Bank OZK
Q2 2017 Earnings Call Transcript

Published: 13 Jul 2017

[Operator:]

Good day, ladies and gentlemen and welcome to the Bank of the Ozarks’ Second Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference, Mr. Tim Hicks, Chief Administrative Officer and Executive Director of Investor Relations. Sir, you may begin.

[Tim Hicks:]

Good morning. I am Tim Hicks, Chief Administrative Officer and Executive Director of Investor Relations for Bank of the Ozarks. Purpose of this call is to discuss the company’s results for the quarter just ended and our outlook for upcoming quarters. During today’s call and in other disclosures and presentations, we may make certain statements about our plans, estimates, strategies and outlook that are forward-looking statements. These statements are based on management’s current expectations concerning future events that by their nature are subject to risks and uncertainties. Actual results and future events could differ possibly materially from those anticipated in our statements and from historical performance due to a variety of risks and other factors. Information about such factors as well as GAAP reconciliations and other information on non-GAAP financial measures we discuss is included in today’s earnings press release and in our 10-K, 10-Qs and various other public filings and investor materials. These are all available on our corporate website, bankozarks.com, under Investor Relations. The company disclaims any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information or otherwise. Finally, the company is not responsible for and does not edit or guarantee the accuracy of our earnings teleconference transcripts provided by third-parties. The only authorized live and archived webcast and transcripts are located on our website. Let me turn the call over to our Chairman and Chief Executive Officer, George Gleason.

[George Gleason:]

We are very pleased to report our excellent second quarter results, which include our seventh consecutive quarter of record net income and other favorable financial results as well as a number of significant strategic accomplishments. My comments today will focus primarily on strategic matters before Tim, Greg, and Tyler speak on the financial results. First, on June 26, we completed the previously announced merger of our holding company into our bank with the bank continuing as the surviving corporation. We expect this corporate reorganization to contribute to future efficiency by eliminating redundant corporate infrastructure and the associated administration accounting and duplicative federal regulatory oversight. Bank of the Ozarks, the surviving entity, continues to use our OZRK ticker symbol and the same CUSIP number as previously used by Bank of the Ozarks Inc. Second, on May 31, we closed a secondary common stock issuance resulting in net proceeds of $299.7 million. This increased our already robust regulatory capital ratios and provides capital for significant future growth. As most of you know, we expect to file our first Dodd-Frank Act Stress Test, or DFAST submission in July 2018 based on our year end 2017 financials. As part of DFAST, we will project our expected growth and performance under three scenarios known as the base case, adverse, and severely adverse scenarios over a period of nine quarters. With limited exceptions, you cannot include projected future capital raises in your DFAST projections. Based on our expected significant growth in the base case scenario, we determined that we would need to augment our regulatory capital ratios during 2017 to support the projected growth in 2018, 2019, and the first quarter of 2020. Our May 31 capital raise should provide that needed capital. Third, for some time now, we have been evaluating holding additional on balance sheet liquidity to provide another tool in managing our liquidity position. During the quarter, we increased our investment portfolio by net $631 million. This resulted from our purchasing approximately $728 million of highly liquid short duration government agency mortgage-backed pass-through securities. Because of the higher quality and short duration of these securities, they yield only about 2%. So, their purchase will be dilutive to some of our performance ratios such as net interest margin and return on average assets. On the other hand, their purchase will be slightly accretive to other performance ratios such as our efficiency ratio. However, this balance sheet adjustment is not so much about the small incremental earnings as it is about the significant liquidity to purchase bonds will provide including their monthly cash flow. These securities have a 20% [ph] risk rating for regulatory capital, so their purchase did not utilize significant capital. This gave us a very good liquidity position at June 30, 2017, including cash of $791 million and approximately $5.72 billion in other available secondary sources of liquidity, including un-pledged investment securities. Fourth, our Forms 10-Q and 10-K reports in recent years have discussed two legal actions related to overdraft fees and the posting order of payments. During the quarter just ended, we reached a settlement in Principal with plaintiff’s counsel. On a settlement amount and attorneys for both parties are now negotiating final settlement documents, the agreed upon settlement amount has been fully provided in our financial statements as of June 30, 2017. This accounted for $750,000 of our other operating expenses in the quarter just ended in addition to amounts accrued in prior years. This matter originated in 2011 and has been the subject of numerous hearings and appeals we look forward to having this resolved in the near future. Fifth, for years, we have been among the nation’s top performing banks. As we continue to grow, we have always focused on developing our products and infrastructure to allow us to continue to achieve high performance even as we become a much larger bank. We have previously discussed our increased focus on developing technology-based products and solutions through our Ozark Labs, which we think will be critical to our success in this rapidly evolving retail banking environment. We have also talked about our focus on expanding and enhancing our infrastructure for information technology, information system, cyber security business resilience, enterprise risk management, internal audit compliance, BSA/AML monitoring training, and other important areas as well as expanding our human and physical infrastructure to serve low-to-moderate income and majority minority markets and customer segments. All these initiatives are important elements in our preparation for significant further growth and we have already made significant progress. These initiatives have been and will continue to be an important emphasis for us throughout 2017 and into 2018. Sixth, as most of you know, Real Estate Specialties Group, RESG has been our largest growth engine for earning assets for many years. We expect it will continue to be our largest growth engine and will continue to increase its volume of originations and growth. However, for several years, we have been working on various initiatives to achieve greater contributions to our growth in earning assets from our other lines of business and product types other than commercial real estate. You can see the progress we are making in this regard in the quarter just ended, in which 56% of our growth in non-purchased loans and leases came from our other loan and lease teams. We continue to expand these other lines of business. Finally, on June 23, we migrated from the Russell 2000 to the Russell 1000. Some of you probably noticed that this transition created several days of volatility in our stock price and trading volume. We are pleased that our continued growth led to our increased market capitalization, which resulted in our graduating to the Russell 1000. In addition to all of this, our second quarter results included some exceptional financial performance. I will let the rest of the team tell you about that. Let me turn the call back to Tim Hicks who you might have noticed has a new title, Chief Administrative Officer and Executive Director of Investor Relations. The creation of this new position and Tim’s promotion and expanded role reflect both his accomplishments and our efforts to further increase the depth and breadth of our senior management team. Congratulations Tim.

[Tim Hicks:]

Thank you, George. Our $20.1 billion in total assets at June 30, 2017 was a 63% increase from June 30 last year. This balance sheet growth translated into excellent income growth. Our net income for the quarter just ended was a record $90.5 million, a 66% increase from the second quarter of 2016. Our diluted earnings per common share of $0.73 for the quarter just ended or a 22% increase compared to the second quarter of 2016. In the quarter just ended the funded balance of our non-purchased loans and leases grew $808 million and our unfunded balance of closed loans grew another $625 million. This unfunded balance of closed loans was a record $11.9 billion at June 30, 2017, which will be instrumental in achieving our loan growth goals in the remainder of 2017, 2018 and early 2019. RESG accounted for about 44% of our growth in the funded balance of non-purchased loans and leases in the quarter just ended and our other loan and lease teams accounted for 56% of the growth. As George mentioned earlier we expect RESG will continue to be our largest growth engine, but we are pleased by the positive momentum and contribution from our various other loan teams. At June 30, 2017, the RESG portfolio accounted for 68% of the funded balance and 93% of the unfunded balance of our total non-purchased loans and leases. At quarter end our average loan to cost for the RESG portfolio was a very conservative 49.1% and our average loan to appraised value was even lower just 42.0%. The extremely low leverage of this portfolio exemplifies our very conservative credit culture and is one of many reasons we have such confidence in the quality of our loan and lease portfolio. Given the growth in our customer base, our robust pipeline of transactions currently in underwriting and closing and our largest ever unfunded balance of closed loans, we continue to expect 2017’s growth in the funded balance of non-purchased loans and leases to be between $3.1 billion and $4 billion, although it is not likely to be at the top end of that range. As we have said in our January and April calls, we expect growth in non-purchased loans and leases in the second half of 2017 to be better than the $1.4 billion of growth in the first half of 2017. Let’s turn to capital. As George mentioned during the second quarter we completed the issuance and sale of common stock for net proceeds of $299.7 million. We will continue to monitor capital market conditions, capital formation alternatives and our capital position including our expectations for growth over the relevant nine quarter DFAST time horizon, all with the goal of effectively managing our capital position for the maximum benefit of our shareholders, while always maintaining well-capitalized status. Organic growth of loans, leases and deposits continues to be our top growth priority and we have demonstrated our ability to achieve substantial growth apart from acquisitions. With that said, we believe M&A provides significant opportunities to augment our robust organic growth. Our last 15 acquisitions have been triple accretive, being accretive to book value per share and tangible book value per share at closing and accretive to earnings per share in the first 12 months following closing. We expect to continue to be disciplined in our acquisition strategy and to apply this triple accretive test to future opportunities. We remain active in identifying and analyzing M&A opportunities and we believe this strategy will help us to create significant additional shareholder value over time. Let me turn the call over to our Chief Financial Officer and Chief Accounting Officer, Greg McKinney.

[Greg McKinney:]

As a company we are focused on three disciplines; net interest margin, efficiency and asset quality. First, let me discuss net interest margin. In the quarter just ended, our net interest income was a record $202.1 million and our net interest margin of 4.99%, increased 11 basis points from the first quarter. In recent calls we have mentioned that we have recently focused more on our core spread than our net interest margin. In the quarter just ended our yield on non-purchased loans and leases increased 16 basis points to 5.42%, while our cost of interest paying deposits increased 9 basis points to 0.67% resulting in a 7 basis point increase in our core spread and continuing an improving trend over the last five quarters. Increases in LIBOR rates and the Federal Reserve’s fed funds target rate have contributed among other factors to this improvement. As a result of our robust level of loan originations in the quarter, we had $47.1 million in net deferred credits at June 30, 2017, meaning we had $47.1 million more in unamortized deferred loan origination fees than unamortized deferred loan origination costs. This along with $123.9 million valuation discount on our purchase loans at June 30, 2017 has favorable implications for future earnings. Let me switch to efficiency, our efficiency ratio has been among the top decile of the industry every year for 15 consecutive years. In the quarter just ended our efficiency ratio was an excellent 35.3% and for the first six months of 2017 was 35.2%. While our efficiency ratio will vary from quarter-to-quarter, we have stated in recent calls that we expect to see a generally improving trend in our efficiency ratio in the coming years. There are several key factors among others needed to accomplish our long-term efficiency goals. First we expect to ultimately utilize a large amount of the excess capacity of our extensive branch network tapping billions of dollars of additional deposits through the existing offices. This ability to achieve substantial deposit growth with limited additions of overhead has favorable implications for our efficiency ratio. Second, we expect to achieve further efficiencies over time from our ongoing deployment of technology applications from Ozark Labs. As George previously mentioned as a larger and growing organization, we are constantly increasing our expenditures building infrastructure in a number of important areas. The increasing costs for such enhanced infrastructure will be a headwind in our efforts to improve our efficiency ratio. However, we believe that our excellent organic growth will generate sufficient additional revenue for us to achieve both our important infrastructure enhancements and our long-term efficiency goals. Our guidance regarding and improving efficiency ratio in future years does not consider potential impact of any future acquisitions. Our asset quality metrics during the second quarter are some of our best as a public company. For example our annualized net charge-off ratios during the quarter just ended were 3 basis points for non-purchased loans and leases and 5 basis points for total loans and leases. At quarter end excluding purchased loans our non-performing loans and leases as a percent of total loans and leases were just 11 basis points. Our non-performing assets as a percent of total assets were just 23 basis points and our loans and leases past due 30 days or more including past due non-accrual loans and leases to total loans and leases were a record low 0.15%. This was our sixth consecutive quarter of reporting a record low past due ratio. These ratios reflect our longstanding commitment to conservative underwriting standards and excellent asset quality, which has resulted in our having asset quality consistently better than the industry as a whole and our almost 20 years as a public company, our net charge-off ratio has averaged about 35% of the industry’s net charge-off ratio and we have beaten the industry’s net charge-off ratio in every year. Our out-performance has been even better recently as evidenced by the fact that our net charge-off ratio was just 13% of the industry’s net charge-off ratio last year and just 10% of the industry’s net charge-off ratio for the first quarter of this year. I want to make one final comment regarding our effective tax rate. During the second quarter our effective tax rate increased due to our true up of state income tax portion of factors. These adjustments were somewhat larger than normal due to our increased lending activity and higher income tax rate states and municipalities, principally New York State and New York City. We originally enhanced our procedures to ensure our quarterly accrual to be more precise going forward. We expect our tax rate for the remainder of this year to be in a more normalized range of 36% to 37%. Of course, significant changes in the mix of taxable and tax-exempt earning assets and changes in the mix of assets between states could affect the tax rate actually incur. Let me turn the call over to our Chief Operating Officer and Chief Banking Officer, Tyler Vance.

[Tyler Vance:]

In regard to liquidity, we have long expected that we could accelerate deposit growth as needed to fund our loan and lease growth. Our experience in recent years has validated that expectation. At least monthly and more often as needed, we to update a comprehensive 36-month projection of our expected loan fundings, loan pay-downs and other sources and uses of funds. These detailed monthly projections of needed deposit growth provide the goals for our deposit growth strategies. This has proven to be a very effective process. Currently, we have 41 offices in 28 cities in spin-up mode, offering various deposit specials along with an enhanced level of marketing activity. Our branch network of approximately 242 deposit offices continues to have substantial untapped capacity, and we believe that capacity is sufficient to fund our expected loan and lease growth over the next several years. Planned de novo branch additions and possible future acquisitions should provide additional deposit growth capacity, as needed for the future. At June 30, 2017, our total deposits were $16.2 billion, which was a $528 million increase from the previous quarter end. Because of our significant growth in organic deposits in the quarter just ended, we decreased our volume of broker deposits by $434 million from $2.00 billion at March 31, 2017 to $1.57 billion at June 30, 2017. That’s a decrease from 12.8% of total deposits to 9.7% of total deposits. Of course, we are not subject to any regulatory limitations on our volume of broker deposits and our internal policy calls for a 50% limit, which we are well below; but we are, nonetheless, pleased to see our percentage of broker deposits continue its recent downward trend. As a result of the shift in mix, our non-brokered deposits grew a healthy $962 million in the quarter just ended. We consider net growth in core checking accounts as one of our most important deposit metrics. We achieved excellent organic growth in our number of net new core checking accounts with a record 6,339 net accounts added in the second quarter of 2017, bringing our total net new core checking accounts to 10,843 for the six months of 2017. Our excellent checking account growth has been an important contributor to our record service charge income of $11.8 million for the quarter just ended. Let me remind you that the Durbin Amendment started impacting our service charge income as of July 1, and we estimate it will result in a pre-tax reduction in service charge income of about $1.95 million per quarter, based on our most recent transaction volume available. As Greg mentioned, our cost of interest-bearing deposits increased 9 basis points in the quarter just ended compared to the first quarter of 2017. Given our expectation that our growth in non-purchased loans and leases in 2017 will range between $3 billion and $4 billion, we expect to continue to grow deposits significantly this year. Based on this, combined with possible further increases in the Fed funds target rate during the remainder of 2017, we expect additional increases in our cost of interest-bearing deposits this year. Our goal for 2017 is to hold the rate of increase in our cost of interest-bearing deposits below, and hopefully well below, the rate of increase in our yield on non-purchased loans and leases. As previously mentioned, we achieved that goal in the quarter just ended as our yield on non-purchased loans and leases increased 16 basis points compared to the 9 basis points increase of our cost of interest-bearing deposits. Now, let me turn the call back to George.

[George Gleason:]

Next Monday, we will celebrate our 20th anniversary as a public company. Over those 20 years, we’ve grown from 13 offices with $309 million in total assets to 251 offices with over $20 billion in total assets. Our shareholders benefited greatly from our constant pursuit of excellence, as evidenced by our 22.5% compounded annual total return to shareholders over that 20-year period. Such exceptional and sustained results can only be achieved by an exceptional team. I want to thank our 2,459 employees, who I believe are among the best in the industry, for their hard work and great accomplishments, as we celebrate our 20th anniversary is a public company. Well done. We look forward to continuing this success for decades to come. That concludes our prepared remarks. At this time, we will entertain questions. Let me ask our operator, Amanda, to once again remind our listeners how to queue in for questions. Amanda?

[Operator:]

Thank you. [Operator Instruction] Our first question comes from the line of Joe Gladue of Merion Capital Group. And your line is open. Joe Gladue Good morning. George Gleason Good morning, Joe. Joe Gladue I guess, first off, I wanted to touch on some of the expense growth, I guess, particularly in the – I guess, the other non-interest expense category, which looks like it was up roughly 19% versus the first quarter, wondering how much of that might be one-time related to the holding company activity and what else might be pushing that up. George Gleason Well, as we commented is, I commented in my prepared remarks, there was about $750,000 of cost and they are related to the agreement on a settlement amount for the long-standing since 2011 deposit service charge lawsuit, so that was one unusual factor. There were some lesser sums related to the bank holding company merger, but those were not a significant enough amount for us to quantify. As Greg mentioned in his remarks, we’re continuing to build out this infrastructure. A good example of that is, at March 31, we had 2,343.5 full-time equivalent employees; that number of employees, it increased 51 FTEs by June 30, 2015, to 2394.5 FTEs. And that reflects both a build-out of the various elements of risk management infrastructure we’ve talked about for several quarters now as well as a build-out of staff in our revenue-producing units from RESG to community banking to leasing. So it’s a broad-base increase in staff there, and that is reflected in that. Joe Gladue Okay. Let me, I guess, move on further to, I guess, the unfunded – growth in unfunded commitments. I guess, that grew about another 5% – 5.5% or so from the first quarter, which is a bit of a slowdown from the previous quarters. Is there some seasonality to that growth? And is some of that, I guess, slower pace related to the fact that more of the growth is coming from 9 RESG units rather than RESG? George Gleason Joe, I don’t think, number one, there is any particular seasonality to it. To some extent, what we are probably seeing is the fact that 2 years ago, we had a really large year followed by an almost as large year growth in the – in percentage terms in that unfunded balance of loans. And as you and I and others have talked about many times, the loans, the larger loans sometimes take 2 or 3 years to construct the project, and being the very low-leverage only senior secured lender in the transaction, it’s often a year or 2 years before we are funding on the loan, as all of the subordinated capital elements, equity, and mezzanine debt and so forth are getting expended [ph] on the project. So I think to some extent, we had expected that that rate of growth in the unfunded commitments would begin to slow over time as a lot of these big unfunded commitments from 2 years ago begin to fund up. We’ve had a very robust level of originations at RESG in the quarter just ended, and I don’t have that number. But I don’t think there was any slowdown from our first quarter pace of originations at all. It was just that more of those previously unfunded commitments funded, so it tended to minimize the impact of newly originated unfunded commitments. And I think you’ll see that to some degree going forward, I would expect the unfunded commitments to continue to grow, but at a slower percentage rate of growth than we have seen in the previous couple years. Joe Gladue Okay, thanks. That’s very helpful. I will step back, yes. George Gleason Okay. Thanks, Joe.

[Operator:]

Thank you. And the next question comes from the line of Jennifer Demba of SunTrust Robinson. Jennifer Demba Good morning. George Gleason Hi. Good morning, Jennifer. Jennifer Demba I had some questions on loan growth. You said you expect loan growth this year to be probably not at the top end of your guided range, can you just talk about the dynamics you’ve seen in the last few months? Has demand slowed a little bit or higher pay-downs or what are we seeing right now? George Gleason Well, Jennifer, the first two quarters of growth were very much in line with what we have modeled at the beginning of the year. So we are tracking where we expect it to be. There have been movements in a few of the parts. Our Marine and RV business generated about $185 million growth in the second quarter. That was up from $134 million growth in the first quarter and a little more than we expected. I anticipate that some of the competitors we have been taking market share from are adjusting some of their marketing and business strategies, and I would be surprised – not be surprised if that number pulled back a little bit in Q3 and Q4. On the other hand, our funded RESG growth has been a little slower than we modeled at the beginning of the year, but net-net, we are within about $20 million or $30 million at the end of June of what we modeled for Q1 and Q2 at the beginning of the year. So we are running really close to projection. We have not changed our guidance, although Tim noted we’re probably more likely to be in the bottom half of that guidance, I think, was the implication of his comment than the top half of the guidance range. So we feel like we’re on track to do what we expected to do at the beginning of the year. Jennifer Demba Okay, thank you very much. George Gleason Thank you.

[Operator:]

Thank you. And our next question is from the line of Timur Braziler of Wells Fargo Securities. Timur Braziler Good morning, gentlemen. First question I have is on the purchased loan yields. It seems like they have been bouncing around quite a bit over the last three quarters, any gauge as to what’s driving that increase in the second quarter and maybe help frame where you see expectations going forward there? George Gleason In Greg’s remarks, he mentioned we got – Greg, what was the number? $125 million… Greg McKinney $123 million. George Gleason $123 million of remaining credit/noncredit NPV marks on that portfolio. And what causes those loan yields to bounce around and we have talked about this for years since we’ve had significant purchased loans in the portfolio going back to 2010 now, is when you have prepayments of those loans – those unaccreted counter accounts drop into income as additional accretion income, so that is number we’ll be very volatile from quarter to quarter and will be largely dependent on and heavily impacted by the rate of prepayments and the mix of prepayments. If you have a $100 million of loans payoff and they were at their natural maturity and there were no credit marks on them, then you’ll have no unusual impact on accretion income from those prepayments, if on the other hand, you have $100 million of loans payoff. But there were meaningful credit marks or significant maturities left, meaning – the significant maturity meaning that there’s certain substantial unaccreted discount, net present value discount on it, then those credits will drop into income, and that will cause your margin on that portfolio to increase or yield on that portfolio of interest. It will be volatile, and that’s one of the reasons that we have talked about in the last 4 or 5 calls that core spread, the difference between our yield on non-purchased loans and our cost of interest-bearing deposits is really being a better indicator of the job management is doing and the effectiveness of our business plan in maintaining good margins. And that’s pretty increased – core spread increased 7 basis points in Q2. After increasing 6 basis points in Q1, we’ve had a 5.25 improving trend in that core spread, as Greg alluded to. So our real focus at the management level is to keep improving that core spread and get our yield on non-purchased loans to go up more than our cost of interest-bearing deposits goes up as that raises rates. And the NIM will bounce around quite a bit from quarter to quarter based on the prepayments in that purchased loan portfolio. Timur Braziler Okay, that’s helpful. And then just circling back to the deposit cost conversation, how much of that increase this quarter was driven by promotional rates versus seeing higher deposit betas on your core accounts? And I guess, with now three consecutive rate hikes, is your expectation for deposit betas – is that expectation now moving higher starting here in that third quarter? George Gleason I am going to let Tyler address that. Tyler Vance The increasing cost is really driven lot by the need to fund our growth. And so we have seen some larger customers where we’ve made rate concessions, we’ve adjusted their rates in terms of this new rate environment. We’ve not changed any of our rack rates. Those have all stayed same. We’ve adjusted some CD specials anywhere 10 to 15 basis points in those spin-up markets. So again, really the increasing cost is as the margin to fund the growth. Timur Braziler And then one more, if I could, just for you, George, I love to hear your updated thoughts on M&A. What are you seeing there as far as deal flow? And does the upcoming DFAST preparation, does that at all hinder the ability or the willingness to announce the acquisition at some point, not throughout the remainder of the year here? George Gleason Well, our work on DFAST, which is ongoing, and we’re in the process now of doing our second dry run on DFAST. That is having no impact, whatsoever, on our FTAT or our interesting in M&A transaction mentions. As Tim mentioned in his remarks, and Tim works most closely with Dennis James, our Director of M&A, on modeling and looking at opportunities out there, we continue to be active and continue to look. But we are committed to our long history of doing transactions that are triple-accretive, accreted to book value and tangible book value per share on day 1 and earnings per share in the first 12 months, following the transaction closing. Obviously, seller pricing has gone up and seller pricing expectations have gone up as a result of deals that have been announced. In recent quarters, our stock is not trading at as high a multiple as it was a year or 2 years ago. And frankly, I don’t understand that would have met our triple accretive test, but we have looked at those through a lens of another test and that other test is if we spend the same energy and effort resources that we would devote to doing that transaction, can we generate more profitability and return for shareholders spending those same resources on our organic growth and hence we have not elected to pursue several transactions that would have met that triple accretive test so far this year, but we continue to look – we continue to be active and we continue to believe that M&A will be an important part of our future growth strategy, but we will be disciplined about it. Timur Braziler Great, thank you. George Gleason Thank you.

[Operator:]

Thank you. And our next question is from the line of Michael Rose of Raymond James. Your line is open. Michael Rose Good morning. Just wanted to start with the other noninterest income, it looks like it was up a little bit and I just wanted to see if there was any sort of one-time kind of items in there? Greg McKinney Michael, it was really just a continuation of what we have seen from a run-rate standpoint. That has a little bit of a tendency to bounce around from quarter to quarter, but there is no really unusual one-time items in there that is driving the increase this quarter. Michael Rose Okay, so that’s a decent run-rate going forward then? Greg McKinney That is correct. George Gleason With the caveat as Tyler mentioned that the Durbin amendment will kick in here in Q3 and as our number of customer transactions and core accounts has grown and we have completed our acquisitions over time that number has gotten bigger and it’s about $1.95 million a quarter. So, as your starting point deduct $1.95 million in service charge revenue from Q2 and then project whatever you think that’s going to grow at from there would be a good starting point. Michael Rose Perfect. And then maybe as a follow-up if you guys can touch on post the capital raise where your CRE and construction and concentration levels are relative to the guidelines and if the capital raise in any part was contemplated by any sort of regulatory conversations? Thanks. George Gleason The capital raise was not a result of any regulatory conversations whatsoever related to CRE or otherwise. And frankly, I don’t know Tim, do you know what our CRE ratios are afterwards I haven’t – we haven’t looked at that. Tim Hicks No, we don’t have those available at this time although there are obviously the capital raise will obviously benefit those ratios and I have to calculate that with our – considering our growth in the quarter as well. George Gleason So, we haven’t even calculated that and that the CRE ratios were not at all a consideration in the capital raise. The capital raise was a result of the fact that under our first dry run of our DFAST stress test and as we extrapolated those first dry run results to our projections for growth in the future as they have evolved and so forth. We are expecting such significant growth in 2018/19 in the first quarter of 2020 in the base case that will outrun our ability to generate capital organically. So, if you are retaining retained earnings at 13% or 14% rate of retained earnings, but you are growing the balance sheet at 30% per annum plus or minus you’ve got to have more capital. And as I said in my remarks, you can’t project those capital raises over your nine quarters of the DFAST stress test. With limited exceptions you’ve got to have it on your balance sheet at the balance sheet measurement day which in our case here for the first test will be December 31, ‘17. So it was all about the DFAST test and the projected base case growth we expect in the DFAST test and the capital raise had nothing to do with our CRE ratios. Michael Rose Okay. And then maybe just one final broad question just on the RESG business, George, you and I had talked about your thoughts on what the industry growth looks like over the next two years. You talked about it potentially slowing and then your pass-through rates increasing a little bit. Can you just give some color on the market pricing if that’s improving for you guys given competitors a pullback and kind of your thoughts and expectations just for that business line over the next two years? Thanks. George Gleason Yes. We do have the expectation that construction nationally across all product types and all markets across country is likely to pullback a little bit and whether that number is 10% or 20% I don’t know, but in talking with our customers as RESG guys do and they are passing that feedback along to me, cost of labor and materials in some markets are going up significantly. Cost of construction financing is going up. Cost of feds moved interest rates now four times and probably spreads on construction financing at least in our experience have gone up over the last 18 months to 2 years. So, it’s costing more in labor materials and capitalized construction period interest for our customers to build things and we are working against a period of years coming out of the great recession, where supply did not keep pace with demand and supply of product and lot of product types is caught up with demand now and lot of submarkets. So, there are lot of markets around the country where you might have had 5 projects coming to market a year ago, but there is really only a need for two more projects coming to market this year and that is slowing the volume to some extent. But as we have talked about, we do a very, very low percentage of the transactions that we see and historically that number has kind of been 6 to 8, we feel like it’s even a lower percentage now. So if the pie nationally shrinks, we would still expect our volumes to be very good. And as Tim mentioned and I think I mentioned in my remarks, we expect RESG to continue to be our biggest growth engine and its business to grow over time. So, we still expect by just getting a little higher pull-through rate on our transactions that we can keep our volume positive even if the industry contracts a little bit. And that contraction is actually a very healthy thing. It’s very encouraging to us that developers are paying close attention to supply demand metrics and are really being careful to only build things where there is a very good reasonable sound expectation that the demand is going to be there for the product being built. So, we think all that’s working out in a very healthy and constructive way. Michael Rose Great. Thanks, guys. George Gleason Thank you.

[Operator:]

Thank you. And our next question comes from the line of Stephen Scouten of Sandler O’Neill. Your line is open. Stephen Scouten Hi, guys. Good morning. George Gleason Good morning. Stephen Scouten Maybe a follow-up on growth question if I could. Maybe it’s kind of two-part question around growth. You mentioned the RV and marine as a contributor on the non-RESG percentage but that number was kind of lot more impressive than I would have expected this quarter. Can you give other color into that? And then as it pertains to the RESG hires that you mentioned, have you added any new whole teams there or where do we fall on the amount of teams you have for RESG? George Gleason Yes. We have continued to add new team members to RESG, but we never have gone out and hired a team of people, where what we do there is very disciplined and very focused and it requires a very high level of expertise and competence and understanding. So, we have never tried to go out and lift the team out from any place else and put them in RESG. We are individual team members that we believe have the aptitude, the skill set, the experience, the knowledge, the work ethic, the discipline to be part of RESG and bring them and one at a time make sure those individuals really are performing in our culture consistent with the high standards of our culture. So, we are continuing to add that. I don’t know exactly what the headcount is there. I think we are at 100 and something now maybe as high as 108 or 107 something like that. So, the RESG team is growing, but it’s not by adding teams, its one person at a time based on the unique skills and ability of that person. The marine and RV team is an excellent team. They were one of the real jewels from a talent and confidence and unique skill set perspective in the CSB acquisition that we closed last July and John Redman and Dennis Poer and the guys that work with them and that team have just continued to do an excellent job. They are veterans in the business and hence they have very broad based comments or contacts and a lot of relationships that go back decades there and their ability to take their expertise and capitalize on their market knowledge and relationships and bring in business has been the reason that that line businesses has ramped up as effectively as it has for us. Stephen Scouten And just from some of the color you have given, I would presume you wouldn’t expect the same level of contribution from the non-RESG businesses in the next couple of quarters, is that fair to say? George Gleason I would expect as I have said it may be hard for the indirect marine and RV guys to replicate that $185 million of growth from Q2, that was an outstanding number and I think they have certainly ruffled feathers among some of our competitors there. And so there is likely to be a little competitive pushback that slows their momentum just a bit in the short run. I do expect then to be a significant positive contributor. I am just not sure they can hit $185 million again. We expect continued increases in the volume of growth from community banking. Our community banking group actually contributed about $210 million or $211 million to our Q2 growth. And we had positive growth in leasing than our corporate loan specialties group got a little bit of traction with about $57 million of growth in the quarter. So I would expect in future quarters we would continue to see additional contributions at an accelerating volume from the non-RESG groups with the possible exception we may have a flat to slightly down quarter too for indirect. And I would expect an accelerating volume of funded growth from RESG starting this quarter. Stephen Scouten Okay, that makes sense. And if I could jump to the interest bearing deposit costs again, it seems like the same amount of offices and regions are in spin-up mode as they were last quarter, would you anticipate the need for any changes there and any major differential in terms of the deposit composition for this quarter versus last? George Gleason Well, that’s under constant review by Tyler and his team and the reason we didn’t put more offices in spin-up mode or do more adjustments to our rate on those spin-up offices was simply a result of the fact that the – if you ignore the year runoff in broker deposits, our non-broker deposits were up, Tyler what was that number? Tyler Vance $962 million. George Gleason It’s $962 million, so his retail banking teams and their regional banking teams and the community bank that worked for it. John Carter and the deputy directors of the community banking and those market division president just did an excellent job growing deposits and Tyler mentioned we had over 6,000 net new core checking accounts added by far the largest quarterly total we have ever had. So they just got a really good quarter of deposit growth without having to increase our number of spin-up officers or significantly adjust the rates in the spin-up offices. And that’s just good hard handwork in the way we brought in those deposits by our entire team. So real proud of the accomplishments of Tyler and the entire regional banking team and community banking team. There was a lot of hard work went into that and we are pretty optimistic that we will only make probably minor adjustments in the spin-up offices this quarter if any and still get some pretty good results. They have got a lot of momentum going on the deposit sides. We are feeling very positive about that. But as I have said spin-up is under daily review as Tyler contemplates the 36-month forward planning forecast that Tim and his team provides to Tyler based on the constant review and update of loan commitments and closings and fundings and so forth. Tyler is constantly evaluating what is happening competitively and growth wise, volume wise on the deposit side and he is managing that. so it’s under constant review. Stephen Scouten Okay. And then maybe just one last question maybe a little bit of an abstract question, but you mentioned you are a little frustrated or surprised by where your evaluation is today and that could be inhibited in M&A, do you think there was anything that you guys can do specifically to kind of further demonstrate the core of your franchise, the strength, the quality of the results of the franchise and maybe dissipate some of these concerns around RESG or the size of those loans, anything that you guys are considering to make things more clear for people that maybe apparently it’s not clear for today? George Gleason The answer to that is no, I mean we have been incredibly transparent regarding our RESG portfolio and really all of our business for that matter. And if people can understand that then I don’t know anything else we can do to help them understand that. But the results over the long-term clearly speak to the quality of that portfolio. And the thing that people ought to be able to very easily understand is that our competitors many of them who have lower CRE ratios and we do maybe 20 points or 30 points or 40 points higher leverage on their CRE than we are at 49% loan to cost and 42% loan to appraised value which is the fully funded LTCs and LTVs for the RESG portfolio assuming every loan is fully funded. I mean those are not low numbers. And we are the most conservative party, the only senior secured party and the cap stack on every transaction we do. And if you look at our level of leverage versus the industry is how we are probably the most conservative CRE lender in the entire industry. The numbers from our historical loss experienced certainly tell a compelling story the LTV/LTC numbers tell a massively compelling story and you would think people would be able to understand that. But – and I think more and more people are understanding that as time goes on, but it’s an outstanding quality portfolio. And we have absolute confidence in it. Stephen Scouten Fantastic. Well, congrats on another really nice quarter George. I appreciate it. George Gleason Thank you.

[Operator:]

Thank you. And our next question comes from the line of Matt Olney of Stephens & Company. Your line is open. Matt Olney Hi. Thanks. Good morning guys. George Gleason Hi, good morning Matt. Matt Olney I want to circle back on the acquired loan book, it looks like that the pay-downs continued there at a pretty high level, no real slowdown from the first quarter, any commentary you guys can provide as far as the pace of the pay-downs on that acquired loan book? George Gleason We were a little surprised by that. If you look in Q4 of last year when we would have expected elevated pay-downs because those C1 and the CSB acquisitions were fairly freshly minted. We had a $442 million decrease in that loan book in Q4 which was 8.2% of the beginning of Q4 balance of that. That slowed as we expected it would in Q1 to $378 million or 7.6% of the beginning balance of Q1. And we would have expected that number would have gone down from $377 million or $378 million and down from the 7.6%, that would be our normal experiences that the rate of pay-downs from these portfolios would slow. But to your point, it actually reversed the other direction in Q2 at $421 million in pay-downs, which was 9.2% of the beginning of quarter balance. So, my best guess at this point in time and when people pay their loans off is a hard thing to predict, but my best guess at this time is that the Q2 increase in pay-downs both in dollar and percentage was an anomaly. And I would expect and there are certainly no guarantees on this, but I would expect the dollar amount of those pay-downs and the percentage to decrease in Q3 and decrease again in Q4 and decrease again each quarter. It’s not going to perfectly go in a straight line, but we would think the trend would be to have lower dollar amounts and lower percentages prepay over time. Matt Olney Okay, thank you for that answer. And then circling back on the operating expenses, I appreciate the commentary on the infrastructure bill that’s required in order to become a larger bank. Is anymore color you can give us on the operating expense growth rate and how should we be thinking about the – what percent of the infrastructure build that’s required is now in the run-rate as of 2Q? Thanks. Tim Hicks Matt, let me take a stab at this. George mentioned the high to low that had about settlement that piece of litigation had about $700,000 one-time, $750,000 one-time impact. We did have the merger transactions, special shareholders meeting, I mean, there were a little bit of legal fees, some proxy preparation, printing, filing, middleman expenses associated with that. So, that is in the run-rate there, one-time item as well. Our annual director stock grants that we grant to directors, they are not employee directors every year at the end of shareholders meeting that is in Q2 that was about $700,000 impact to other operating expenses in the quarter. That’s a one-time annual charge that’s not part of the run-rate. The other couple of items I mentioned and this has kind of been in lieu along the lines of the build-out of the infrastructure. We have engaged some third-parties to help us with some of the DFAST model builds that are required to run the various – and prepare the DFAST submission. Those expenses have been in the run-rate for last three, four, five quarters and will probably continue to be there throughout the remainder of this year. My expectation is that those expenses would begin to slowdown in 2018 as we have that DFAST, the models entirely built and all those models validated. So, I think that probably remains a little bit elevated for the remainder of 2017. George’s comment indicated that we would expect those infrastructure costs continue through ‘17 and to some extent 2018. So, I think those will begin to have as we move into the remainder of this year, particularly in the 2018. And then the one final piece I will mention is as of March 31, we are now part of the large bank deposit insurance processing with the FDIC, those rates are higher for a large bank versus the community bank and that had a little over a $1 million impact on our deposit insurance cost in Q2 and that will basically be ongoing as we look into the future. Matt Olney Okay, that’s helpful, Greg. And then Greg, since you are there, with respect to the accretion income that goes through the NII I think that was about $9 million in the first quarter. Do you have that number for 2Q? Tim Hicks Actually, that was… George Gleason $20 million in the first quarter, it was $22.5 million in the second quarter, so a little bit elevated in the second quarter. If you are referring to the line item on our cash flow statement that outlines that, it was a little elevated obviously, the denominator was a little bit lower as well on the purchased loan, so that did have a little bit bigger an impact this quarter. And again that goes back to George’s comments on the – and Greg’s comments just from previous calls on the mix of payoffs in those purchased loan portfolios and how much accretion, accretible differences remaining on those loans that payoff in that particular quarter. Matt Olney Okay, thank you.

[Operator:]

Thank you. And our next question comes from the line of Catherine Mealor of KBW. Your line is open. Catherine Mealor Thanks. Good morning, everyone. George Gleason Good morning, Catherine. Catherine Mealor Just a follow-up on maybe first on the expense side, it sounds like if we take out the $750,000 associated with the Durbin charge if you are like still directionally linked quarter from here to the back half of the year we should still see an increase in the expense base, but perhaps at a lower pace than we saw in the second quarter? George Gleason Catherine, I would think that’s correct and Greg you jump in here. But as Greg just enumerated on the previous question, there was the $750,000 legal charge in the non-interest expense and there was the $750,000 or $700,000 roughly director’s cost. So those will drop out, but we continue on this infrastructure build. So I think your assumption is probably a reasonable assumption that yes, non-interest expense will go up in future quarters, but at a lower rate than the rate of increase from Q1 to Q2. Greg, is that? Greg McKinney Yes. I would actually expect that other line item to be down in Q3 versus Q2. I think probably somewhere between Q1 and Q2 is where I would expect that. I mean, I think we have got probably close to couple of million dollars of one-time items that hit that line item, Catherine, in Q2. So, I would expect that line item to be down somewhere between the Q1 and Q2 amounts as we look into the back half of the year, particularly third quarter. Catherine Mealor Okay, that’s helpful. Thank you. And then one thing to circle back on the margin too, just thinking directionally that the margin. In reading whatever you were saying George at beginning of the call and the impact that you think that the securities build is going to have on the margin directionally. Do you still feel like kind of a normalization in the purchase accounting and then the impact from the securities build should still be probably enough that we are going to see directionally a lower margin even as your non-purchased loan yields continue to move higher? George Gleason Yes, I think that’s true, because we added $700 million plus of mortgage-backed securities that are very short and they are going to yield right at about 2% and that’s going to be dilutive to our margin, dilutive to our yield on our securities portfolio. And as I said, we are going to have some small incremental amount of earnings from that. So it will be positive in a slight sense to net income, but the purpose of that securities portfolio adjustment and strategy is all about giving the funding guys just one more tool in their arsenal of tools to manage balance sheet liquidity. And we probably got adequate tools already, but those are the sorts of things you would just like to have multiple tools in the toolbox to use if you ever got in the situation where you made them. So, it will be dilutive to our margin to do that. The thing we are focused on though as you alluded to is that core margin keeping that increasing over time. And if we do that, I think we will put up very good results for our shareholders. Catherine Mealor Great. Thank you so much.

[Operator:]

Thank you. And our next question comes from the line of Peyton Green with Piper Jaffray. Your line is open. Peyton Green Yes, George, good morning. I was wondering maybe if you could comment with regard to the non-purchased loan yield basically spreads started to widen if I recall correctly in the second half of ‘15 and then the first half of ‘16 relative to spreads on prior Real Estate Specialties Group loans and given the timeline of those fundings, would you expect the non-purchased loan yield to get a little benefit as those loans fund in the second half of ‘17 and end of the first half of ‘18? George Gleason Yes, we would. And we have talked about that starting really in the probably the April call last year that we were getting better spread, because a lot of folks have vacated the space, so we were able to even push our leverage lower and get our spreads a little wider than they might have previously been and we would begin to see the benefits as those loans originated last year and earlier this year began to fund in future quarters. So, we are still thinking that, that is some element of positive for us going forward. It’s hard to quantify that. But we do think there is some potential there for that to continue to help us boost the core spreads. Peyton Green Okay. And then the June rate hike that should also help that non-purchased loan yield comp in the third quarter, I would expect you probably have minimal floors that are in the money to move through at the end of June. Is that fair? George Gleason Yes. I think we have got about $800 million of loans that are at a smaller rate and you would say, well, gosh why is that so large with four fed increase is already done and the answer to that as some of these loans are annually adjustable or semiannually adjustable and they are not all daily immediately adjustable. So, we still have some loans that will adjust when they hit their adjustment date that will help us. And obviously we have got part of quarter’s impact from the fed move in Q1. And since so many of our loans are LIBOR-based, our most dominant index is 1-month LIBOR and 90-day, 3-month LIBOR is the second most dominant index. So those indexes began to anticipate this last fed increase. So, we began to get some buildup as we got closer to the date of those increases in those margins, but we will have a full quarter’s benefit of that in Q3. So that should help us continue to keep non-purchased loan and lease yields move in the right direction. Peyton Green Okay. And then last question for me is there overall call it kind of other earning asset – to earning asset mix, I guess everything non-loans that that you would be targeting towards over the next couple of quarters or 1.5 years that we should be mindful of? George Gleason We are not – our securities portfolio right now is at a very low percentage of earning assets compared to where we were say 7 years ago or 10 years ago and we would like to be in an environment where that securities portfolio could become a much higher percentage of our earning assets. We are unfortunately not in an environment today where we feel like we can add a lot of securities for yield purpose as we did add securities last year that we retained a lot of the kind of short and medium-term mortgage-backed securities and other short-term securities from the CSB acquisition for liquidity. And then we added securities as we have talked about at length on this call in the last quarter for liquidity. So, we are keeping the liquidity element of our securities portfolio where we feel like it needs to be. But as far as really investing a much higher percentage of our earning assets and securities because we love the risk reward profile from an interest rate risk we think – we are a long way from that at this point. Peyton Green Okay, great. Thank you very much for taking my questions. George Gleason Thank you.

[Operator:]

Thank you. And the next question comes from the line of Brian Martin of FIG Partners. Your line is open. Brian Martin Good morning. George Gleason Good morning, Brian. Brian Martin Most of my stuff has been answered George, maybe just a couple of quick things and maybe it’s maybe one more for Greg. But on the fee income side just that other line Greg that you kind of talked about, I mean, it’s up about 50% since fourth quarter at least kind of the run-rate. I am just curious and it sounds like it’s sustainable. One of the biggest – are there bigger components in there, I guess maybe if you just – you are talking about the other expenses and kind of breaking things out. Just on those other fees are there any larger components in there that you can isolate or just point to on that line item? George Gleason Brian, let me clarify. You are talking about other income or other expense. Brian Martin So, within the fee income just the other line. George Gleason Okay. We have some asset servicing fees that RSEG charges. That’s a decent size component within that line item, Brian. We have really begun trying to charge customers for the value we bring to the transaction. And so those fees haven’t been increased in the recent quarters. So, that’s part of the driver there. There is a little bit of underwriting that are also in that, that are also in that line item. That’s not a big number, but it’s really those types of fees and income items that we are able to generate. We have been more successful with the ability to better pricing, better other fees associated with some of those transactions. So, that’s a big part of what has driven the increase in that other non-interest income line item in the last two or three quarters. Brian Martin Okay, perfect. That’s helpful. And then just on the securities, there were purchase this quarter I guess, fair to assume that not much impact on the margin this quarter from that purchase that they occurred late in the quarter, is that fair? George Gleason That is our block of securities. As you know, mortgage-backed securities tend to settle on a regular way on a single settlement date, which I think was the 18th or 19th of June. So you are exactly right, there was 10 or 11, 12 days of impact on the margin this quarter from those security purchases. They were all settled on that regular way, June settlement date. Brian Martin Okay, perfect. And then just the last two things, maybe if you can talk about just on the RESG growth this quarter geographically maybe just see as an idea of where the larger growth was coming from? And then maybe just one other question on the margin, on the on the non-purchased loan yields and just wondering how much of the – you have talked about the better pricing, George, just wondering how much of that the pickup in that non-purchased loan yield in the quarters is driven off of the rates versus the better pricing? I guess, I assume it’s more the rate side with some incremental or some piece of the better pricing, but just those two and that’s all I had? George Gleason I don’t know that I can break that out in any meaningful way for you with the variable rate loans obviously a big part of that increase in yield was a result of that. And I can’t quantify how much of it, because we got better pricing on the loan than we might have gotten a year ago. But we were pleased with the positive directionality of that. On the RESG originations, we had about $746 million of net new loans originated in the quarter in New York MSA. We had about $324 million of net new originations in Miami, Florida MSA, Los Angeles MSA, we had about $306 million of new originations. And these are funded and unfunded balances. Orlando, we had about $148 million Metro Atlanta area, about $94 million Metro Boston area, about $80 million Metro Chicago area, about $76 million Metro Philadelphia, about $56 million and then everything else was below $50 million and that included San Francisco MSA Summit Park, Utah, Madison, Wisconsin, Minneapolis, Minnesota, Dallas, Texas, Portland MSA, Austin MSA, Denver MSA, yadda, yadda, yadda. Lot of geographies involved. Brian Martin Got it. Okay. Well, thanks for taking the questions and nice quarter, George. George Gleason Alright. Thank you.

[Operator:]

Thank you. Our next question comes from the line of [indiscernible] of UBS. Your line is open. Unidentified Analyst Thanks very much for taking my question. A lot of this has already been kind of aired out, but I was just going to ask on the funding side, your cost of interest bearing deposits has risen somewhat faster here in the second quarter than it did in the first, not surprising consistent with industry trends I would imagine we see. But you also had some changes in the component parts you called out the decline in the brokered categories. Do you think the mix savings time, other time continues to move and shift versus what we saw here in the second quarter or do you think that’s going to be pretty stable from here? George Gleason I was looking at – Tim was that a 12 months graph that I was looking at the other day, yesterday.... Tim Hicks 12 quarters. George Gleason 12 quarter graph of that and that number has just not moved very much over the last 12 quarters. I think we were about 29% time and 54% non-time interest bearing and 17% non-interest bearing and real round numbers at the end of the last quarter. And those numbers, I would say are slightly better than they were a quarter or two quarters ago. For the most part if time being a lower percentage is better, but they haven’t moved within I don’t know 2 basis point – 2 points, 2 percentage points on any of those numbers really over the last several years. So pretty stable mix and I think that will continue. Unidentified Analyst Are you sensing customers are becoming much more sensitive to rates whether it’s savings or for time and you are having the fight for – fight harder for the deposits that you are pulling in? George Gleason I would say and Tyler might want to comment on those. But I would say yes, there is some increased sensitivity I mean obviously we have had four fed fund rate increases. So most deposit customers sort of fell asleep for years because there was – there was no activity on deposit rates. And certainly for rate increases by the fed, it got folks looking at that and that’s reflected in the increased cost of deposits in the last quarter. Tyler Vance Yes. I think George on that CD side we have seen that and we have made a few adjustments as I have mentioned on our deposit CD specialist, but that’s primarily thing what we are seeing, it’s on CD side. Unidentified Analyst Got it, okay. Thank you very much. Tyler Vance Thank you.

[Operator:]

And your next question comes from the line of Blair Brantley of Brean Capital. Your line is open. Blair Brantley Hi guys. Just a real quick question, on the fee income side, is there any change in your strategy to maybe add some more I mean you got with Durbin kicking in and then obviously the benefit from some of the acquired loans or what not, that should be following, is there any change in philosophy or maybe adding some other lines to that fee income segment? Tyler Vance This is Tyler, for some time we have been focused on improving debit card usage. Our marketing teams and others, our community banking team as George referenced earlier they are all focused on getting cards in customers hands as they leave the branch and improving usage. But other than that there are no other efforts underway. George Gleason We are not looking at adding any new lines of business, particularly we were very focused and engaged on all the things and all the initiatives we already have going on. So there are no present plans Blair for us to get into any other fee generating lines of business to augment our existing portfolio of products and services. Blair Brantley Okay, great. Thank you. George Gleason Thank you.

[Operator:]

Thank you. And at this time I am showing no further questions.

[George Gleason:]

Thank you, guys for joining the call today. We greatly appreciate your participation. There being no further questions we are done, we look forward to talking with you again in about 90 days. Have a great day. Thank you.