Good day, everyone and thank you for participating in today's conference call to discuss BBSI's financial results for the third quarter ending September 30, 2018. Joining us today are BBSI's President and CEO, Mr. Michael Elich; and the company's CFO, Mr. Gary Kramer. Following their remarks, we'll open the call for your questions.

Before we go further, please take note of the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995. The statement provides important cautions regarding forward-looking statements. The company's remarks during today's conference call will include forward-looking statements.

These statements, along with other information presented that does not reflect historical facts, are subject to a number of risks and uncertainties. Actual results may differ materially from those implied by these forward-looking statements.

Please refer to the company's recent earnings release and to the company's quarterly and annual reports filed with the Securities and Exchange Commission for more information about the risks and uncertainties that could cause actual results to differ.

I would like to remind everyone that this call will be available for replay through December 7, 2018, starting at 3:00 p.m. ET this afternoon. A webcast replay will also be available via the link provided in today's press release, as well as available on the company's website at www.barrettbusiness.com.

Now I would like to turn the call over to the Chief Financial Officer of BBSI, Mr. Gary Kramer. Sir, please go ahead..

Thank you, Ashley. Depending upon where you're dialing in from, good morning or good afternoon, everyone. The operations of the company continued to be strong in the third quarter. Net revenue of $247 million, increased 3% compared to Q3 of '17. Gross billings of $1.4 billion grew 6% over the same period.

Diluted income per share was a record $2.50, compared to $1.96 in Q3 of '17. In the quarter, PEO gross billings increased 6% to $1.4 billion compared to the third quarter last year. Gross billings grew by 4% in California versus 22% in all other combined geographies.

Same customer sales growth was 4.7% compared to 5.9% in Q3 of '17 and was about a 100 basis points lower than we forecasted. Southern California comprised 48% of our total gross billings in the quarter and experienced the fastest same customer sales growth at a rate of 3.2% over the prior year quarter.

We continued to increase our client base with a gross addition of 365 clients or 218 net of runoff in the quarter. Both the gross and net additions are BBSI record for any third quarter. Staffing revenues in the third quarter decreased 4% to $41 million. This was in line with our expectation and is a direct result of the continued tight labor market.

Each quarter we've discussed that this trend is making it difficult for our employers to hire and we are experiencing this effect in our staffing business. We have the demand and orders from our clients, but it is challenging to fulfill orders without compromising our hiring standards.

As such, we anticipate that staffing will continue to be a slight headwind to near-term revenue growth. Gross margin was $59.7 million or 4.1% of gross billings, compared to $54.9 million or 4% in the prior year quarter. The fee we charge to our clients remained unchanged.

However, payroll as a percentage of gross billings is increasing as other components of gross margin decrease. This is related to an increase in PEO business mix and continued expansion outside of California, where many states have lower payroll tax and workers compensation ratios.

Given the pass-through nature of our pricing, this shift in the composition of our cost of revenue does not affect our branch profit. Workers' compensation expense as a percentage of gross billings was 4.5% this quarter, which is below our expected range of 4.9% to 5.1%. This compares to 4.9% of gross billings in the third quarter of 2017.

The quarterly independent actuarial valuation resulted in a reduction of prior year estimated liability of 2.3 million. Also, as previously discussed, we restructured our arrangement with Chubb to reduce frictional costs and we are starting to see the benefit in the results this quarter.

Our workers' compensation claims frequency continues to trend in line with expectations. In the quarter, we saw trailing 12 month relative frequency of claims as a percentage of payroll decrease 4% compared to the third quarter of 2017 and decrease 5% compared to the third quarter of 2016.

Our strategy of reducing claims frequency was initiated in 2014 and has been successfully operationalized and now forms part of the DNA for how our branches manage their client onboarding and retention. All in, we are very pleased with the way our workers' compensation portfolio is performing.

We have taken many steps to reduce frequency, minimize severity, reduce frictional costs and wrap the program with best-in-class people, processes and procedures. This strict focus and attention has resulted in a redundancy in the portfolio and is why our expense is coming in below our range.

SG&A in the third quarter was 36.7 million or 2.5% of gross billings, compared to 33.9 million or 2.5% in the prior year quarter. SG&A grew by 8% in Q3 of '18 versus Q3 of '17, which is a slower growth rate versus our Q2 '18 year-over-year growth rate change.

On a year-to-date basis, after adjusting for the one-time SEC settlement, our SG&A is in line with our plan and we continue to be mindful and diligent about balancing spend against growth while investing in the business for the future. The provision for income taxes in the third quarter was 4.8 million.

We continue to expect a full year effective tax rate of approximately 20% resulting from the passage of the Tax Cut and Jobs Act. We had no borrowings under our line of credit as of 9/30/18 and we continue to be debt free except for the 4.2 million mortgage on our corporate headquarters in Vancouver, Washington.

As part of our fronted workers' compensation insurance program with Chubb, we established and funded trust accounts called the Chubb trusts. On the balance sheet, the Chubb trusts are included in restricted cash and investment. The balance in the Chubb trusts were 430 million at 9/30/18 and 381 million at 12/31/17.

We shifted our asset liability matching investment strategy slightly due to rising rates and a flattening yield curve and made the decision to stay shorter in duration for the near term.

We negotiated an investment vehicle with one of our banks where we will target a cash balance of $100 million that will earn a spread of 25 basis points over the three month treasury. At 9/30/18, we had $63 million in cash that returned in annual crediting rate of 245 basis points.

At September 30, the book yield for the portfolio was 239 basis points and the duration decreased from 3.16 years at June 30, 2018 to 2.81 years at September 30, 2018. The trust has eligible security guidelines with restrictions on asset class and asset diversification. This is a high quality and highly liquid portfolio.

At 9/30/2018, the average quality of the portfolio was AA, and no investment was greater than 4% of the portfolio. In the quarter, we earned $2.2 million of investment income from the trusts. In summary, we had record net income in the quarter. We are seeing consistent client build across all geographies.

Our pipeline and operations remained strong and resulted in a third quarter record for both gross and net client addition. Our workers' compensation portfolio was developing favorably and is a direct result of the various steps and actions we have taken.

Regarding our outlook, for the full year 2018, we continue to expect diluted earnings per share of $4.31, which reflects the one-time SEC settlement. The forecast continues to assume an effective tax rate of 20%. We also continue to expect gross billings to increase approximately 10% for the next rolling 12-month period and 8% for fiscal year 2018.

Now, I would like to turn the call over to the President and CEO of BBSI, Mike Elich, who will comment further on the recently completed third quarter as well as our operational outlook for the remainder of the year.

Mike?.

Thank you, Gary. Hello and thank you for taking time to be on the call. While top line growth remains softer than historical levels, we feel very good about record earnings in the quarter. The fundamentals of the business remains strong and we are seeing continued support of our value proposition in the market.

In the quarter, we spent time through our all-team meetings and operational reviews to support alignment and vision for the organization. This process, once again, reinforced confidence I have in the maturity of the organization and the work we're doing with our clients.

Additionally, we continue to spend time with referral partners, broadening and strengthening our referral channels and spending time with business owners, working to understand what they may be seeing in their marketplace.

These disciplines provide a means of understanding how we may evolve our offering overtime to address challenges business owners face. In the quarter, we saw solid results. We added 365 new PEO clients.

We experienced attrition of 147 clients, 13 due to accounts receivable, 7 for lack of tier progression, 6 due to risk profile, 20 for businesses sold, 28 businesses closed and 73 left due to pricing competition or moving away from the outsourced model. This represents an approximate build in the quarter of 218 net new clients.

Same-customer sales, particularly in Southern California, remains softer than historical levels. However, outside of California, we continue to experience growth in excess of 20%. In the quarter, once again, we took time to pull our existing clients to better understand what they may be seeing.

And speaking with 370 clients, most were cautiously optimistic. We also heard that there is runway and opportunities for expansion, but the shortage of skilled labor continues to be the number 1 limitation to growth. We also heard that there is also a general uncertainty related to a variety of macro issues.

In general, the business owners we spoke to, expressed optimism, but are not able to find the talent they need to grow, which is why we believe we are seeing softness in same customer sales.

Related to pipeline, we continue to see strong client adds in the quarter, and we believe this is a result of our referral partners understanding and recommending BBSI. We continue to evolve our ability to scale from a model based on individual market contributors, to a systemic approach for developing referral channels on a national basis.

Today, we are seeing development of new referral channels in all markets which support growth, strong pipeline growth as evidenced by continued new client adds. Related to organizational structure, we continued to build the field organization to support future growth, scale into new markets and invest in support of our product offering.

Related to brand stratification, we have 17 branches with run rates in excess of $100 million. This is a measure we use to indicate a branch's ability to increase leverage. We have 19 emerging branches running from $30 million to $100 million. We regularly reinvest back into these teams to support capacity as they grow.

Finally, we have 24 branches we consider developing with run rates of up to $30 million. In these branches we invest to support consistency of pipeline while maintaining integrity of product as they scale.

In conjunction with our long-term growth strategy, we are on track to add 3 business teams and 2 additional physical locations by the end of the year. At the end of 2018, we anticipate having more than 108 business teams housed in 62 physical locations.

Although we are experiencing softness in some markets, we also -- we see this is temporary to our long-term strategy, and we'll continue to invest in infrastructure as appropriate. Looking forward, the fundamentals of the business are strong. We remain focused on bringing predictability and value to the business over the long term.

Having spent a great deal of time in the field during the third quarter, my confidence in our ability to execute comes from the strength of the organization's leadership, the maturity of our teams and the structure that allows us to stay nimble.

We are at a point where our foundation is strong, we know where we need to focus our energy and we are executing to our plan. With that, I'll leave it open for questions. Thank you..

Thank you. [Operator Instructions] We will now take our first question from Chris Moore of CJS Securities..

Maybe we could start with the client growth. So it looks like it had been roughly kind of 2/3 of it was coming outside of California. Looks like that's accelerating a bit.

Is that concentrated in any specific area?.

So, when you say growth, Chris, I just want to qualify this. Are …..

Net new clients, yes..

So, our revenue growth is -- we're getting bigger growth outside of California, but our unit count as well. It's pretty consistent as far as what we're adding in California versus what we have historically added versus what's growing outside of California.

So, I would say, on a unit count basis, we're probably getting about 50-50 between California and non-California..

Got it.

And the trend towards smaller clients outside California, is that still consistent?.

Yeah, that hasn't changed. I mean that's really a function of the market, right. The clients that are outside of California, their revenue is historically less, because the pass-throughs are less, regarding payroll taxes and workers comp, it's cheaper in every other state than it is in California.

So, that's why we see lower revenue and lower payroll runs out of those states..

Got it. And I guess my point was -- so when I'm looking at the guidance or the target for the 12-month rolling growth, it sounds like you're kind of turned the corner here and the comp will get a little bit easier, because that smaller client size, I think, started in Q4 of '17.

So can you kind of talk to that a little bit and how that factors into the rolling growth?.

Yes, good question, Chris, because when we think about the remainder of the year, we talked about it last quarter that fourth quarter has an extra business day, so we'll get a pop there for revenue in the fourth quarter, a one-day pop.

But when we look at -- when we started to have a little bit of a shift from larger accounts into smaller accounts that started to appear in late Q3 of '17.

So what we're looking at now is we're going to get a -- going into Q4 and into Q1, we're going to get a softer comp as far as a compare on the client size, because the client size really isn't shifting anymore, it's just staying consistent..

Yes, I would say the only outlier there is that we'll be watching, that we'll be -- whatever headwind we might see from same customer sales. But equally, I think we're going to be going up against lower comps in those areas too. So it would seem that we've kind of made a turn on that..

Got it. Let me switch over to Chubb for a second.

So does the -- is the Chubb trust investment income, is that impacted at all temporarily by the new Chubb trust agreement?.

No. The only thing we have now is a separate trust account for the new program that we structured, effective 07/01/18. But we'll still have a trust account. The trust account will have assets that go into -- those assets will be invested. And when we look at the portfolio, we look at it -- call it in the aggregate, right.

So we really try to look at it as one portfolio. It's how we manage those assets. And then the one, I'll say, shift that we had going into late second quarter was with rising interest rates. It didn't make sense to put with how flat the curve was between short and long.

It didn't make sense to put money out long, because it's -- the increase in the curve wasn't there. So the only shift, I'll say, we made, and it was a separate shift from even entering into the new agreement, was to try to keep money more short term.

So when we release the Q later today, you'll see that we have a cash balance that build in that restricted account and that's not -- it's classified as cash, but we are getting a good return on that cash and then the idea there is to leave the money in short-term, get a good yield out in short-term.

And then when we get further out and interest rates stabilize after the next three to four moves, depending on who you talk to, we would be able to reinvest those assets at a higher reinvestment rate..

With respect to the new Chubb trust agreement, so it sounds -- you said you are starting to feel some impact of that in Q3 and then it's just a matter of kind of the rolling one year contract you have with clients, as that turns over then by July 1 all the new clients will be in -- part of this the new agreements there, right?.

Yes. So the new structure is for call programs that incept after 7/1/18. So we have, call it the runoff of the old and then the entering in for the new and the renewal.

And what you're seeing now is we're getting a little pickup in this quarter because of that lower cost structure, but we'll start to see that pickup increase as we get into the fourth quarter and then really where we see the true benefit is when we get out into '19.

And then when we get into '19, when we give guide for '19, we will give a better guide as far as what we think the workers' compensation expense as a percentage of gross billings will be for '19 and beyond..

We will now take our next question from Jeff Martin of Roth Capital Partners. Please go ahead..

Is there any qualitative update you can give on the California market in terms of workers' compensation rates and the competitive nature? And do you see anything on the horizon that might allow you to be more competitive in that market? I know you've kind of throttled back a little bit in terms of chasing rate.

So if there is any update there that'd be helpful..

Jeff, as you can see in this quarter, we had a redundancy in our prior year liabilities of 2.3 million. So our claims and our actuarial is developing better than we originally priced it at. So when we look at this, we say, look, the market is favorable, our book is favorable. We're seeing a lot of good things happening there.

And then the good things that are happening on that side, plus the good things that are happening with restructuring the Chubb agreement that allows us to potentially have some flexibility in pricing..

Yes, Jeff, I'd state too. We've taken a lot of energy and time to put ourselves in a good spot here. So we're not going to give that up too easy, but I would say that we are in a very good position to be able to capture and not lose any good business that we'd want to add to our portfolio for price..

And then that $2.3 million that came back, was that geographically concentrated in California? Was it explicitly California, some color there would be helpful too?.

So when we think about our exposure, our revenue is 77% of our revenue was California, but when you get into workers' comp, due to the way that California is compared to all other states, our actual liability for California is higher than our revenue number.

So we're actually in the 80-percentile as far as our total revenues for what's California versus non-California. So when we do the actuarial study, we look at it for all years. And then we will take action based upon all years, all states.

So really what you're seeing there is, yes, favorable in California, but when we do move off of the number, it's for all states and not just California..

And then could you speak to the renewal period that's upcoming this part of the year that's traditional in this industry.

Just was curious if you anticipate anything other than a normal year in terms of renewals, if there's any factors that could come into play with the tight labor market or any other factors?.

Actually, Jeff, because we do not have exposure in health care, we do not have a 01/01 renewal season. We actually, when we look at our book it's pre-stratified across almost 52 weeks in the year at this point, as we've been able to bring value beyond insurance.

How we built business is not tied at all anymore to the concentration around your 01/01, your 04/01, your July 1, your October 1. I mean, we still have little spikes there, but the business doesn't really shift around the 01/01 time frame for us.

And so we don't see -- there should be -- we don't anticipate any real move to change there, just because our business is diversified throughout -- our contracts are diversified throughout the calendar..

We will now take our next question from Josh Vogel of Sidoti & Company..

I guess, and then building off one of those earlier questions around pricing, could you just discuss the average markup in California versus the other states, is it still about 20% versus low-to-mid teens?.

So when you -- this is where I have to parse the question and say, when we say markup, are we talking specifically for our fee and for payroll tax or do we want to have workers comp included in there as well?.

Both would be great..

So really all facets of the pass-through's, right, and for the pass-through's, I'll talk about workers' comp and I'll talk about payroll taxes. Those two components are higher than all other states. So payroll taxes are slightly higher and workers' comp, specifically, outside of California is about half the prices in California for our books.

So California really is just an expensive state to be an employer in and that's why our markups defer that drastically for California and non-California. And then the -- call it our fee that we charge, typically the fee that we charge is going to be a little higher in California.

That has to do with the size of the organization, the maturity of the teams and how sophisticated and comfortable they are asking for money, as opposed to say a smaller branch, which is just in the developing stage and is really just learning the craft of the business. There they typically will charge a little less as far as what we call our margin..

So we know the labor market is tight and lots of people even leaving their jobs voluntarily.

Can you talk to what you're seeing within your client base and also even if you're seeing that within your own organization, losing any key personnel?.

First of all, organizationally, we're very stable. I think when I look at the talent that we are hiring today, our rate to fill has actually improved in the last 12 months and that if it was taking us call it 3 to 4 months or 6 months to hire the talent that we are looking for that time to fill has actually improved.

But I think that's also due more to our reputation and brand in the recruiting cycle in the recruiting market.

From a turnover and attrition standpoint, internally, we've actually seen improvement there as well during the last year, but I'd say more it's -- I think we're doing a better job in how we recruit, bring people on board, how we're developing people, bringing a lot more stability to the overall base, just as we re-mature as an organization.

In the overall client market, one of the things that we watch is, is this trend from where you have hours worked at a certain number, as those hours works -- as opportunity is found by our customers to go after new jobs or new opportunities they expand hours worked first.

After they expand hours worked, then they eventually get to a point where they say, I want to hire new headcount and then when they go out to market to try to hire people, and they are met with the challenge of that, then they have to increase wages.

So if I look back over the last 13 weeks, one of the trends that we are seeing is that hours worked has stabilized, probably around 39 hours a week. It's probably up a little bit from an average trend that might be close to that 37 to 38 hours on average. That's one piece that we've seen move.

The other piece that we had not seen for quite a while was any kind of wage inflation. We are seeing a slight uptick in the quarter or at least a trend moving towards a little bit of increase in what our clients are paying people to capture opportunity. And then still -- headcount still seems to be rather flat.

Gary, you've a little more detail on that..

So we -- when we look at growth and we talk about same customer sale, the only outlier we really see right now is Southern Cal. And Southern Cal is just growing slower on a same customer sales basis than the other geographies. Some of the geographies are popping as far as -- our Mountain States is really leading as far as same customer sales.

And then when we look at how our customers are growing, our same customer sales for all geographies was 4.7% in the quarter. Of that 4.7%, about 75% of that was for wage inflation and increase in wages.

So what we're really seeing here is a shift in people getting paid more, which is driving same customer sales, which is, I'll say, tipping now, because in the past what we saw was really an increase in worksite employees, as far as clients hiring more people.

But now with the scarcity in the labor market, we're seeing a decrease in hiring and an increase in wage inflation..

That actually covered my next couple of questions I had about wage inflation you're seeing within the client base. I guess, just one more, if I may. In the staffing business, I know that there are, obviously, the challenges there, but usually in environments like this, you do see more temp to perm conversions.

Are you seeing that and is that helping the overall margin profile of the staffing division?.

Staffing is -- the way we think about staffing is, we have 60 branches. Every branch -- those are our PEO offering, but not every branch does staffing. For our staffing, we probably have it in about 40% of our branches.

And we really leave it up to that area manager to make the decision about that location that they're in, in order to see if they're in and of the market -- is there demand in that marketplace for it. So with that, we try to leave it open to the area manager to focus on where they think they can make the most profitability.

In general, for staffing, we are seeing the same trends that we have been seeing in the PEO space. We have some staffing operations where they are only able to fill about 40% of the orders. And it's not that there is not demand, it's just that there's no supply, and the supply there is workers. So we're seeing there is a staunch demand for workers.

But we just don't have the supply to fill it. And then we are seeing a little bit of conversion from temp to perm. We do get a recruiting fee on that when they do convert. But really it's a tight market there. It's not -- staffing is not a big piece of our book, it's a small piece of the pie.

But we do give a focus and attention and leave it to that local area manager to try to make the best decisions for their branch and for the company..

[Operator Instructions] We will now take our next question from Bill Dezellem of Tieton Capital..

Let's start with the workers' comp and the new Chubb -- it's not the new Chubb relationship, a change in the Chubb relationships to reduce your frictional costs.

To what degree should we be thinking that over time your historic workers' comp range of 4.9% to 4.1% -- pardon me -- to 5.1% should be coming down because of that reduction in frictional cost?.

Bill, I'm just laughing, because I get asked this question twice a week and I still have to give the answer.

We're going to -- since it's still early and it's only been one quarter of the new program rolling in, we're going to wait until we get out into February when we're going to give our guide for the full year, for the full P&L, and then in there we're going to give the guide for how the workers' comp as a percentage of gross billing is going to come down.

I mean, the answer is we did this for dollars. We didn't do it for pennies. And we do expect that, that range will come down. So we just haven't -- we haven't given guide yet for how that range will -- what that range will be yet..

But directionally it will lead to a reduction in those costs?.

Yes. Directionally, it's going to come down. We just -- we haven't given that range. And then if you think about how this is going to shape in '19, it's going to be -- Q1 will be the highest quarter, because we're still rolling out the old program. So Q1 will be higher than Q2, which will be higher than Q3.

So the range is going to be migrating down throughout '19..

And let me kind of continue on this path.

Given that you had the $2.3 million of benefit or redundancy brought back into the P&L this quarter, how does that enter into the thinking in this total picture, please?.

We look at that 2.3 million it was a lot of laser focus and attention and really effort of the whole organization to bring that number down. When we are bringing the number down, we still think we will not react quickly, we will react slowly. Our bias is to never put shareholders of the company in a position where we were in the past.

And if this number is going to be, I would say, more on a conservative than an optimistic basis..

So does your statement there indicate to us that the 2.3 million redundancy itself may even be conservative that maybe in past years, you would have pulled even more in, but you are cautious of doing more than that?.

I'll say it another way. With actuarial, you need time. With claims the longer a claim ages, the more predictable the outcome is going to be. So the longer you wait, the better your confidence. And we have made a ton of changes in order to try to make this as efficient, as predictable and possible.

And these changes just take a little time in order to give them better credibility..

And is 2019 a definition of time when you get that credibility?.

Think of it as a fine line. The longer it ages, the better it is. And the same thing in the claims world, in the actuarial world, where the longer it ages, the more confident and predictable your outcome is..

Yes, I would say, too, Bill, to add to that is, that it's taken us -- since we had created enough change and disruption going back four years ago, we had to establish a new normal before we could truly trust the modeling and everything was working the way, I mean we believed it was, but now it's starting to show up in the data.

And so that's a bit of a tailwind for us in that before we were -- we still have to let things mature and age out, and let that data become a new trend over the last several years to be able to give us confidence that directionally we're going where we thought we would go [indiscernible].

When I think of everything we've done with workers' comp, the way that our branches approach the clients, and the way that our clients are performing is better. Our frequency is a byproduct of that and it is better. When I think about the way that we handle an operationalized claims, we are much better.

When I think about the people that we have to do all that, we are much better. And then when I think of -- that's our controllable. And then some of the tailwinds that we've received here is workers' comp reform in California is actually working and the industry is seeing that.

And then the last piece is when economy is humming like this, it's going to be favorable for workers' comp as well. So we've done a lot on our side, and we've got some tailwinds on the macro side as well..

Thank you both for all the work you've done to make this so reliable, predictable and not as scary as it was in the past. I am curious, relative to your commentary before about wage inflation picking up, but the hours worked really holding steady.

Talk more about that phenomenon and what you see as the implications on a go-forward basis?.

Well, yes. So I would say the hours worked have actually ticked up a little bit probably in the last 6 months, but more so on the last 3.

I mean, we running -- we saw some uptick there, but we really have not seen as much of an uptick as where new headcount has been added, which will ultimately drive hours worked down and that would be offset by new headcount and then hours -- wage inflation to basically capture that new headcount.

So that's where -- there's still some pent-up demand where you're seeing wage inflation, but it's probably related more towards retention than it is to build at our client level, simply because we've not seen really any uptick in headcount added by our clients..

Yes, I would just say that what we're seeing is pretty much consistent with, I'll say, the macro trends and the macro reports as far as wage inflation for the nation at 3.1%, we're trading a little above that now.

So call it our wage inflation we're seeing it at about a 3.5%, so that's 3.5% of the total 4.7% that we've had for our same customer sales. And then the delta there is going to be the worksite employees, which is about 100 basis points as an addition and then the differences in the hours worked.

So this cycle for where we are in the economy and unemployment at a sub 3.7%, we think that the future growth we're going to have in the short term is going to be from the wage inflation, just from the inflationary environment that we're in now..

The positive that I see in all this and I know we have -- is really that there's a lot of discipline in the small business community that they're not chasing opportunity and the chase is usually what creates the bubble.

And so the positive here is that at least in our portfolio, we see our clients as being well run businesses that aren't just going to chase opportunity to be able to capture for tomorrow and as they do take risk it is going to be calculated risk, which to me serves us better long-term, in that as economic cycles do roll through, they will be better businesses on the back of any kind of headwinds that they may face..

That's helpful And may I ask one unrelated question, or would you prefer I step back in queue..

No, you're good..

Let's jump to the East Coast if we could and your operations over there.

Where are you at relative to hitting an accelerated rate of growth with that region of the country, please?.

I would say that, when I see the East Coast, we recognize that as we had pretty strong growth last year, this year we might have felt little bit of a headwind there to growth, but I -- just being on the East Coast quite a bit in the last couple of weeks in the last month, have spent times with our teams. Our teams are very strong.

We are adding one more branch out there right now, we're retooling another branch. And so I think '19 is going to look pretty strong for them and I know our rate of build, our pipeline and referral channel bench is strengthening all the time and I just -- I see a lot of opportunity there..

We saw good growth in Philadelphia, which made us kind of think about putting in the Allentown branch a little sooner than later. So we're getting pulled out of Philly, and we're getting pulled up [indiscernible] go up to Allentown. So, we're actively recruiting now in Allentown.

And a lot of - when we think about our growth, it's not -- at the end of the day, people are our product and we got to make sure we have a good person to run that branch, so we won't open an office for the sake of opening an office, we got to make sure that we got the right person that's going to have the builder mentality and going to go build their branch..

And I would just finish that out. Our teams are very strong back there. And we have a very mature bench right now there in our leadership and they're owning it. It's kind of fun to watch..

This concludes our question-and-answer session. I would now like to turn the call back over to Mr. Elich for closing remarks..

Again, thank you for taking time to be on the call. Feel really good about where things are at, direction we're going. We're going to continue to work on the right things and execute to our plan. With that we'll leave you to visit on the next quarter, so talk to you in February. Thank you..

This concludes today's call. Thank you for your participation. You may now disconnect..