deuel -- President

Thank you, Tim.

Operator

(Operator Instructions) Next we'll go to Jackie Bohlen with KBW. Please go ahead.

Jeffrey J. Deuel -- President

Good morning, Jackie.

Jacquelynne Bohlen -- Keefe Bruyette & Woods Inc. -- Analyst

Hi, good morning. I just wanted an update on your appetite for M&A, given that you've completed two incredibly strategic deals that expand you exactly in markets you want to be in this year and you've had some great teams coming on, the most recent one in Portland. Is this diminished your forward appetite now that things are kind of all integrated and moving or is it still just continuing to look for strategic opportunities?

Jeffrey J. Deuel -- President

We are definitely still open for opportunities. There's 20-plus banks along the I-5 corridor that are of a size that would be interesting to us. And as we say, not all of them will sell and some of them are not cultural fits, but if any of them who are presenting themselves, we're ready to go. I would like to add though that because of the two transactions we did last year, we have some projects that slowed down because of that and we certainly would love to have some time to get those things up and running and moving forward before we do another transaction. The nice thing is that once the transaction presents itself, we know there's a pretty long lead time on it. So, I think before anything could present itself to us and really become something we needed to focus on, it would be later in the year and we'll have time to do that cleanup.

Jacquelynne Bohlen -- Keefe Bruyette & Woods Inc. -- Analyst

Okay. And the projects that you referenced, are they more on the expense side or on the revenue generation side?

Jeffrey J. Deuel -- President

I would say both. It's less focused on, for example, core system activity and more focused on us wanting to upgrade or improve the ancillary systems that we use to support our customer activities.

Jacquelynne Bohlen -- Keefe Bruyette & Woods Inc. -- Analyst

Okay. And these are items that you've already been looking into, but they were just paused with the integration?

Jeffrey J. Deuel -- President

Exactly, they were all, almost -- yes, actually all of them were projects that were teed up and in process. But when we do a transaction, let alone two, it kind of takes the capacity out of the system to work on those projects because we put full focus on the integration and conversion. But fortunately, all that's done. Everyone had the holiday season, they get rested up from last year and everybody is back and focused. And I'm guessing that about March, people will be wondering where the next big undertaking is, which is what we hope for.

Jacquelynne Bohlen -- Keefe Bruyette & Woods Inc. -- Analyst

Okay and just from an income statement standpoint, as these projects get under way, is there any discernible impact that we'll notice?

Jeffrey J. Deuel -- President

I don't think necessarily anything that will jump out to you from an expense standpoint, no.

Jacquelynne Bohlen -- Keefe Bruyette & Woods Inc. -- Analyst

Okay, great, thanks for the extra color.

Jeffrey J. Deuel -- President

Thank you.

Operator

And Mr. Deuel, there are no further questions in queue.

Jeffrey J. Deuel -- President

Well, John, thank you for your help this morning and thank you for, everyone, who called in. We appreciate the attention and I'm sure that all of us will be crossing paths as the year progresses. Thank you.

Operator

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.

Duration: 36 minutes

Call participants:

Jeffrey J. Deuel -- President

Donald J. Hinson -- Executive Vice President & Chief Financial Officer

Bryan D. McDonald -- Executive Vice President & Chief Operating Officer

Brian L. Vance -- Chief Executive Officer

Jeffrey A. Rulis -- D.A. Davidson & Co. -- Analyst

Matthew T. Clark -- Piper Jaffray -- Analyst

Tim O'Brien -- Sandler O'Neill & Partners LP -- Analyst

Jacquelynne Bohlen -- Keefe Bruyette & Woods Inc. -- Analyst

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