Simmons First National Corporation (SFNC) Q4 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. And welcome to the Simmons First National Corporation’s Fourth Quarter Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, today’s conference may be recorded. I would now like to turn the call over to Mr. David Garner. Sir, you may begin.

Good morning, everyone. My name is David Garner and I serve as Investor Relations Officer at Simmons First National Corporation. We welcome you to our fourth quarter earnings teleconference and webcast. Joining me today are George Makris, Chairman and Chief Executive Officer; Bob Fehlman, Chief Financial Officer; Marty Casteel, Chairman and CEO of Simmons Bank, one of our wholly-owned bank subsidiaries; and Barry Ledbetter, Chief Banking Officer. The purpose of this call is to discuss the information and data provided by our Company in our quarterly earnings release issued yesterday and to discuss our Company’s outlook for the future. We will begin our discussion with prepared comments, followed by a question-and-answer session. We have invited institutional investors and analysts from the equity firms that provide research on our Company to participate in the Q&A session. All other guests in this conference call are in a listen-only mode. A transcript of today’s call, including our prepared remarks and the Q&A session will be posted on our website simmonsbank.com under the Investor Relations tab. During today's call and in other disclosures and presentations made by the Company, we may make certain forward-looking statements about our plans, goals, expectations, estimates and outlook. I remind you of the special cautionary notice regarding forward-looking statements and that certain matters discussed during this call may constitute forward-looking statements, and may involve certain known and unknown risks, uncertainties, and other factors, which may cause actual results to be materially different from our current expectations, performance or estimates. For a list of certain risk associated with our business, please refer to the Forward-Looking Information section of our earnings press release and the description of certain risk factors contained in our most recent Annual Report on Form 10-K, all as filed with the US Securities and Exchange Commission. Forward-looking statements made by the Company and its management are based on estimates, projections, beliefs and assumptions of management at the time of such statements, and are not guarantees of future performance. The Company undertakes no obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information or otherwise. Lastly, in this presentation, we will discuss certain GAAP and non-GAAP financial metrics. Please note that the reconciliations of these metrics are contained in our current report filed yesterday with the SEC on Form 8-K. Any references to non-GAAP core financial measures are intended to provide meaningful insights. These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. With that said, I will now turn the call over to Mr. George Makris.

Thank you, David. And welcome to our fourth quarter earnings conference call. 2017 was a momentous year. We created stronger organization with assets exceeding $15 billion, expanded into new territories, welcomed new associates and customers, all while maintaining our community first approach and producing exceptional results. In our press release issued yesterday we reported net income of $18.9 million for the fourth quarter of 2017, a decrease of $8.1 million compared to the same quarter last quarter. Diluted earnings per share were $0.43. Included in the fourth quarter earnings were $14.2 million in merger-related and branch rightsizing costs. Also included was our one-time non-cash charge to income of $11.5 million from revaluation of the deferred tax assets and liabilities as a result of the tax reform recently signed into law. In addition, we made a $5 million donation to the Simmons Foundation. Excluding the net after-tax impact of these items, the company’s core earnings were $42 million for the fourth quarter of 2017, an increase of $13.3 million compared to same period last year. Diluted core earnings per share were $0.97. Our loan balance at the end of the quarter was $10.8 billion an increase of $4.5 billion from last quarter. During the quarter our portfolio increased due to the following items. $4.2 billion increase from loans acquired on October 19. $193 million net increase in loans at Southwest Bank since the merger date. $54 million net increase in loans at Bank SNB since the merger date. And $118 million net increase in loans at Simmons Bank which includes a $26 million decrease in our liquidating portfolios of indirect lending and consumer finance and a $65 million decrease from seasonal agricultural loan payoffs. We remain optimistic about our future loan growth. Our subsidiary banks combined loan portfolio -- loan pipeline which we define as loans approved and ready to close was $633 million at the end of the quarter. On a consolidated basis, our concentration of construction and development loans was 91% and our concentration of CRE loans was 321.1% at the end of the quarter. It’s important to note that these ratios do not include the discount on loans. Including this discount, the concentration of CND would be 85.6% and our concentration with CRE loans would be 302.3%. All buying is experiencing excellent loan growth. The company’s net interest income for the fourth quarter of 2017 was $126.9 million, 70.8% increase from the same period last year. Accretion income from acquired loans during the quarter was $15.7 million compared to $6.6 million in the same quarter last year. The accretion income in the fourth quarter was higher than our original estimates due to a larger loan discount than originally projected and accelerated cash flows of acquired loans. Based on our cash flow projections, we expect total accretion for 2018 to be approximately $25 million. Our net interest margin for the quarter was 4.21% which was up from 4.12% in the same period last year. The company’s core net interest margin which excludes the accretion was 3.70% for the fourth quarter of 2017 compared to 3.76% in the same quarter of 2016. Deposit cost increases continued to offset gradual increases in rates on earning assets. We’ve experienced on-time deposit growth of $3.7 billion over the last year related to acquisitions and internal growth. Cost of interest bearing deposits increased 32 basis points from the prior year. This increase was driven by higher cost of funds at the acquired banks. We continue to project that our cost of funding will increase as a result of increased competition for deposits and the recent fed rate hikes. Our non-interest income for the quarter was $36.6 million, an increase of 514,000 from the same quarter of 2016. We had increases in trust income, service charges and another fees due to our acquisitions during the quarter. Those increases were offset by $2.7 million decrease in gain on sales of securities and decreases in income from SBA loan sales and insurance income due to the sale of lands of business in the prior quarter. During the quarter, we sold approximately $100 million in lower yielding securities at a loss. We use the proceeds from that sales to reinvest in higher yielding investments with similar maturities which will result in increased income during 2018 at a lower tax rate. Non-interest expense for the quarter was $108.5 million, while our core non-interest expense for the quarter was $89.3 million. Incremental increases in all non-interest expense categories over the same period in 2016 are the result of our acquisitions over the last year. In addition, we made a $5 million contribution during the fourth quarter to the Siemens foundation primarily to provide CRA qualified community development grants throughout our entire geography. Our core efficiency ratio for the quarter was 51.4%. As a result of the Tax Cuts and Jobs Act signed into law on December 2, 2017 the company was required to revalue its deferred tax assets and deferred tax liabilities to account for the future impact of lower corporate tax rates on these deferred amounts. The analysis resulted in a one-time non-cash charge to the income statement of $11.5 million. We do estimate our effective tax rate going forward to be in the 23% to 24% range. At December 31, 2017, the allowance for loan losses for legacy loans was $41.7 million with an additional $418,000 allowance for acquired loans. The Company's allowance for loan losses on legacy loans was 73 basis points of total loans. The loan discount credit mark was $89.3 million for a total of $131.4 million of coverage. This equates to a total coverage ratio of 1.21% of gross loans. At year end, non-performing assets were $79 million, down from $86.8 million at September 30. This balance is primarily made up of $46.2 million in non-performing loans and $32.1 million in other real estate owned. The decrease was related to charge-offs during the quarter and three problem loan relationships. The charge-offs were full reserved and do not require additional provision expense. During the fourth quarter, our annualized net charge offs, including credit card charge-offs to total loans were 53 basis points. Excluding credit card charge-offs, our annualized net charge-offs to total loans were 51 basis points. The provision for loan loss during the quarter was $9.6 million compared to $4.3 million during the same period last year. The larger provision was needed due to the increased loan migration during the quarter and the strong loan growth. Our capital position remains very strong. At quarter end, the common stockholders’ equity was $2.1 billion. Our book value per share was $45.30, an increase of 23.1% from the same period last year, while our tangible book value per share was $24.68, an increase of 3% from the same period last year. The integration of Southwest Bank and Bank SNB is going very well. The systems conversions are scheduled for February and May and we are excited about the opportunities of new combined market. Late last week we announced a 2 for 1 stock split which we believe will create investment opportunities for a wide variety of investors. Our retail ownership is approximately 50% and we believe it’s a valuable dynamic to have owners as customers and vice-versa. We also announced a 20% increase in our dividend. Note that financial statements, including earnings per share as well as other share-related disclosures, reported after the stock split record date of January 30, 2018, will include the impact of the stock split on all periods presented. The effect of the tax law changes has allowed us the opportunity to consider an increased investment in our associates which will include, among a variety of initiatives, an increase in the profit sharing component of our 401(k) plan, an increased consideration for our high-performance associates. The new investment in technology left $100 million over five years to improve our delivery of products and services to our customers. The investment in our communities is evidenced by our $5 million contribution to our foundation to support CRA qualified community development grants throughout our footprint and finally a strategy to provide return on investment of our shareholders due to retention and deployment of additional capital to grow our business while at the same time increasing the dividend we distributed to our shareholders. These investments reflect our optimism for Siemens and we believe will help us achieve the growth potential we envision for our company. This concludes our prepared comments. We’ll now take questions from our research analyst and institutional investors. I’ll ask the operator to please come back on the line and review the instructions and open the call up for questions.

Thank you. [Operator Instructions]. Thank you and our first question comes from the line of Brady Gailey with KBW. Your line is open.

Thank you and good morning guys. So, George in your prepared comments you talked a lot about some of the things you’re doing with the lower tax rate. One thing that caught me was a $100 million investment in technology that’s a big number even if its spread out over five years. So, I was just wondering when you take a step back, how much do you think of the benefit you guys are getting from tax form. How much of that will actually drop to the bottom-line?

Well, that’s a good question. We’ve estimated that, Bob help me with the number, about 20 --

Well I would say that for first half for the next year in what we’re budgeting we have about 3 to $4 million in the budget on a go forward basis for whether its employees, whether its communities and so forth. In our mind it relates to the bottom line of the tax increase. When you look at the $100 million investment we’ve mentioned in there, this includes major upgrades in our systems over the next five years. Of that some of it is replacement of cost that we already have, it could be in headcount, it could be in systems, it could be in new technology. So, it won't all hit the bottom line when we go to but our incremental cost for the IT next year that we have budgeted is in the 6 to $7 million range.

So, Brady let me touch a little more on some of those items, Bob mentioned. I feel like 70 to 80% of the benefit of the lower tax rate will close the bottom line based on our current estimates. The rest of it we are going to invest in the certain areas that we’ve already talked about. Let me talk specifically about the technology investment. If you think back the largest bank, standalone bank in our current system was a $3 billion bank in [indiscernible] Arkansas. All of this we’re operating on a system appropriate to our size then, that is not the case today. The $15 billion we're afforded the luxury of going to the market and picking out applications that are best-in-class and will take us to whatever size we choose to grow. So, this is really a one-time redo of all our applications. Everything is on the table. In addition to that, as you know the trend is moving away from bricks and mortar and more to digital. So, we have two initiatives that are in that $100 million number. One is [towards our branch of] the future. We actually have outside consultants and teams working on that with us today and a big part of that branch of the future is going to be what technology do we deploy in that branch. But even more important is what’s our digital bank going to look like going forward. We already have some pretty good digital applications but we need to put them all together so that we can take care of our customers’ needs digitally wherever they choose to be. So, we’ve got some big initiatives on the table and the benefit of the tax cut is going to allow us probably to accelerate what may have been a seven to 10-year program into a five-year program. I will tell you this, of the $100 million, we have $25 million of it budgeted for 2018.

Which is capital expenditures and other cost.

Alright. That’s helpful. And then on M&A. You don’t have any pending deals anymore with the two that closed in the fourth quarter. May be just an update on how you are thinking about M&A as we head into 2018?

Well. We are still very interested and we are still having very productive discussions. Brady, we’re totally focused on the two integrations, one Southwest Bank in February and one is Bank SNB in May. And sort of dissimilarly to other integrations, we’ve got some reverse integrations that’s going on that affects our entire Simmons organization. So particularly at Southwest Bank, they had some things that they were doing there that we’re deploying across the entire the company. So, it’s not just necessarily converting Southwest Bank systems but in certain cases it’s converting Simmons legacy systems. So, these are big deals and we are totally focused on that. That said, we still believe that the M&A market will be active throughout 2018. We see some real opportunities to establish relationships with excellent merger partners particularly in our current geography which is a little different than the approach we’ve taken in the past. So, I would expect toward the end of the year for us to be back in the M&A ball game and probably a little more precise in our direction.

Thank you. And our next question comes from the line of David Feaster with Raymond James. Your line is open.

Hi. Good morning, guys. So, loan growth was pretty impressive in the quarter especially when a lot of your peers had pay ups and pay downs that have really impacted net loan growth. It looks like Southwest Bank was especially strong. I just wondered if you could give us at a high level your outlook for loan growth next year and may be what you are seeing across your markets.

Sure. Well let me just say this and I think I have mentioned this before. The job that was done by Vernon Bryant and his team and Mark Funke and his team was exceptional during the year. You know when you announce an acquisition you hope to keep everything that you had when you announce it. Both of those banks grew tremendously during 2017, think that's a real testament to the leadership of Vernon and Mark and the quality of their associates who understood very early on the benefits of a larger organization. Southwest Bank particularly grew their portfolio by over 30% during 2017 and you see the results in the fourth quarter. We expect those results to continue in 2018 probably not at that same pace but overall, we would expect double digit growth 10 to 12% I think is a safe range for 2018 and I base that on two numbers that, one I've already given you is that our loan pipeline is over $600 million of loans approved and ready to close but even more significant is our unfunded construction loans at $1.36 billion today. So, we have a lot teed up and ready to go right now and we really don't see backing off of that, and let me just expand that a little bit into our strategy for funding those loans. We have a tremendous amount of short term funding available to us so funding the loans is not going to be a problem. However, we believe that now is the time for us to be aggressive in our pursuit of core deposits, and that will be a real focus for us in 2018. We believe if we're successful in that strategy we will be in a position to fund this kind of a loan growth for several years to come. So, you know one feeds off the other and as we said before we expect the rising cost of deposits in our strategy to partially offset any increases we may see in our marginal loans. We think that's a good strategy for 2018 and we would expect that to continue throughout the year.

Okay, that's great color, and I appreciate the accretion guidance, I'd like to just kind of get your thoughts on the core NIM, we're sitting here about 370 which was kind of if I remember correctly the floor for what you had thought that the core NIM was going to be. I just kind of wanted to get your thoughts on, on the core NIM next year and your ability to control the rising deposit cost like you talked about and maybe just remind us of your asset sensitivity, pro forma for the two deals now.

I'm going to let Bob tackle that question first.

Well I’d say first off, the NIM for core Simmons legacy was probably about 373-374 so we were right in the middle of that range. When you put all the deals together we're at about 370, you know our guidance going into 2018 is -- we still intend to be and expect to be in that 370 to 380 range for our core NIM. Keep in mind Q1 will be at the low end of that, so we could drop below 370 for Q1 with some of our seasonality that we have. So, I would expect that we are very on the sensitivity on the balance sheet side, we are moving more and more asset sensitive on the balance sheet side, so we are positioned well for continued rate increases. So, I don't have that number right in front of me but we're positioned well. Let me give you David a little more granularity on the accretion for next year. We gave you guidance of 25 million, but that number will be front end loaded during the course of the year. So, I’ll give you the quarterly schedule numbers, keep in mind these will change based on actual pay-offs that come in and how accretion works. So, we’ve got 8.5 million in Q1, 6.4 million in Q2, 5.4 million in Q3 and 4.7 million in Q4. That is our scheduled numbers right now and the 25 million for the year is what we’re budgeting and scheduling for next year. So that kind of helps everybody on the quarterly numbers also.

That’s terrific. I appreciate that color. And I guess last one from me, back to expenses, maybe you’ve got the deals closed and I suspect some of the synergies have been saved already but you know a big part of that is systems conversion. Could you maybe just talk about the timing of the remaining cost saves and how much synergies are already in the run rate and I guess maybe just the reminder of the seasonal FICA expenses given the inclusion of the two banks that you’re expecting in the first quarter?

I’ll touch that. Generally, that is our expense run rate. We believe that Q3 this year will be the first quarter where we will achieve total cost subs [ph] and we believe that we’re beginning in Q3 all will be in the 92 to $93 million range. It will be a little higher than that specially in the first quarter as you’ve mentioned the payroll tax that we usually take then. I’ll also remind you that in the first quarter, Bob’s already mentioned this, our Agro portfolio is at its lowest level and rights that we charge on Agro loans are more flexible with regards to interest rate changes in some of our fixed rate loans that we have on the books today. So that will have a negative impact on our net interest margin during the first quarter. But we believe that 92 to $93 million is a good run rate once we hit on all cylinders in the third quarter.

Also, David, I pointed out, keep in mind the NSF income just like every other bank but it tends to be down significantly in the first quarter of the year. So that’s had an impact on seasonality.

Thank you and our next question comes from the line of Matt Olney with Stevens. Your line is open.

Wanted to talk with the loan growth commentary and the 10 to 12%, I just wanted to confirm, one, if that’s a net number because it sounds like it improved relative to last time we talked about the loan growth outlook and if so can you tell us what's changed that would make this stronger than our previous discussion?

Well I would tell you that as we take a look at really our three divisions, what I would call legacy Simmons and then Southwest Bank and Bank SNB, I think that in our legacy Simmons footprint we would consider a 7 to 9% growth to be very active but based on last year’s performance and this year’s outlook, we expect both the Southwest Bank and Bank SNB territories to be up significantly more than 10%. I am sitting here looking at our Chief Lending Officer, Matt Reddin, this has not run down. So, I feel good about what I just said. That’s up to Matt for those. So, when we put all this together, Matt, we are very optimistic about our new markets. And if you recall we showed the growth both population and per capita income in all the markets that we serve, all the ones are on the left side of the graph that have the biggest potential we’re in the mid markets serviced by Southwest Bank and Bank SNB. So, it’s really not a surprise to us. But is a little bit of a surprise from when we originally projected it, is their excellent success in 2017 but taking advantage of our bigger size in the process. If you recall, Simmons Bank bought, I don’t know what the number was, a little short of $100 million of participations from both Southwest Bank and Bank SNB during 2017 to allow them to go ahead and establish those bigger relationships in their markets. So, we are very optimistic about what they have done in their potential.

And thinking about the loan growth George I think in previous years we talked about seasonality at Simmons. But now with some of these new markets, do you still expect seasonality to be -- to create some volatility of the loan growth or do you think it will be more even in 2018 versus previous years?

Just the math alone, Matt will make it less significant. Our Agro portfolio piece is I think $240 million this year. Our credit card portfolio is $185 million. Those used to be big numbers in relation our total loan portfolio. They are much smaller now. I guess what I would tell you is that it won’t affect our net loan growth as much as it will chip away at the net interest margin because both of those on a relative basis are high yielding portfolios. So, when they are at their lowest, they will chip away at that NIM a little bit.

Got it. That’s helpful, George. Thank you. Then on credit quality, I heard you mentioned there were the elevated charge-offs I think you said they were some three commercial loans. Is there anything else you can share with us on those three specific loans?

Well those three loans are the ones that we’ve mentioned for two or three quarters now in the [indiscernible] market. We have fully reserved what we thought was our exposure. We have taken good hard look at it and decided that that probably is realistic loss expectation. So, we just charge those off. If they were full reserved and none of our allowance was weighted to an additional provision based on those charge-offs.

In fact, Matt, all of the provision increases, with the 5.5 million increased to 9.5 million on a linked quarter was $4 million. All of that was related to acquired loans or new loans in our new banks that we acquired.

Okay, that’s helpful. And then I guess the next question would be as far as the provision expense in 2018 how should we be looking at that?

Well I can tell you based on our budget projections, we expect our provision expense to be $28 million to $30 million for the year, pretty evenly divided between all four quarters that may be a tad from quarter-to-quarter but we think 28 million to 30 million is exceptional [ph].

And Matt as we talked about before, the accretion is on in the first year and it's rolling off, those loans migrate over so we have to fund up the allowance to the provision on those migrated loans, so a lot of that is an offset from the accretion income as we're migrating over.

Thank you, [Operator Instructions] and our next question comes from the line of Stephen Scouten with Sandler O'Neill, your line is open.

Hey, I just wanted to first just go back to the expense guidance and get some clarification there, first I thought I heard Bob say maybe 6 million to 7 million budgeted for 2018 and then George I thought I heard you say 25 million so I just try and make sure I had the number right of that 100 million you're expecting to see in 2018.

Well Stephen the 25 million is the total capital expenditures, so that is of the 100 million 25 of that would be in the first year already and the expense increase for this first year is about 7 million, $6 million - $7 million in IT related expenses but part of what I was trying to explain earlier is some of the additional, when we get to the other 50 million to 75 million we spend in the next couple of years, part of the expense on an ongoing basis will be replacing expenses that we have on the books already. So, for example we may have $10 million in total IT expense in one area and that number may grow to $12 million or $13 million, so part of it will be replacing the expense with new technology.

And with $93 million, $92 million - $93 million guidance for like 3Q '18 run rate, does that already encapsulate kind of that 6 million to 7 million in annualized technology spend or will that kind of ramp up in the back half of the year once you get the cost saves done from the acquisitions?

It's in there and in fact most of that 25 million is going to be spent first half of the year.

Okay, great, and then just thinking about loan growth for the full year I know you kind of said 10 million to 12 million, on a dollar basis I mean last year at one point I think you were targeting 500 million and blew well through that which is great. With 600 million in the pipeline is north of $1 billion a pretty achievable number, I mean it seems almost too low for the years you've already got $633 million or what have you in the pipeline ready to close.

Well we certainly think $1 billion dollars is somewhat of a baseline that we already take a look at. You know on the 633 million some of it is construction, some of it won't be funded until all of the sponsors money is in the project, so it's not going to all come in early in the year, it's going to be deferred into the end of the year or maybe even some into 2019, just depending on how new that project is. So, it's really hard to time out Stephen how some of this will actually hit the books but we think that our net growth on the books would be $1 billion dollars, north of $1 billion dollars for the year.

Okay that's helpful, and in terms of the composition and growth that you guys are seeing especially with Bank SNB and Southwest Bank is that still largely CRE weighted and as a result do you have any concerns about CRE the risk-based capital level, even kind of as you talk about it being lower ex the credit mark. I mean is that number you expect to increase from here and does that create any limitations I guess?

Well, we don’t think it creates any limitations and we think we have several options including converting some non-qualified Tier-2 debt which are doing well. So, we’re investigating several options during 2018 that will help us sure that up. We do see a lot of CRE opportunities but we’re seeing increases in all our lines of business and unfortunately it takes a lot of SBA loans to make up a one big hotel loan. So, we’ve got to really have our foot on the gas in all the other areas to make up for the CRE opportunities we’ve seen in the market. We’ve enhanced our monitoring with CRE which is expected at the levels that we have and we’re going to further enhance that monitoring going forward. So, we really don’t have any concerns now, we’re well aware of the planning that is necessary to keep this growth going and we’re prepared to do that.

Okay. Great and then one last one kind of around the NIM. I guess first was that 100 million in securities already redeployed before quarter end or is that expected to happen in 1Q and then kind of more holistically you’ve talked about being a little bit more rate sensitive moving forward. Are there specific changes, composition changes that you’re targeting doing more variable rate loans or what’s kind of driving that because you’ve been pretty neutral at best to previously based on the numbers. I’m just curious as to what really changes there in terms of a composition dynamic? Thanks.

On the rate composites, one is our security portfolio is shortening, we’ve shortened that over a period of time. So that’s helped us a little bit on the asset sensitivity and I believe on the rates we have moved some more to the variable rate loans and some more to shorter duration loans on those as we move forward. So just as a tweaking up our earnings asset size that we increased the sensitivity on that asset side.

You know Steven as we convert, fixed rate loans to some index rate loan that was a typically started a little over right in the fixed rate loans are. So that has just an increased pressure on our NIM today where we think it’s a great strategy for the future. So that we will be able to take advantage of rate increases which we believe were very likely to happen over the next 12 to 18 months.

Yeah, and that makes a lot of sense.

And Steven the other question you had was on the security sales. We’ve looked at the end of the year and then really took advantage of an opportunity we had about a $100 million in low yield security. We were able to sell as $1.2 million loss if we do recognize that loss obviously in 2017 tax year, so that was a benefit. So, we are in the process of reinvesting that data a little bit at the end of the year and will in the first quarter reinvest that back into the portfolio. Our look on that is we haven’t earned back on that investment as it's not 1.5-year duration, we’re not extending much but we basically will have an earned back in rest of the seven months and over that year and a half makes probably about almost $2 million more than we would have made. So, it was just an analytical piece so we looked at what could we do at the end of the year to clear out some of harbor yielding securities and you know the best break on that was a $100 million.

Okay, great. That’s really helpful guys. Thanks so much for the color.

Thanks Steve. Before you get off, I would like to discuss one item, is our loan discount that we’ve booked for this quarter, it was about $20 million, $25 million higher than our original estimates. None of it was related to credit side. It was all related to the interest rate component of it. So, one, the accretion obviously will be higher as we gave guidance and where it was in the fourth quarter and what that really comes down to is where the interest rate movement is from when we get our initial valuation and what the move has been over the last year in that period of time as the valuation experts have come in for that. So, when you look at the balance sheet side, you will see the loan discount higher than we expected. None of it was related to the credit mark. That really came in almost right on with our expectations. It all came to the interest rate component. And as you know how GAAP works. We have an interest rate and a credit mark component on day one and effectively for day two, they become one as your loan discount is accreted over the life of those loan.

Right, yes. So that’s all encapsulated in the 25 million for ‘18?

That’s exactly right.

Thank you. And I am not showing any further question at this time. I would now like to turn the call back to Mr. George Makris for closing remarks.

Well, I would like to thank all of you for joining us this morning. The fourth quarter was certainly eventful. We think it was very successful and we’re awfully excited about starting 2018 off with a bang. I will say that the tax law changes have helped us identify several investment opportunities which we’ve outlined today that we believe is certainly shareholder friendly and going forward we look forward to taking advantage of those. Thanks again for joining us. And have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.