Brian Vance - CEO Don Hinson - CFO Jeff Deuel - President and COO Bryan McDonald - CLO.

Jeff Rulis - D.A. Davidson Jacque Chimera - KBW Tim O'Brien - Sandler O'Neill & Partners Brett Villaume - FIG Partners Jeff Lewis - D.A. Davidson & Co. John Helfst - Schroeder Management Don Worthington - Raymond James.

Ladies and gentlemen, thank you for standing by and welcome to Heritage Financial’s Third Quarter Earnings Call. (Operator instructions) As a reminder, today’s call is being recorded. I would now like to turn the conference over to our host CEO, Mr. Brian Vance. Please go ahead..

Thanks, Patricia. I appreciate it. I’d like to welcome all of you who called in and those who may listen later in recording mode. Attending with me this morning in Olympia is Don Hinson, our Chief Financial Officer; Jeff Deuel, President and COO; Bryan McDonald, Chief Lending Officer.

Our earnings press release went out yesterday afternoon post market release and hopefully you’ve had an opportunity to review the release prior to this call. Please refer to the forward-looking statements embedded in the press release as we go through the prepared remarks this morning as well as later in our Q&A session.

I’ll first start with highlights of our third quarter, diluted earnings per common share were $0.23 for the quarter ended September 30, compared to $0.20 for the prior year quarter end September 30, 2013 and $0.16 for the linked quarter ended June 30, 2014.

We declared a cash dividend of $0.09 per common share, and we successfully completed the systems conversion of the former Whidbey Island Bank onto Heritage Bank's core system on October 5. Non-maturity deposits increased $79.3 million, or 3.5%, to $2.33 billion at September 30 from $2.25 billion at June 30, 2014.

We also announced a new stock repurchase program which authorizes the repurchase of up to 5% of Heritage's outstanding common shares. Don Hinson will take a few minutes and cover our balance sheet and financial statement results.

Don?.

Thanks Brian and we’ll start with the balance sheet. Total assets increased $60 million during the quarter, primarily as a result of increase in total deposits and repurchase agreements with customers.

Due to a deferred net decrease and loan balance during the quarter, the funds provided by these customer accounts resulted in increases in investment portfolio as well as overnight deposits.

With these available funds, we purchased approximately 45 million investment securities during the quarter, this was partially offset by approximately 21 million in principal pay downs in maturities on investments during the quarter.

Even with the increased investments, the overnight cash position at September 30th was approximately $146 million, we will be working to reduce that cash position by year-end through increases in loan and investments. Approximately 109,000 shares were of common stock repurchased during the quarter.

Repurchases partially offset approximately 150,000 shares issued during the quarter as a result of stock awards granted and stock options exercised. As a result of being down to 52,000 shares remaining end of the previous repurchase program, we have announced a new program which authorizes repurchase of upto 5% of outstanding shares.

Briefly credit quality metrics, we saw nice improvement in credit quality metrics for the non-covered loan portfolio, total non-accrual non-covered loans decreased 14% and total non-performing non-covered assets decreased 15% in the prior quarter end.

Moving on to net interest margin, net interest margin for Q3 was 4.32%, this is a 23 basis point decrease from 4.55% in Q2. The decrease is due to combination of 27 basis point decrease and pre-accretion loan yields decrease in yields on tax investment securities and reduction in loans as a percentage of earning assets.

The decrease in loan and investment yields was partially due to fact that Q3 was the first full quarter subsequent to mark-to-market as of May 1, all of the loans investments paying the Washington Banking merger. In addition loans originated during Q3 had a weighted average rate of 4.52%, this is a decrease from 4.71% the loans originated in Q2.

Regarding non-interest income as with other income statement items, non-interest income increase mostly due to the fact that Q3 was the first full quarter after the merger. The increase was partially offset by the negative impact of the change in updates identification assets.

The amortization of this asset is expected to be at elevated levels for the next three quarters as we close to end of loss sharing agreements for the commercial loan portions of the cover loan portfolios.

Included in other income, our recoveries from loans that were charged off prior to the merger and therefore not given a fair value as of the merger base, the recoveries totaled approximately $771,000 and $803,000 for Q3 and Q2 respectively. This income may not recur in the future.

Finally regarding non-interest expense, as in prior quarters non-interest expense was impacted by merger related expenses. These expenses totaled approximately $1.3 million during Q3. The earnings per share impact of these expenses was approximately $0.03.

Due to the conversion earlier this month, the large portion of the cost savings associated with merger will not be realized until Q1 2015. I’ll now pass it off to Bryan McDonald who will have an update on the loan production..

Thanks Don. During the third quarter the commercial lending teams closed a $123.5 million of new loans, which was up from a $120 million in the second quarter and $100 million on a combined basis by Heritage and Whidbey commercial teams in the first quarter when they operated separate banks.

Non-recovered loan totals decline during the quarter due to unusually high level of large loan payouts. These larger loan payouts totaled $62.5 million and were centered in four loans that totaled $42.6 million.

two or multi-family construction take out the financings totaling $22.7 million, one owner-occupied loan for $10 million was paid-off with the sale of the underlying real estate and the final loan was for $9.9 million on a project that the bank was looking to exit due to credit quality concerns.

Commercial team pipelines ended the third quarter and held steady at $281 million. moving on to the SBA 7(a) business, SBA 7(a) production remained consistent in the third quarter with the bank holding 16 SBA 7(a) loans for $7.5 million and ending the quarter with $14.8 million in the SBA 7(a) pipeline.

This compares to second quarter with 20 loans closed for total of $5.1 million and $17.2 million in the SBA pipeline. SBA lender rankings were posted at the end of September by the Seattle office, for the SBA year-ended September 30, 2014 Heritage Bank December 5, and SBA 7(a) loans and number one in SBA 504 loans.

Moving to our consumer business, consumer production remains strong for the third quarter with $26.7 million of new loans close. This includes $21.6 million of indirect dealer volume and $5.1 million of branch volume. This compares to $30.4 million of new consumer loans in the second quarter.

The mortgage department closed $27.1 million in new loans in the third quarter compared to $26 million in the second quarter and $16.9 million for the first quarter. In mortgage pipeline ended the third quarter at $26.6 million, up from $21 million at the end of the second quarter and $19 million at the end of the first quarter.

I’ll now pass the call to Jeff for an update on conversion and merger activities.

Jeff?.

Thank you, Brian. I’d just like to add that after many months of planning we successfully completed the conversion of legacy Whidbey Island Bank’s operating platform onto the legacy Heritage Bank core system the weekend of October 5 as originally planned.

Many of you will recall that we move to Heritage Bank’s platform from Fiserv Open Solutions to the Fiserv DNA platform about this time last year. We’re pleased with the results for the core conversion and look forward to utilizing the full capabilities of the DNA platform across the combined bank.

The significant portion of the integration process is completed this time was remaining related expenses running off in the next six weeks. Now that the conversion is behind us we will now be able to fully implement the go forward organizational structure we originally designed for the combined bank.

You will also recall from the original deal announcement that we did not plan for any branch closing as a result for merger. However, we did recently announce the closure of the Woodinville branch.

This decision came about as a result of an expiring lease which provided us with the opportunity to consolidate the Woodinville branch with our existing Bellevue branch creating a larger more efficient branch location. And now Bryan will talk about capital management and add some closing comments..

Yeah, first starting with capital management as we previously announced we declared a $0.09 of dividend which is in line with our previously stated payout ratio of between 35% and 40%.

We continue to believe we have flexibility and opportunity for future regular dividend increases as profitability continues to improve as a result of continuing efficiencies of our recent merger.

Our tangible common equity remains at a healthy 9.7% and our strong TCE level continues to give us flexibility for a variety of growth opportunities as well as capital management strategies. I’ll close with a few comments about an outlook for the remainder of 2014 and have some comments on ’15 as well.

The general economy in the Pacific Northwest continues to gradually strengthen, we see the greatest strength in the core Puget Sound counties of King, Snohomish and Pierce. We believe borrowing unusual global disruptions the core Pacific Northwest economy will continue its current growth trajectory in 2015.

Although our non-covered loan totals were down slightly, our production remains strong and the decrease was more a result of unscheduled payoffs than a lack of production. We’re optimistic that Q4s net non-covered loan growth will strengthen.

A major strategic initiative for 2015 is to strengthen our loan production and loan balances in King, Snohomish and Pierce counties. We have already begun to implement various 2015 loan growth strategies. Additionally, we’re seeing very strong non-maturity deposit growth.

During Q3, we saw non-maturity deposits grow 7.3% and since May 1 the merger date non-maturity deposits have grown 17.5% on an annualized basis. This suggests to me our merger activities have not derailed our overall production focus as reflected by strong non-maturity deposit growth and new loan production.

We continue to believe our various efficiency metrics such as assets for employee, efficiency ratio and overhead ratio will continue to improve in Q4 and throughout 2015.

As Jeff has mentioned we’re pleased with the positive results from our conversion with the legacy Whidbey Island Bank customer and we continue to be pleased with the overall integration of the two organizations.

That completes our prepared remarks this morning; Tricia and I would welcome any questions that our audience may have and what once again refer everyone to the forward-looking statements in our press release as we answer these questions dealing with forward-looking comments.

Tricia?.

(Operator Instructions) And we will open the line of Jeff Rulis with D.A. Davidson. Please go ahead..

On the expense front, so I guess, you had mentioned that Q1 is really going to be reflective more of core expense run rate, I guess with the conversion and all happening in Q4.

Any additional color on the kind of levels that are a good base? Or perhaps you could speak to any additional efficiencies or improvement on that cost base that you could offer?.

I will start and maybe Don just can add some comments as well.

Jeff, I just to remind everybody with the conversion that, that just took place, there was a staff that has been with the organization and program through conversion, but their continued employment will continue basically for the next 30 days as we deal with just normal issues following conversions.

So I think that staff reduction is probably the primarily area for expense improvement in Q4. There is other contractual agreements that can now be cancelled et cetera which will add to improve expense structures.

As we have indicated last couple of quarters, there is going to be a spillover into Q1 as we continue to deal with contract cancellations and then even as we move to 2015 deal with consolidation of facilities, this is, that’s hard to quantify because there is a variety of leases that we need to be with and subleases and our ability to consolidate, continue to consolidate efforts of process and departments and those sorts of things that’s hard to quantify.

But I am confident that that will continue through 15, but certainly the bulk of expense saves should take place in Q4.

Don anything to add to that?.

No, I think we’re going to continue to have some again in Q4 to some onetime expenses in addition to high in the level because of the addition staffing, I think contracts. So you’ll likely to see another quarter from merger related expenses, but both those will be flushed through by the end of Q4..

Jeff, its Jeff Deuel. The only thing that I would add to that is that, if you think as a timing we moved Heritage to the DNA platform this time last year and then jump right into planning for the conversion for Whidbey Island. So in my comments I made the mention of the -- we’re looking for to utilize in the full capabilities with DNA platform.

We haven’t fully done that yet for the combined bank, so I not sure we can quantify but I think there is some opportunities in front of us that we can work on to make ourselves more efficient on the new system as well..

Got you.

So if we just look at Q3's expense level, back out the merger costs, that base level, safe to say that there could be some improve -- barring the noise in Q4, but in 2015, that base level could be improved upon? Or you are expecting to?.

Yes, before or for Q1 2015 it will improve on what we just experienced. .

Great. Okay. And then the second question was, was more on kind of the loan growth.

And I guess on the -- first of all, do you have production levels, Q3 versus Q2? I know that Q2 there was some accounting -- it was just kind of difficult to determine, but I guess just total production, loan production or originations in Q3 versus Q2, do you have those numbers?.

Yes, Jeff, this is Brian. Q1 was $100 million that was on the banks for separate. This is just the commercial team. Q2 was a $120 million and then Q3 was $123.5 million, so up just a little bit from Q2, and that’s just the commercial team..

That's helpful. Okay. And then I guess, then it sounds as if obviously payoffs eating the net production number.

Get any sense that beyond payoffs, is it sort of also competition that maybe you are backing away from -- do you get a sense that there is any underwriting being stretched in market?.

You know the marketplace has continued to become more and more competitive really over the last couple of years. The loan demand certainly picked the competitive environment as picked as well. My general sense Jeff is that we’re quite active in the market and we continue to get an increase, and opportunities and when a number of deals.

The other side of this equations really whether our customers doing is the loan growth coming from our customers or is it coming from taking business from competitors and we’re seeing our customers engagement more expansion activities buying equipment or buying buildings and obviously that’s the piece of the business that we really like to see, we really to see our customers with the credit need because we’re not, it's not as competitive but still competitive, but not as competitive as trying to take somebody else’s customer in this market.

So, my senses our customers are doing more and with that I have a positive outlook as we finished the year-end look out at the ’15. As for the competitive environment I expect that will remain and continue to be challenging..

And Jeff, this is Bryan. I would also add two Bryan’s comments.

Each of the three quarters this year we’ve seen successive growth in loan production, I think that’s a very good sign, we kind of a largely uncontrollable issue here is the unscheduled payouts that we’ve addressed, but to the competitive issue, we noted that the loan yields for new loans has dropped, I think about 20 basis points if I recall from quarter-to-quarter, which I think we flex our ability and desire to be competitive as it pertains to interest rate.

We’ve talked a couple of different times in the past few quarters about the need to continue to leverage the balance sheet and all of that did not take place in Q3 because of the unanticipated loan payout production strong and we will compete on the rate side, we will not compete on the credit side.

That would jeopardize our historical credit quality, but we are willing and we are competing on the right side..

Brian is there any sense on those payoffs if they are coming from WBCO or HFWA side?.

Brian Vance :.

No they are not and Brian you might want to address that..

These were all predominantly from the legacy Heritage side really come merger consequence standpoint there wasn’t anything out of the ordinary in terms of the payoffs and the production teams are still highly focused with the customers. And as Jeff noted the conversion not well and of the weeks behind us..

We will open the line of Jacque Chimera with KBW. Please go ahead..

Okay. In the prepared remarks, I heard the 4.52% on new originations, but I missed what it was last quarter..

It was 471 last quarter..

Okay. So as I look at the quarter over quarter decline, obviously new generation is having an impact on the core loan yields.

Was any of the -- did any of the payoffs have particularly high rates that, given the size of what the payoff was, would have impacted the yield as well?.

No, Jackie there wasn’t anything out of the ordinary other than obviously they were booked some time ago and rates are down again now, but no there was nothing special about the rates on the loans that were paid off..

Okay.

So it's just compression at the cost of the growth then?.

Just what growth we have in lower rates what they were before..

And Jackie this is Brian, the other major driver and there is just beyond the new production just the reprising on the portfolio.

We do focus heavily on the new rates, but all the time we have existing loans coming up to a reprise and that rate reprise of flood in the axis the primary one we use and so as the flood moves down as rates move down and so that has a pretty significant impact just the reprising activity within the portfolio..

Okay. And when you have a higher starting point, and unfortunately it creates the pressure..

Yeah, Brian’s got that information he is looking for. I think there it is, I recall staying pretty static utilization rate..

At the quarter end it was 42.7, so if you look back it's been right in that 43, 44 range it was materially different..

Okay.

And if I remembering correctly you had mentioned some loans that were booked last quarter that just hadn’t funded yet, did I write that down correctly?.

You did, and I didn’t include it in the comments, but there is four larger loans that we booked at the tail-end of the second quarter and then we booked one in the third quarter and just those four loans total little over 35 million and the advances on those are still in the low 30% range, so those are long that’ll fund out over the next 12 months, those are just four particularly large loans there’s of course other loans, but just due to the nature and size of the projects some of them have no balance on them because the customer are still funding out there equity portion..

Okay. That's very helpful. Thank you. And then just one last one for you, Don. Were there any cost savings? And obviously, I know that this occurs throughout the quarter, so we wouldn't have a full run rate in 3Q.

But were there any cost savings that were realized throughout 3Q? Or was the most of that on hold until the conversion took place?.

I would there was not a lot in Q3 from Q2 because of the conversion we kept pretty everybody on that’s must to be on through the conversion, so there wasn’t a lot of personnel movement or contract cancellation. The focus was on the conversion on the back room side of things, so I think that there was a lot of movement there..

The majority of the cost savings then if I understand -- understood all the comments correctly, will probably take place around late November, early December of this year, and then peter out into 2015?.

Correct..

And we will open the line of Tim O'Brien with Sandler O'Neill & Partners. Please go ahead..

Question for you, Don. On the -- you mentioned three indemnification asset -- that asset, three loss share contracts coming, expiring next year. And so, over the next three quarters seeing accelerated amortization..

Well, that’s the -- it will be hot -- like a wood this last quarter, it will be higher than it has been in previous quarters over the next three quarters..

So what is the notional value of the loans, covered loans of those three contracts? What -- did they come over -- I am assuming they came over from Whidbey right, or are they yours?.

No, one of them is callous which was legacy Heritage and then there is two Whidbey which is the North County and Citibank, but there is one of those it’s didn’t help a lot of indemnification assets relating to it through the setup of last year agreement, so mostly just two banks..

And what is the total amount of assets we are talking about, all-in with regard to these contracts?.

When total covered, we report it’s approximately 150 million..

And then the residual indemnification asset amount.

What is that?.

We’ve got 5 million left, 5.1 million at the end of the quarter..

That’s going over the next three quarters?.

For the most that’s on the commercial side. There is, the residential side that is the 10 year agreement. That is much less..

Okay. Got it. Thanks. That's great. And then any staffing changes in King County during the quarter? Or Brian, you kind of alluded to focus on building that part of the business.

Are you guys good to go there? Did you do any hiring up there or anything?.

Yes, Tim we’re recruiting really in the Metro market in Pierce, Snohomish and King County, we did add one commercial lender in the third quarter.

And we continue to have kind of a number of strategies related to growing those counties are loans of those counties as we look at into fourth quarter end and 15 and one of course continuing to recruit additional talent..

Just out of curiosity, did you have any bankers leave this quarter?.

We did not..

That’s great to hear.

And then another question, as far as my sense was that with the conversion we’ll see a jump of in kind of deal related costs here in the fourth quarter, third quarter was a smaller piece but the fourth quarter you’ll take there’ll be another big chunk absorbed with that still there am I thinking right there still?.

That also going to be bigger than it was necessarily in the third quarter. It will be -- it might somewhat bigger than that would be materially bigger because I think the biggest piece which was the contract of the system was actually paid earlier in the year.

So we will see some again merger-related cost, but it won’t be much bigger than it was in Q3..

And then, residual, clean-up, merger costs, maybe a little bit in the first quarter, and probably that it is going to be done by then?.

Yes, that’s correct..

And then talking about big cost savings here in the fourth quarter, really though the full quarter impact is going to hit in the first quarter.

You alluded to that in your initial comments, right?.

Yes..

So your data processing cost in the third quarter was $1.7 million?.

Yes..

That number is coming down pretty quickly right?.

Well honestly it will be improve throughout the quarter, so it should come down. .

And then question for you Bryan, next year do you have many leases on branches coming to where you guys have more opportunities consider consolidations?.

Tim, I don’t think that there is a lot that we are focused on in terms of consolidating branches, but there are couple that have expiration scheduled in 2016 that we make some part there..

Thanks, Jeff.

And then last question, Brian, did you say that pricing kind of -- did you characterize pricing on loans -- new loan production is coming down 20 basis point? Did I hear that right? What did you say there? And what is that relative to, second or first quarter pricing or?.

Yeah, I think quarter-to-quarter, Q2 to Q3 I think loan yields on originated new loan scheme down about 20 basis points, it don’t have what it was from Q2 to Q3, probably been a little less than that as I recall..

In Q3 is 4.52 and then Q2 was 4.71..

Tim O'Brien - Sandler O'Neill & Partners :.

And that is just simply a reflection of the competitive nature of the -- everybody is seeing the same thing there, right? You guys are just competing for loans, and that's what it takes to get it done?.

I think Tim has probably two things, I think one is just a competitive nature of the marketplace but rates are coming down again. And so I think it probably the combination of both..

(Operator Instructions). We’ll open the line of Brett Villaume with FIG Partners. Please go ahead..

I wanted to follow-up with questions about the loan yields, with a question about the securities portfolio, and the yield on what the new securities that you added this quarter were, versus the -- I think you said $21 million in securities that have run off, that were basically replaced by that addition? If you could give me some color about that -- those securities yields, that would be nice?.

Yeah, we put on about again 45 million. The yield on the new security was 1.87 for security yields can’t fluctuate specially mortgage back but at the time of purchase they are 1.87 and that’s the book yield, the tax prevent yield on those because some of those remaining was 2.27, but the book yield was 1.87 a new one.

So that would be one has the yield on investments came down from that part of the reason, I think we did have some a few securities mortgage backs that have some increase prepayment fees also that also caused yields to come down little bit in the third quarter..

Okay, that’s helpful. Thank you. And then I missed the amount of shares that you repurchased.

Do -- let me know what that is again?.

109,000..

109,000 okay. Thank you.

And then do you have an average price of what that occurred at?.

I do believe it was like the, I think it was 16.65..

And I would additional to that under our previous and maybe dimension as that we are calling, the previous authorization we only have something like 50,000 shares left which was the primary reason for renewing the new 5% authorization. So my other questions have been answered. Thank you very much..

And we have follow up from Jeff Lewis. Please go ahead..

Thank you. Brian, on the revenue synergies, at this point I guess, you are through the conversion. And I know that wasn't really baked in the model of why you did the deal, but any sense of -- and you saw a nice jump in fees in Q3, mostly due to a full quarter of WBCO on the books.

But from here, do you still feel optimistic that there is opportunities to grow further?.

I do Jeff. Let me go back to the comment I made in the prepared remarks. The fact that our loan production has increased and each of the last three quarters our non-maturity deposit have grown very strongly.

I think when you take any merger and uncertainly any merger of this magnitude where we’re doubling the size of the company I think typically I would say is also easy to become inwardly focused and often times organizations lose their ability or their desire to be externally focused on growth and I am very pleased that our entire sales force our retail branches, our lenders have continued to remain focused throughout the entirety of the conversion and that production has increased as well as deposits and we all realize that deposits are just, are just adding to the leverage issue but let’s step back and remember that deposit growth is asset growth in the end and its balance sheet growth and I think that’s a very important thing to remember here.

So that is I look at our ability to maintain our focus on production in very busy timeframe.

I have encouraged that as we move into Q4 of 14 and in the 15 that will continue to strengthen the production side of the organization, and we’re not to go into a lot of details for obvious reasons as to our strategies for the metro market that the Brian alluded to, but there are number of strategies that we’re currently executing and we feel optimistic that we can capitalize on those strategies.

So overall I think all of us remain optimistic as we move into 15. I think we’re -- it’s going to take a little while to understand the rhythms of the company a company double the size with volumes our markets.

There is just a variety of things but as I see the combined organization the strength of the organization, the footprint, the ability to go up market in deal size expanded product base for both sides, there are just a number of different synergies here that as we get our arm around it and we get our organizations put together and get driver efficiencies and continue to execute our market strategies.

I think we all feel pretty positive about the balance of this year and as we got into 15. Certainly the latest round of reduction in interest rates are concerned I think to the banking industry in general.

I think that’s going to continue to great challenges for us all of us, but I think that we’ve got the leverage and the capital and the I think a management team and a sales force has the ability to figure out these various changes and challenges and keep moving forward..

Thanks. And Don, a quick one. The tax rate has been below historical levels the last couple of quarters.

Maybe you could touch on what you think it could be for the full year 2014, and then does it normalize in 2015?.

I think we have we have couple of things. We have turned off some tax credit this year and again assuming that we keep the same levels, I would think that fourth quarter will be similar to third quarter that for your modeling. For next year, I would say we probably increase a little bit because we had some accelerations and tax credits this year.

So it might go up a little bit, but I think it will still be below prior year because we’re adding through the [muni] portfolio, so it’s hard to percentage in on that because again as the investment portfolio has become a bigger portion of the overall asset and there we have a portion of that being [muni] than that’s going to have bigger effect on the tax rate..

And we’ll open the line of Eric Grubelich [ph] with Bank Investor. Please go ahead..

A follow-up on the margins. So that 20 basis point drop, you articulated the lower loan yields on the production this quarter. As you mentioned rates have dropped again, much to most people's surprise.

Do you think as we go into next quarter, is the same type of pressure there on your yields? Or do you think the yields are stable at this level, on that -- on those new production yields?.

I think Eric that, you know, again a big piece of this is the re-pricing on the existing portfolio tie to flub and was race going down the flub rates go down and the automatic re-pricing go down.

You know the race in the market I think are at this point are relatively consistent even with the rates down because the market has been competitive, but certainly as race go down it certainly provides more pressure on unknown pricing.

But it’s 20 basis points that hard to forecast because you’re talking about such larger number of loans making up that production bucket..

And I would add to that as well Eric, and I -- just a moment ago, in my comments I alluded to just really getting and understanding of the rhythm of the Company.

I think that both companies separately had a pretty good ability to predict the rhythms of the Company whether it would be a cost whether would be long production, yields, margins those sorts of things.

And again keep stressing that’s but it’s reality that double the size of the Company and it just take a little awhile to kind of dial in the field of where these various metrics may trend. I certainly appreciate the purpose and reason for your question.

I don’t want to be evasive, but at the same time it’s just taken us and it will I think time to kind of get into the natural rhythms of the Company..

No, that is understandable. You are not being evasive at all. But I had one more question. Look, I understand you don't want to dump your whole playbook open on a conference call, because you probably have a few competitors listening in.

But when you talked about some of those strategies for 2015, would that include new types of lending initiatives that you have not done before?.

I think and then Brian can add to this as well, I think that for the most part our lending strategies are pretty well set.

We have signaled earlier and we continue to signal that SBA strategy is a huge part of our go forward strategies we believe to see this last fiscal year as Brian mentioned number 1 and 504 and number 5 and 7(a) and that’s in the entire state of watching with all lender that’s just not among nearly banks.

So, we remain active in that product type, I think we’ll continue to stress that product type.

I think probably the biggest opportunity is just the ability to go up market in deal size and I think we’ve got the expertise to do that and the desire to do that and I think that probably opens up more opportunities to us than maybe any other one product type or, so Brian you want to add some additional to that or not..

I don’t Eric, I think Bryan covered it..

And we will be opening the line of. Please go ahead..

Good morning. In terms of the paydowns, construction loans seem to make sense to me, and that is a success story that went permanent finance.

What all -- is there a pipeline for that, because I mean you kind of know when these things are coming due? I mean, this quarter was it a more sizable payout? I know the sales you can't control, but just to get a feel for future quarter headwinds -- is there -- or do you guys tend to do many perms, and the takeout market has gotten stronger? Any kind of color -- in terms of construction loans are usually smaller, and this was a larger one? Or anything along those lines would be helpful? Thanks..

It was an abnormal number of large loans paying off within one quarter looking at the fourth quarter I don’t see the same volume of payouts in these categories hitting, they were larger loans that we had, we don’t have that many that are this size and they have four of them payout within the same quarter that’s unusual circumstance.

Jacque Chimera had a question on new larger construction loans we have booked for larger construction loans at the end of the second one and the third that we have a couple of more we hope to book in the fourth quarter that’s pretty customary levels, just as the cycle we ended up for paying off at one-time and the other ones are lagging somewhere in terms of their funding..

And we’ll open the line of Don Worthington with Raymond James. Please go ahead..

Good morning everyone. Just a quick question on the gain in sale in the quarter.

Was that all SBA, or was there anything else in there?.

That’s just a combination of SBA and mortgage and actually apply two-thirds of mortgage….

Okay.

And would you expect the SBA gain on sale to grow as the SBA lending volumes grow?.

We would Don, Don Hinson and I were just looking at these numbers and confirming a thing we….

Actually of the 742, the SBA was 201 and the mortgage was 541..

At this time there are no other questions in queue..

Well thank you Patricia and thanks everyone to your interest today and to your questions and myself and the four of us on the call are always available to any of our investors for additional discussion. We appreciate your interest; we appreciate your ownership and thanks for calling in today..

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