Prosperity Bancshares, Inc. (PB) Q4 2016 Earnings Report, Transcript and Summary

Good morning and welcome to the Prosperity Bancshares Fourth Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Charlotte Rasche. Please go ahead.

Thank you. Good morning ladies and gentlemen, and welcome to Prosperity Bancshares fourth quarter 2016 earnings conference call. This call is being broadcast live over the Internet at www.prosperitybankusa.com and will be available for replay at the same location for the next few weeks. I'm Charlotte Rasche, Executive Vice President and General Counsel of Prosperity Bancshares. And here with me today is David Zalman, Chairman and Chief Executive Officer; H.E. Tim Timanus, Jr., Vice Chairman; David Hollaway, Chief Financial Officer; Eddie Safady, President; Randy Hester, Chief Lending Officer; Mike Epps, EVP for Financial Operations and Administration; and Merle Karnes, Chief Credit Officer. David Zalman will lead us with a review of the highlights for the recent quarter. He will be followed by David Hollaway, who will review some of our recent financial statistics; and Tim Timanus, who will discuss our lending activities, including asset quality. Finally, we will open the call for questions. During the call, interested parties may participate live by following the instructions that will be provided by our call moderator, Amy. Before we begin, let me make the usual disclaimers. Certain of the matters discussed in this presentation may constitute forward-looking statements for the purposes of the Federal Securities laws and as such, may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of Prosperity Bancshares to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Additional information concerning factors that could cause actual results to be materially different than those in the forward-looking statements can be found in Prosperity Bancshares' filings with the Securities and Exchange Commission, including Forms 10-Q and 10-K and other reports and statements we have filed with the SEC. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. Now, let me turn the call over to David Zalman.

Thank you, Charlotte. I would like to welcome and thank everyone for listening to our fourth quarter 2016 conference call. For the fourth quarter, we had impressive annualized returns on average tangible common equity of 16.3%, and on average assets of 1.26%. Our earnings were $68.71 million for the fourth quarter of 2016, compared with $70.4 million for the same period in 2015. The net income, excluding purchased accounting adjustments was $64.1 million for the three months ending December 31, 2016 compared with $66.1 million for the three months ended December 31, 2015. Our diluted earnings per share were $0.98 for the fourth quarter of 2016, compared to $1.01 for the same period in 2015. Loans at December 31, 2016 were $9.6 billion, an increase of $183.4 million or 1.9%, compared with $9.4 billion at December 31, 2015. Our linked quarter loans increased $73.7 million, 80 basis points or 3.1% annualized from $9.5 billion at September 30, 2016. At December 31, 2016 oil and gas loans totaled $284.5 million or 3% of total loans compared with oil and gas loans of $399 million or 4.2% of total loans at December 31, 2015. The $114.5 million decrease represents a 28.7% decrease in oil and gas loans when compared to the level at December 31, 2015. On a linked quarter basis, oil and gas loans decreased $24.4 million from $308.9 million or 3.2% of total loans at September 30, 2016. Our nonperforming assets at December 31, 2016 were $48.3 million or 25 basis points of quarterly average earning assets, compared with $60.1 million or 32 basis points of quarterly average earning assets at September 30, 2016. This represents a 19.7% decrease in nonperforming assets when comparing this quarter to last quarter. Tim will discuss this in more detail later in the call. Our nonperforming assets ratio was one of the lowest in the industry and a sign of solid asset quality. Deposits at December 31, 2016 were $17.3 billion, a decrease of $373 million or 2.1%, when compared with $17.6 billion at December 31, 2015. This decrease was primarily due to one public fund deposit that we did not accept in 2016, but had accepted in prior years. Historically this fund would make a large deposit at year end and would draw it shortly after year end. The decrease in deposit was also due to the bank reducing broker deposits that we assumed in recent acquisitions. Our linked quarter deposits increased $385 million, 2.3% or 9.1% annualized from the $16.9 billion at September 30, 2016. We typically experienced a large increase in deposits in the fourth quarter. For 2016, we have not seen the organic growth in deposits that we historically have experienced and that was primarily due to a number of our customers using our cash to operate given lower oil and agricultural prices. With regard to acquisitions, as we’ve indicated in prior quarters, we continue to have active conversations with other bankers regarding potential acquisition opportunities, we remain ready to enter into a deal, reduce rate for all parties and is appropriately accretive to our existing shareholders. A little on the economy, we are excited going into the 2017 year that Texas and Oklahoma economies are improving with rising oil and gas prices. Further, expected increases in interest rates will help our net interest margin over the longer term. We see optimism in our customer base, with businesses now willing to expand purchasing. With a better economy and the absence of the loan contraction we had the last several years, we believe that we will have more normalized organic growth in loans and deposits for 2017. Again, we are very excited for the coming year. I would like to thank our whole team once again for a job well done. Thanks again for your support of our company. Let me turn over our discussion to David Hollaway, our Chief Financial Officer to discuss some of the specific financial results we achieved. David?

Thank you, David. Net interest income before provision for credit losses from the three months ended December 31, 2016 was $153.8 million, compared to $153.3 million for the three months ended December 31, 2015. For the full year 2016, net interest income was $632.6 million, compared to $630.5 million for 2015. The net interest margin on a tax equivalent basis was 3.26% for the quarter ended December 31, 2016, compared with 3.24% for the same period in 2015 and 3.29% for the quarter ended September 30, 2016. Excluding purchase accounting adjustments, the net interest margin on a tax equivalent basis for the quarter ended December 31, 2016 was 3.12%, compared to 3.11% for the same period in 2015, and 3.14% for the quarter ended September 30, 2016. Concerning the bond portfolio, net amortization was $11.5 million for the fourth quarter of 2016 compared to $11.3 million in the third quarter of 2016. This increase was due to a larger portfolio, which was $9 billion at the beginning of the quarter and increased to $9.7 billion by the end of the quarter. Noninterest income was $29.5 million for the three months ended December 31, 2016, compared to $30. 3 million for the same period in 2015; and for the full year 2016 noninterest income was $118.4 million, compared to $120.8 million for the full year 2015. Noninterest expense for the three months ended December 31, 2016 was $79.1 million, compared to $77.9 million for the same period in 2015, and for the full year 2016, noninterest expense was $318.4 million, compared with $313.5 million for 2015, an increase of $1.5%. This increase was primarily due to the Tradition acquisition that closed at the beginning of the 2016 year. The efficiency ratio was 43.3% for the three months ended December 31, 2016, compared to 42.6% for the same period last year and 43.3% for the three months ended September 30, 2016. For the full year 2016, the efficiency ratio was 42.5%, compared to 41.9% in 2015. The bond portfolio metrics at 12/31 showed a weighted average life of 4.1 years, effective duration of 3.7, and projected annual cash flows of approximately $1.6 billion. And with that, let me turn over the presentation to Tim Timanus for some detail loans and asset quality. Tim.

Thank you, Dave. I will highlight some of the information that David Zalman has given us. Our nonperforming assets at the end of the year, December 31, 2016 totaled $48.302 million, which is 50 basis points of loans and other real estate, compared to $60.166 million or 63 basis points at the end of the third quarter of 2016. This represents a 20% decrease from September 30, 2016. The December 31, 2016 nonperforming asset total was made up of $32.598 million in loans, $241 million in repossessed assets and $15.463 million in other real estate. Of the $32.598 million in loans $20.705 million or 64% were energy credits. This is broken down between $13.717 million in exploration and production credits and $6.988 million in service company credits. Since December 31, 2016 two ORE properties totaling $126,000 have gone under contract for sale, but there can be no assurance that these contracts will close. Net charge-offs for the three months ended December 31, 2016 were $2.259 million compared to net charge-offs of $241 million for the three months ended September 30, 2016. Net charge-offs for the year ended December 31, 2016 were $20.058 million compared to $6.938 million for the year ended December 31, 2015. $2 million was added to the allowance for credit losses during the quarter ended December 31, 2016. This same amount, $2 million, was added for the third quarter of 2016. $24 million was added during the year 2016, compared to $7.560 million for 2015. The average monthly new loan production for the fourth quarter ended December 31, 2016 was $286 million compared to $221 million for the third quarter ended September 30, 2016. This is a 29% increase. Loans outstanding at December 31, 2016 were $9.622 billion, compared to $9.548 billion at September 30, 2016, and $9.439 billion at December 31, 2015. The December 31, 2016 loan total is made up of 41% fixed rate loans, 36% floating rate, and 24% variable rate. Charlotte, I'll now turn it over to you.

Thank you, Tim. At this time, we are prepared to answer your questions. Amy can you please assist us with questions.

Certainly. We will now begin the question and answer session. [Operator Instructions] Your first question is from Steve Moss at FBR.

Good morning.

Good morning.

Good morning.

On loan growth you guys sound pretty upbeat about the outlook here, I was kind of wondering what are you seeing in the loan pipeline and what are you thinking about loan growth for the overall year.

I’ll take that. I will start-off. Steve this is David, and - David Zalman and we are more upbeat this year, you know for the last couple of years - first of all, if you just look at our markets, we had good places in our markets. We had places like Boston that is on fire, Dallas on fire. At the same time, we had oil and gas industries impacting the Houston markets impacting South Texas, the Permian Basin and also Oklahoma. So, having said that we also were having - we were also after some of the larger acquisitions we had, we had some loans that we were really trying to work at it, and so trying to reduce that. So, we are a lot more optimistic right now. As Tim mentioned earlier, just in this last month here at - what was it, a 29% increase?

That’s correct. On a linked quarter basis.

So we are seeing a lot more people talking about loans. We’re seeing our customers asked about loans, and we’ve recently had a management committee meeting and again I don't want to go into detail on every area that we had. We have a number of areas where we have regional Chairman's and Presidents and all of them had quite a few loans that are in the pipeline. If we can close those we are very optimistic. So, we think it will get back to, historically if you take up the last two years with this oil and gas deal that we’ve had and the economy in Texas, historically we used to run about 8% organically loan growth, I don't know that I want to commit to the 8% this year, but maybe 5% to 6% we feel comfortable in saying we should hit.

Okay. And then given the recent moves in interest rates just wondering what your expectations are around for an interest margin in the first quarter.

I think [indiscernible] Dave probably will jump in on this. Our net interest margin that I’ve explained before is probably not drastic as some of the other banks that have a lot higher loan to deposit ratio that have floating-rate loans. We have $9 billion in securities and nine point something billion dollars in loans and so - as interest rates go up they will certainly help us, but again, I always tell people it’s like trying to turn the Queen Mary around in the parking lot out here. We will see the full part of that, a full benefit of that and it will be now for probably a couple of years, but having said that 300 basis points increase or 200 basis points increase or 300 basis point increase over the next couple of years as the Fed has predicted, it increases our income dramatically. I mean it is a real plus.

Okay. Also with regard to M&A you mentioned that you continue to have discussions, I was wondering are you seeing a change in attitudes about selling, given the election results and the recent run-up in stock prices.

You know I would say most of the deals that we have been working on were prior to the election results and again we worked on a number of deals this year whether or not we didn't go farther with them because of the - whether it was a pricing issue, whether it was a cultural issue, or a number of other things. For some reason, we didn't - it didn’t work, but I’d have to say that I really haven't talked to a number of people as far as actually making a deal since the November election. I think most people are a lot more of being, especially from the regulatory side, so I think there is, do you have feelings from both groups, you have feelings that say, wow look at the prices and now is the time to sell, and you have others that say well, I think times are going to get better let me hold on. So, I think it’s mixed deal right now.

Alright. Thank you very much.

The next question is from Scott Valentin at Compass Point.

Good morning. Thanks for taking my question.

Good morning.

Just with regard to, you guys mentioned securities portfolio grew quite a bit during the quarter, and just wondering given the outlook for higher rates, is there going to be any change in the way you approach securities management?

Yes. Scott, this is David Zalman. Historically, we have such well logged in our bond portfolio, as Dave mentioned earlier making around $1.5 billion, $1.6 billion a year, but usually we would always just buy in advance for the roll off and it will leverage the bank loan, but when interest rates got so much lower like in the product that we buy that was going at 1.8, we really backed off the deal. Now that interest rates have gone up, we probably are going to keep the leverage on the bank, because, you know again we are not trying to call rates, we are just trying to buy in advance of this - as the bonds that are rolling off. So, yes, that will probably help us going forward for 2017.

Yes there is so much cash flow coming off the bond portfolio, so getting ahead is good and obviously if the loan growth can be there in this current year that could soak up some of the cash flow coming back to us and actually given to this loans if all goes well.

Okay. And do you have the duration of the portfolio?

Yes, the duration on the portfolio is approximately 3.7.

And is that up, substantially from or is it up from last 3Q and what’s the other number?

At from 3Q no, I mean we’ve been right around 3.8 [indiscernible] 3.8, 3.7 where we have been rounding, so not too much change.

Okay, great. And then just on non-interest expense item, just wondering salary and comp jumped quite a bit linked quarter, just wondering how we should think about noninterest expense going forward?

Yes kind of just a bigger picture on expense because I think a lot of people were curious about that. I just want to kind of say if this will get overall and as we can go on into next few quarters, we want to run in that $79.5 million to $80.5 million range.

Okay, thanks.

The next question is from Jon Arfstrom at RBC

Hi, good morning everyone.

Good morning.

Good morning.

Tim or David may be a question for you on the average monthly new loan production, is that a number you expect to go higher in 2017, it sounds like you are pretty optimistic, but just curious on that?

Well obviously we’d hope so to begin with. There is a reason to think that they very well go higher, our people are out there every day working very hard. We are seeing quite a few loans coming into this that’s obviously a positive. On the negative side competition is still very, very strong and there are a lot of lenders that are willing to do things on a non-recourse basis and we've also been somewhat hesitant about that. We've always been sensitive with that fixing rates up too terribly long, other lenders don't seem to be quite that sensitive. So, there are always headwinds from competition, but the economies that we work in seem to have more good news coming available than bad news. So, yes I think we are reasonably optimistic.

I think Jon it’s really hard to put it in words since the November election the momentum that we see in all of our customers right now, and maybe it’s just, it's a real positive that it looks like where people are always worried about the regulatory environment of letting people work maybe half time and maybe cutting down and surfing out expanding a lot of that has changed. So I think that if our administration side is like this and they can carry out through some of the dangers saying, I think it looks extremely positive.

Okay. Where do you see, loan committee meetings are busier, may be more optimistic than they were three or four months ago?

I hear loan committees are longer than it is getting back to staying later at night and also the loans that are, the loans that are in the hop or that are yet to be funded, maybe bigger or not seen in a long, long time.

Okay.

We really hit the doldrums in the second and the third quarters of last year on loan production and you can attribute that against whatever you want. I personally believe it was just uncertainty in our economies and in Texas and Oklahoma, but that has definitely picked up and we don't see any reason why that pickup won’t continue.

Yes, you probably didn't hear that, Randy also said that the acquisition run off that you normally have from some of our larger acquisitions is run to this slow down a lot and probably that’s probably is - I think that contraction that we get from their can bond with the momentum that we have, should stem for a very positive year we think.

Okay. And that kind of goes to the growth guidance that’s maybe the West Texas and Oklahoma pieces where you feel you’re essentially done with the run-off?

I think West Texas, the South Texas, and I think Oklahoma also.

Okay. Good that helps. Thank you very much.

Sure.

The next question is from Ebrahim Poonawala at Bank of America Merrill Lynch.

Good morning.

Good morning.

I just had a quick question one, and I'm sorry if I missed it in your opening remarks, on deposit growth, I think you gave a good color around maybe a 5% to 6% kind of loan growth here, what are your thoughts around deposit growth sort of rebounding into 2017 and is that, like how do you think about that visa-a-vise maybe some customers drawing down on their existing cash balances as they make investments, was it getting a new deposit growth?

Can you repeat…

The question is, just to rephrase it, Ebrahim is asking, what we are looking for, what do we do we think about the positive growth in this upcoming year, is that the question?

Right.

Yes. I will take it first. I think we're projecting of around 4% deposit growth this year and certainly with all those points that you brought up, I think you mentioned, if the economy starts booming a large people sitting on this cash position they’d begin to invest that, but I think the size of the bank, we've historically grown around that 4% to all previous economies and interest rate cycles. So, I think it is a goal we want to continue to try to strive for. I mean David you will agree or disagree?

Yes, I agree with all of that and I will go back over the last two years and relook the customers that averaged, especially in the oil and gas industry maybe $5 million or $6 million and their checking accounts. Today they may have $200,000 or $300,000 and they're asking from an operating line of credit. Having said that this year looks like they are really starting to make some money, especially in the service industry, it looks like they are getting their pricing [indiscernible].

I think you will see that and also the agricultural prices, the agricultural prices have been really down for a lot of these customers that have a lot of money that they either make from agriculture or got from oil and gas royalties or something like that. The depleted that and so we’re starting to see that big deal, so that’s a real positive sign.

Understood. That's extremely helpful. And just going back to in terms of the net interest margin, I think David you mentioned about, longer term what you expect the net interest margin can do, I guess looking out into 2017, from your own, like given your expectations around loan growth, so getting on some high yielding assets on the balance sheet, and deposit growth, do you anticipate sort of your reported margins stays relatively flat in this mid-320s?

Yes. Let's be a little clear on that because I want to, when we say this, I want to say it without the loan share value income and they are kind of like the core margin and yes we were agreeing with that core margin should be pretty stable over the next few quarters. Kind of what you are seeing over the last couple of quarters.

Of those none of that types are in consideration was proposed in tax rates or regulatory less Durbin Amendment. I mean a number of those things can change this whole thing dramatically. And I don’t know if you can count on them, but anybody can do the math if ECR tax rate goes from 35% to say 20%, you're talking probably $50 million there it is $60 million, almost their commitment alone. If we get some relief there that could be $15 million to $20 million for us. So combining those kind of things where it is the regulatory relief and net interest margins, everything that we are telling you right now could change dramatically.

That's fair. And just David you mentioned the discount accretion I had in my notes about that being about $5 million to $7 million per quarter as you look out into 2017, is that still true and what was it in the fourth quarter?

Fourth quarter was about around $7 million and really going forward we like to see a $5 million to $6 million instead of $5 million to $7 million.

Understood. That’s helpful. And one last question if I can ask Dave Zalman in terms of M&A, I heard your comments earlier, any thoughts around going outside your footprint if a larger deal comes through or if that makes strategic sense or do you want to be limited to the footprint as you think about M&A in the near term?

No, as we mentioned earlier, I think Texas and Oklahoma because we’re here would always be your first choice, but throughout the year we talk with banks in surrounding states that are close to us and we’re not, at our sides I don't, we are not oppose going at, I don't, I should never say I don't know that we will ever go to California or New York, but I never say never, but we are not opposed to looking at States around this. We’re not - we’re just not opposed to that.

[Indiscernible]

David asked a question, kind of mopped one to me, basically what side you are looking at? There is 50 banks in Texas that are over $1 billion in size, probably over 50, but we would like to see billion plus, $2 billion may be probably the nicest size. On the other hand, if there is a bank that is and one of our markets and it is $500 million or $600 million and it is something that is in one of our major markets, you know we will look at that to at the same time. Historically though, the banks that we have looked at have been banks that have been around for a long, long time and have a good core deposit base and really not based on just higher rate CD money turned in more core loans. So that’s a kind of deal that we're looking at, maybe not something that’s really been started and groomed and really had a lot of time and money.

Understood. Thanks for taking my questions.

The next question is from Gary Tenner at DA Davidson.

Thanks, good morning.

Good morning.

I was just hoping for some additional detail on these current investments in the quarter, in terms of what the yield was on the new purchases?

I think most of the new purchases that we are looking at, is probably around $225 to $240, probably.

That’s correct.

Okay. And the premium amortization this quarter as you noted up a little bit sequentially, but on a larger portfolio, if rates stay where they are where do you think that run rate goes to?

Yes, that’s the million dollar question because I will just put a finer point on that just as an example. If the CPR begin to slow down, which you would think they will based on where rates are going, I don’t know if I can give you a number, but I am going to kind of give you some color to get you to that number. We talked about 11.5 this quarter compared to 11.3, but just because we are increasing rates here since the election, this kind of might put some point to it. We were at $4 million in October in amortization and we dropped down to $3.7 million in December. So, you can see within the quarter, we can see some positive trends going on. So, if you just assume $3.7 million for a month, you can see that is going to be a big improvement for us, and if the speeds really begin to slow down, we should see some more positive kick-ups. So, I think it’s busier and it is just a little too early in it. We haven’t seen it yet, but I think we will see some positives coming in regards to net amortization. Was that too long of an answer for you on that?

Oh that’s perfect. I appreciate the color. Thanks guys.

Next question is from Peter Winter at Wedbush Securities.

Good morning.

Good morning.

I wanted a follow-up on M&A. What the M&A environment is like. I’m just wondering is it getting more competitive with all the banks seeing increased stock prices, because, I guess there was a couple of acquisitions in your markets, which went to other banks. So, I’m just trying to get a sense what the competitive landscape is like?

Well Peter this is David. When I look back to 2016, we looked at a number of deals, I don’t want to say, give you exactly the number that we looked at, but we look at deals that were located in the State of Texas, we looked at deals that were located outside the State of Texas and some of the deals that we looked at, you know we couldn’t get the - we probably had first chance on some of the deals that you are talking about. We might not have been able to get every time the price, we wanted something to be accretive and it didn’t so we probably didn’t do some deals because of pricing. We probably didn’t do some type of deals because of difference in culture and lending maybe or maybe just the culture of the bank. So, we still looked at a number of deals and I think that we will continue to look at a number of deals, but you are right there has been deals in our back door that we didn’t do and it’s either a pricing issue or it is a - or it was something else that in the culture or the lending side of it.

But is it getting just more competitive with everybody’s stock price moving up, making it harder?

Yes I think again, you are really - if you are dealing with another bank that is publically traded, I think you are just trading Chinese marbles really. I mean their stock price is high, our stock price is high, so that’s not a big deal. I think the benefit really comes when you are dealing with the bank that maybe is not publicly traded, that’s when you have a lot more leverage probably. So, I think they are just forks, but I think I mentioned it earlier I think there are some people that has prices have gone up, and after the election everybody has gotten positive with, especially from the regulatory. The regulatory standpoint wasn’t done, it really - that probably helped us the most. People were just fresh branded and tired with the regulatory environment. So that'll be the real key with some of these people going forward and the other side of it is people are saying look at these prices today, why not, let's not miss out on that. So I can’t just give you an exact answer, I think it’s mixed and I think you still see, I think you will see good activity again this year.

Okay. And just one follow-up question on the core margin, David Hollaway said it was going to be relatively flat, but I'm just wondering why when it move up with an improved outlook on loan growth and with the higher rates plus premium amortization expense?

I agree. I like to clarify. Absolutely if rates begin to move up, again the margin, if rates move up that's what David was as saying earlier, our margin just doesn't jump up just because rates move up. You got to get all that cash flow reinvested. So, we definitely see that positive, but we absolutely agree, if the loan, net loan growth sticks then we do have a positive march to that margin, but if you are just saying statically you're looking at what you get out today and that projecting forward, that’s kind of what I would say.

And I think with your comment like two of the same thing, I'd say, David we are not like maybe a number of other banks or maybe a lot more is on a floating basis, it changes right away. It just takes in some while, and then cash flow just takes in some while before we get reinvested. On one hand, the guy that asked about the amortization all about, it is nice that he may be at slows down, and you don’t have as much amortization spent on the bond portfolio. The other side of that coin is, I think give the money back to reinvest back. And so again longer-term interest rates are going up over the longer term, it really is an extreme positive. In the short run, just like when interest rates went down so dramatically, we had $300 million or $400 million gain in the bond portfolio, nobody gave us any credit for that. So, I think as interest rates go up 200 basis points or 300 basis points you're going to have an unrealized loss and I'm sure there will be some criticism, but in the longer run with the short duration of 3.7 years and improved earnings that we get from it, it’s all positive.

Thanks guys.

[Operator Instructions] Our next question is from Matt Olney at Stephens, Inc.

Hi good morning guys this is Matt Olney.

Good morning.

Most of my questions have been answered, but maybe a couple of more on the energy book. Where there any charge offs during the quarter on energy loans?

Yes. Most of the net charge-offs during the quarter Matt was one energy credit. Almost all of it works.

Okay. And, what does that reserve stand at now and do you have the marks against these energy loans as well from the acquired book?

Yes, just a minute. The reserve is about 2% a little over 2%. And the mark, the total mark on the book is a little over 1%. So, if you look at the energy loans that are not marked, it’s about 2.2% and those that are marked it’s a little over 1%.

Great guys. That does it for me. Thanks.

This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Rasche for closing remarks.

Thank you, Amy. Thank you, ladies and gentlemen for taking the time to participate in our call today. We appreciate the support that we get for our company and we will continue to work on building shareholder value. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.