United Community Banks, Inc.
Q4 2017 Earnings Call Transcript

Published: 24 Jan 2018

[Operator:]

Good morning and welcome to United Community Banks Fourth Quarter Earnings Call. Hosting the call today are Chairman and Chief Executive Officer, Jimmy Tallent; President and Chief Operating Officer, Lynn Harton; Chief Financial Officer, Jefferson Harralson; and Chief Credit Officer, Rob Edwards. United’s presentation today includes references to operating earnings, pre-tax, pre-credit earnings and other non-GAAP financial information. For these non-GAAP financial measures, United has provided a reconciliation to the corresponding GAAP financial measure in the financial highlights section of the earnings release as well as at the end of the investor presentation. Both are included on the website at ucbi.com. Copies of the fourth quarter’s earnings release and investor presentation were filed last night on Form 8-K with the SEC; and a replay of this call will be available in the Investor Relations section of the Company’s website at ucbi.com. Please be aware that during this call, forward-looking statements may be made by representatives of United. Any forward-looking statements should be considered in light of risks and uncertainties described on page four of the Company’s 2016 Form 10-K, as well as other information provided by the Company in its filings with the SEC and included on its website. And at this time, I will turn the call over to Jimmy Tallent.

[Jimmy Tallent:]

Good morning and thank you for joining our fourth quarter earnings call. I’m very pleased with our fourth quarter results, in fact 2017 has been an exceptional year on nearly every measurement; from revenues to margins to operating efficiency and net income. Our banker excelled and produced strong results. We finished this year with an operating result of $1.63 for the full year, up 10% versus 2016 and up 14% versus last year when excluding the impact of Durbin. The earnings per share growth was achieved by an improvement in profitability as the operating return on assets moved to 1.09% and operating return on tangible common equity moved up to 12.2%. All measurements moved in the right direction and we expect this positive momentum to continue in 2018. For the quarter, we posted a GAAP loss of $0.16 due to the re-measurement of our deferred tax asset following the passage of tax reform legislation. That non-cash charge was $38.2 million or approximately $0.50 per share which we will earn back in 4 to 5 quarters through the lower federal income tax rate. Excluding the impact of tax reform and merger and other non-operating charges, we reported an operating result of $0.42 per share and operating return on assets of 1.10% and an operating return on tangible common equity of 11.9% and operating efficiency ratio of 56.9%. Our $0.42 operating result compares to $0.41 in Q3 and is up 5% from a year ago. Excluding the impact of Durbin and the large bank deposit insurance assessment, which reduced our quarterly pre-tax earnings by approximately $3.3 million, our results were up over 12% from a year ago. This quarter is also highlighted by pickup in loan growth, along with mass net interest margin expansion and continues our journey to be in the top quartile of our peer group in profitability. During the quarter, we were also busy on the strategic front. We closed our transaction with Four Oaks Bank & Trust on November 1. We are excited about our new teammates in the greater Raleigh area and view Raleigh as a key growth market for us going forward. Also in January 8, we announced the acquisition of Navitas Credit Corporation. Navitas had $410 million of assets at year end and originated $323 million in loans in 2017. The Navitas acquisition represents the natural continuation of our commercial product build out in the small ticket equipment space. The business is a great strategic fit as an add on within our commercial banking solutions unit and the partnerships it works from actually being $0.20 accretive to earnings per share in the first full year. All said, we had a very solid fourth quarter and a terrific year, leaving us well positioned to grow, compete, and perform. Now, I’ll ask Lynn to share the details of the fourth quarter.

[Lynn Harton:]

Thanks Jimmy. We are proud of both our results this quarter and the continuing strategic moves we are making to build the franchise. One driver of our results is the ongoing improvement in our margin. On slide eight, you’ll see that this quarter the margin expanded to 363, up nine basis points linked quarter and 29 basis points from year ago. The expansion was driven by higher rates and increase in our loan yield and benefit from the maturing of 35 million in senior notes. The strength of our low-cost deposit base continues to support our margin expansion. Slide nine exhibits that so far through the cycle our deposit beta has been 8%, about half the industry average. Our cost of deposit at 24 basis points in the fourth quarter is about three quarters of the industry cost of 31 basis points. Additionally, our strong liquidity position provides us the ability to fund future growth and is a competitive strength that we plan on continuing to leverage. Turning to slide 10, our loan production in the quarter was strong with 644 million of new loans funding, an increase of 27 million linked quarter. Total loans reached 7.7 billion in Q4, up from 7.2 in Q3, up 7% quarter-to-quarter. Excluding the impact of Four Oaks, and the 42 million of our indirect auto runoff, core loan growth was 88 million or 5% annualized which is a good improvement from last quarter. We continue to strategically position the business for quality, diversified loan growth. Our C&I business at the end of the quarter totaled 39% of loans versus 23% pre-crisis. Conversely, investor cream commercial construction have moved to 30% versus 47% pre-crisis. Residential mortgages have increased as a percentage of the loan book as we have introduced better adjustable-rate products we are holding on balance sheet. Moving to slide 12, we had a good quarter in our fee businesses as well with linked quarter growth of 1.4 million. Our SBA production set a new record for us at 56 million, and we moved into the top 15 ranking nationally. Rich Bradshaw, Annemarie Murphy and our entire SBA and community banking teams have done a truly exceptional job on building the business to this level in just three years. Mortgage also continues to do well despite a more challenging interest rate environment and some of the uncertainty leading up to tax reform legislation. Our originations were up slightly year-over-year at 196 million with purchase volume up 27 million and refinance volume down 25 million. Our loans sold this quarter were down relative to a year ago as we are holding more of our adjustable-rate loans on balance sheet given their favourable credit and return characteristics. On slide 13, expense control and a focus on operating leverage continues to be a strength of the company. Total expenses were up $6.5 million in the quarter, but excluding the impact of Four Oaks and Horry County, operating expenses were up $2.2 million versus Q3. The operating efficiency ratio moved to 56.9% just slightly higher than last quarter. The increase was primarily driven by professional fees and incentive accruals and we feel good about continuing to move the efficiency ratio down. Turning to slide 14, our rebalancing of the portfolio continues to pay dividends with strong credit results. Net charge-offs were six basis points, marking the sixth consecutive quarter of 11 basis points or better performance and non-performing assets came in at 23 basis points essentially flat with the last two quarters and down five basis points from year ago. I’m very excited about the two major strategic moves we either closed or announced recently. Our Four Oaks team in the Raleigh area of North Carolina is performing ahead of expectations and our new hires in Raleigh led by Jim Rose and John Lowe have already built a very impressive pipeline. Navitas also promises to be a great partnership. Given our liquidity, core funding and desire to build a commercial products, we have been looking to add additional high-growth niche lending businesses to United. Navitas is the right company with the right management team to help us reach some of those goals, led by industry veteran Gary Shivers, the management team averages 25 years of experience in the business and also promises to be a strong cultural fit with United. In addition to their own growth opportunities, Navitas will have significant synergy with both are SBA business and our local community banking customers. Navitas offers very attractive risk-adjusted returns, will add 200 basis points to our rate of loan growth and our funding strength nicely complements Navitas’s needs. Initially the combination increases our loan to deposit ratio to just 83% and the continuing run off of our indirect portfolio will fund the growth of Navitas. We expect the deal to close February 1, and believe that the deal was $0.20 per share accretive and adds 9 to 10 basis points to ROA in the first year. Overall, our teams continue to execute our strategies very well and I am very positive about our performance going into the new year. And so with that Jimmy, I’d like to turn it back over to you for any closing comments.

[Jimmy Tallent:]

Thank you Lynn. I feel really good about the continued execution of our strategies and our performance as we move into 2018. I will take just a moment to lift up just a few of the many accomplishments that our team achieved in 2017. We became regulated as a large financial institution in the third quarter and absorbed the financial impact of Durbin DFAST and the large bank deposit insurance assessment without any decrease in earnings per share or decline in return on assets. We completed two bank acquisitions and converted one of those banks to our core systems. Both of these banks are solid cultural fits and they operate in strong growth markets that are a natural extension of our footprint. In early 2018 we announced another merger with Navitas Credit Corporation which will significantly expand our commercial banking product offerings and provide a strong source of growth. All three of these transactions are immediately accretive to earnings-per-share with Navitas expected to be $0.20 accretive in the first full year. We saw solid improvement in nearly every financial performance measure. Credit quality remain outstanding and we continue to diversify our loan book which is a key strategy in our management of credit risk. Our operating efficiency ratio improved 111 basis points, our margin was up 16 basis points, we achieved positive operating leverage of approximately 2% we increased our dividend 27% and still our payout ratio remains at the lower end of our peer group. Our strong core deposit base has allowed us to manage deposit pricing to improve our margin, and demonstrating the tremendous value of our core deposit base. Clearly, 2017 was a very good year for United and as I look forward to 2018, I am filled with optimism as all of the 2017 drivers are still in place today. Our balance sheet remains very liquid and flexible even with the addition of Navitas with a pro forma loan to deposit ratio of 83% providing lots of room for additional loan growth. Our investment into new products and new geographies positions us for further loan portfolio diversification and growth as well as leads to expected improvement in both return on assets and return of tangible common equity. We entered 2018 team with strong earnings momentum resulting from being in high growth markets with competitive products and bankers were the best new business as serving their customers and executing on our strategies. Tax reform and an improving economy would give us an additional tailwind as we allow our new merger partners with whom I look forward to a long and prosperous relationship. While we do not usually provide guidance there are enough significant moving parts this year with earnings momentum tax reform and Navitas that want to provide some clarity and direction. For 2018, we are expanding our goalpost for our expectations and believe we can achieve a 140 return on assets and 16% return on tangible common equity. Lastly, we are hosting an Investor Day on February 22 in Greenville, South Carolina where we will be talking about our businesses and introducing investors to many of the leaders in the organization. Please reach out to Jefferson if you have an interest in attending. Now we will be glad to answer questions.

[Operator:]

[Operator Instructions] And our first question comes from the line of Michael Rose from Raymond James, you may begin.

[Michael Rose:]

Hey guys, how are you?

[Jimmy Tallent:]

Hey Mike.

[Michael Rose:]

So obviously a really good deal with Navitas, so that obviously is going to add to the commercial banking solutions group. You know as we think about that moving forward is there kind of a size threshold that you want to limit some of those businesses to I guess in the aggregate as it relates to the earlier relative to on the community banking asset that you guys have.

[Lynn Harton:]

Hey Michael, this is Lynn. No not really because even though we have it separately, I mean these are the community banking solution businesses are really local commercial businesses. So with the exception of SBA, and now Navitas, essentially everything else is in footprint, local customers and so it’s really no different than any other C&I book of business.

[Michael Rose:]

Hi, and just as a follow up to the Navitas deal, I think we have talked about charge-offs being 70 to 80 basis points higher, is that still a good way to think about it as we move forward?

[Rob Edwards:]

Yes, Michael this is Rob. That’s the way we are thinking about it going forward.

[Michael Rose:]

Okay, that’s helpful. And then maybe just one broader one from me. I appreciate, Jimmy laying out the targets. What would cause you to be above those targets, and maybe what would cause you to short, is it rate hikes, is it loan growth and maybe pay off activity, which has been elevated in the industry, is it further investments in the franchise and is there any color there would be helpful? Thanks.

[Jimmy Tallent:]

Thank you Michael, and you’ve kind of answered that question. I think, but yes I think certainly our expectation going into 2018 loan growth being you more of today than what we are expecting obviously would be very favorable and moving those numbers and expectation even higher -- for sure that we just do the opposite. We think to in regards to the margin week we really feel recently comfortable. I mean nobody knows what the rights will ultimately do, but giving the optionality of our balance sheet, loan deposits of 83% post-Navitas, our our securities will run off of our auto finance and so forth, we think we were able to protect that margin and hopefully expand that, but we are optimistic about 2018.

[Michael Rose:]

Okay, guys thanks for taking my questions.

[Operator:]

Thank you. And our next question comes from the line of Tyler Stafford of Stephens. You may begin.

[Tyler Stafford:]

Hey good morning everyone. I wanted to start on the profitability goals that you guys just said, I appreciate that and looks like it will be a good year for you guys. I just want to – just to clarify is that a full year 2018 goal or is that kind of a by the end of the year kind of run rate goal?

[Jimmy Tallent:]

Tyler, I would answer it this way. If we are looking at those numbers for Q4 of 2018, we are very confident. If we are looking at those for the entire year we also believe they are very doable.

[Tyler Stafford:]

Okay, very good. And I apologize if I missed this in the release or an earlier [Indiscernible] did you guys guide to the tax rate that you’d expect for 2018 here?

[Rob Edwards:]

Tyler, thanks for the question and we were expecting 23% to 24% to use as a tax rate in 2018.

[Tyler Stafford:]

Perfect. And then maybe just on the loan growth commentary about the tune [Ph] up that’s added from the Navitas. Obviously in the near term the indirect run-off is pressuring the growth. So I mean as you kind of look out does Navitas gets you back towards that, kind of high single digit growth that you guys are seeing prior to the indirect run off, is that kind of the right way to think about it?

[Lynn Harton:]

Yes, I would say mid-to-half. So, Navitas' almost dollar-for-dollar offsets in direct run off. So, effectively it takes that kind of 2% to 3% off the table, if that makes sense. And with the underlying loan growth rate just like last, this quarter we were at 5%, somewhere in that 5% to 7% range.

[Tyler Stafford:]

Okay, very good. And then well, I'll hop out and I may hop back in. Thanks.

[Operator:]

Thank you. And our next question comes from the line of Jennifer Demba from SunTrust. You may begin.

[Jennifer Demba:]

Thank you, good morning.

[Jimmy Tallent:]

Good morning.

[Jefferson Harralson:]

Good morning.

[Jennifer Demba:]

Two questions on Navitas. How big are you comfortable having Navitas as a percentage of your entire portfolio over time. And then secondly, can you just talk about your acquisition interest now post Navitas whether it be for a bank or a specially lending line?

[Lynn Harton:]

So Jennifer, this is Lynn. So, we think over time Navitas is a billion dollar business for us but that's over a probably a four year time period from now. So, we think it's a very manageable piece of the loan portfolio in somewhere in the 7%, 8%, 9% range over time; very comfortable with that. And in turn I'll let Jimmy talk about the bank acquisitions. But in terms of non-banks, I think we are right now we are very focused on getting Navitas right in the integration of that. And so, we would not and now be looking for anything in that area.

[Jimmy Tallent:]

So, and I certainly agree with Lynn. Today, we're obviously wanted to make sure we get the Navitas closed integrated properly. There is a lot of very favorable things from the Navitas acquisition not only on just the standalone basis but had also complements or other lending products. And certainly, we've got the Four Oaks that will have the conversion in April. But our overall strategy, Jennifer, on the M&A with banks merely hasn’t changed same strategy. If it occurs, it would possibly look like a failure in our maybe an overlap market where we can take significance expense out new markets. And certainly the matrix of the same mainly accretive as well as any tangible book delusion would be a lesson for years. So, really now that has actually changed.

[Jennifer Demba:]

Okay. And I just a clarification on your ROA and ROTCE goal. Was that, those were for the full year and does that include any rate hike assumption?

[Jefferson Harralson:]

There's no rate hike assumptions there. But it does as I said earlier, it there is what we believe to be very, we are very confident that those numbers could be posted in the fourth quarter of '18 and we believe there is a very good probability that those numbers could be posted for the entire year.

[Jennifer Demba:]

Okay, thanks so much.

[Operator:]

Thank you. And our next question comes from the line of Brad Milsaps from Sandler O'Neill. You may begin.

[Brad Milsaps:]

Hi, good morning guys.

[Jimmy Tallent:]

Good morning, Brad.

[Jefferson Harralson:]

Good morning, Brad.

[Brad Milsaps:]

Jefferson, you've got a lot of moving parts in the first quarter with Navitas coming on. You got the conversion of Four Oaks. Kind of curious where you think expenses might level out maybe in the first quarter and then kind of where you see them running for the rest of the year as you kind of get all the cost saves that you're looking for?

[Jefferson Harralson:]

I might get that to you in parts a little bit. We have if you think about our fourth quarter, that growth rate was above the rate that we have been seeing. As Lynn had mentioned where some incentives and some professional fees and therefore some projects in 2018 that we getting fronted a little bit there. So, I think of us having a just kind of a low single-digit core expense rate. Then you obviously you are overlaying Navitas on top of there. Navitas brings over about $400 million of loans when it comes. The expenses of Navitas were about 5% of loans there. So, think of the expenses, you ought to layer that into the first quarter with the February close. But think of Navitas having about 5% of loan expenses in that loan balances growing throughout the year.

[Brad Milsaps:]

No, that's helpful. And just, kind of in that same vein, you've obviously got some very good momentum with the NIM. To end the year and going into '18, obviously Navitas will give that a nice boost, we'll get another month of Four Oaks. Can you talk a little about kind of the puts and takes on the NIM as you see it?

[Jefferson Harralson:]

Yes. So, I think from a core perspective, that 363 margin is a good spot. But then you're overlaying Navitas' margin that comes in running about 6%. Now, we get to go and refund her fund pay down over $200 million of their borrowings immediately. And so, there is 6% margin goes up with taking out their 60% of their 3.5% debt with our more-or-less expense of funding. So, layer in a 6% margin for Navitas that should grow overtime as we fund the growth and as we kind of fund all their interest paying liabilities over time.

[Brad Milsaps:]

Great, that's helpful. Thank you, guys.

[Operator:]

And our next question comes from the line of Catherine Mealor from KBW. You may begin.

[Catherine Mealor:]

Thanks. I really want a clarification on the margin guidance that you just gave, Jefferson. So, can you help us think about how much kind of in Q1 we should expect from Navitas coming over and then what the upside from that on a basis points as we move through the year in that funding. And you needed to grow that you're growing out of the higher margin?

[Jefferson Harralson:]

Yes. So, let me give you some more components of that. So, the Navitas loans stated them yielding about 9.5%, the funding currently is about 3.2%. And the 3.2% funding should move towards 2.2% over time and then even lower as we move as we get through funding more and more of their growth and in funding there is the re-find our securitizations. If you think of it in basis points. Our 363 margin I think will be over 370 in Q1 and then once you get the full impact of Navitas in there, I think would be over a 375.

[Catherine Mealor:]

Got it, okay. And then that guidance hasn’t included the rate hike, so then you would expect to see even further upsets your margin if you see that new begin this year?

[Jefferson Harralson:]

That's correct. We still think we are asset sensitive. We do think our deposit data should stay lower than peers with our balance sheet flexibility. So, we don’t have that in our model but we do think that we would get some benefit from future rate hikes.

[Catherine Mealor:]

That's great. And then, when switching over to capital management, I mean the Navitas feel really helped lever some of your excess capital. But you're still sitting I think pro forma for that deal at about just a smidge under 9% from where we calculated. And so, how do you think about and then you're going to the accreting capital at a faster pace in another year moving towards a 16% ROTCE. So, how do we think about capital management from here both in terms of growth, M&A, and maybe dividend? Okay.

[Jefferson Harralson:]

Yes, thanks Catherine. So, it had been a goal of ours to steepen our capital structure a bit. If you think about where we were are now before Navitas closes, the difference between our CET1 and total capital ratio is about a 100 basis points. In Q1 with the Navitas transaction, that's going to be over 200 basis points differential between the CET1 and the total capital ratio. And that's a big piece of putting $85 million of cash into the deal and then raising a $100 million of sub debt in the quarter. So yes, my calculation is very similar to yours, just a smidge under 9% on the TCE. I know we think we could, now that is going to go on relatively quickly. We think we could run that a little bit lower. So, we like where we are now, we like what the Navitas transaction does for us and ability to lever some of our capital and get more towards an optimal capital structure. And over time, you're going to see these capital ratios continue to grow. We think we could run that TCE a little lower but we like where we are and it's going to be growing from here. So, we will be looking to do at some capital management types of things over time. Jimmy mentioned our dividend; we are in the lower range of our payout. So, I think it's not a it's a board decision not a CFO decision but I think you'll see a target higher payout over time. I think even in future deals putting some cash into those deals will continue to make sense to manage that TCE to level where it is down.

[Catherine Mealor:]

Great. Thanks for the color.

[Operator:]

Thank you. And our next question comes from the line of Christopher Marinac from FIG Partners. You may begin.

[Christopher Marinac:]

Thanks, good morning guys. I just wanted to ask Lynn or whomever about our new hires in Raleigh and other markets both in terms of what's new but also kind of what you envision for the next 12 and 18 months?

[Lynn Harton:]

Sure. Yes, we actually have just made another new hire in Raleigh, we're very excited about as well as another new hire in Myrtle Beach. So, we just continue to recruit in all of our businesses. We don’t have any new LPOs or geographies targeted but we continue to look in areas like builder finance in our middle market group, asset based lending, et cetera. So, we would expect the same kind of hiring progress in '18 that we've made this year.

[Christopher Marinac:]

Great. And do you see adding more branches this year or with the branch count in terms of footprint kind of be in that neutral, I'm just curious in terms of where you're closing and expanding.

[Lynn Harton:]

Yes. So, we actually have announced we're closing about four branches in the first quarter. We don’t have any new branches on the construction list today although we are looking for a better Raleigh location for our team. So, that might be one that we combined with a new branch but beyond that we are not really looking at any branch expansions.

[Christopher Marinac:]

Okay great, Lynn. Thanks for that, and just a last one I guess for Jefferson or Jimmy whomever is. Now, that you're at a higher profitable level in ROA and higher price targets, does it mean or higher targets for profits. Does it make it more of a challenge to do the incremental M&A deal or does it become easier just because you can leverage in more?

[Jimmy Tallent:]

Well, I think certainly with the stronger financial and profitability metric should lead to a stronger and larger share price. And assuming that did occur, is we believe it will, probably would lend itself to being able to do deals that are more been official from a shareholder standpoint. But we're going to continue to be very disciplined in the approach. There is opportunities in markets, it may be that we're not in that we desire to be in but we'll just kind of take those one at a time, Chris. But bottom-line is a stronger currency which certainly make the M&A continue to be even more compelling.

[Christopher Marinac:]

Great, Jimmy. Thank you, for the additional color. I appreciate it.

[Operator:]

And our next question comes from the line of Nancy Bush from NAB Research. You may begin.

[Nancy Bush:]

Just a question, Jimmy, for you. It's sort of philosophical and part financial. There were several articles in the Wall Street Journal. I'm sure you saw them at around the year end about the rural markets and how banks were exiting rural markets and closing branches et cetera and the damage it's doing to some of these region rural economies. Just wanted to get your thoughts on that. I know you are in as you said fast growing urban markets but you're in a lot of rural markets as well, and how you look at that presence.

[Jimmy Tallent:]

So, if we look at our footprint, Nancy, today, 82% of our footprint reside in an MSA. So, of course the balance would be considered rural. What we have found is those markets are for us, are way very profitable. They have very solid very dependable core deposits and with that obviously in the funding is extremely valuable. So, we're proud of those markets they were in. they are really kind of they have to be the foundation to help get us to where we are. We will not see the lending growth possibilities there that obviously you're going to see in the metro markets. But it’s the beauty of having kind of the best of both worlds. There's some lending opportunities, fabulous core deposits that are very stable and dependable and profitable operations which helps us to fund lending opportunities in the metro markets. So, we see that as a key part, that's how we are.

[Nancy Bush:]

Well, I would ask, you and I have discussed this issue a long way of buying rural and versus buying urban and given that poor funding may become more valuable on the future. I mean, is it possible that you will once again acquire in rural markets?

[Jimmy Tallent:]

Well, at an 83% loan of deposit today and even we took that to 90%, that's another $700 million of loans.

[Nancy Bush:]

Right.

[Jimmy Tallent:]

So, I would never say never but we do think that the asset generator today is important. And certainly, when you look at our core deposit growth even in 2017 was a little over $600 million. So, and that's coming from both parties; rural as well as metro.

[Nancy Bush:]

Right.

[Jimmy Tallent:]

So, in this business it's hard and maybe one should never say never but certainly our focus would be more on the metro markets today.

[Nancy Bush:]

Alright, thank you.

[Operator:]

And our next question comes from the line of Tyler Stafford from Stephens. You may begin.

[Tyler Stafford:]

Hi. Just a couple of other follow-up questions on the fee income. Do you have how much the positive mark on the servicing asset, was this quarter that drove the uptick in the mortgage fee and then just the dollar amount of SBA in mortgage sold on our sales during the quarter?

[Jefferson Harralson:]

Yes. This is Jefferson. So, on the mortgage piece of it, in the fourth quarter we had a $372,000 rate up in the mortgage servicing rate. And in the third quarter, just for reference we had a $400,000 rate down. So, that run rate is more in that net $4 million range going forward. And the amount sold of SBA this quarter was $44.7 million.

[Tyler Stafford:]

How much for mortgage sold this quarter, you have that handy?

[Jefferson Harralson:]

I might have to get you that, I don’t have that number.

[Tyler Stafford:]

Okay.

[Jefferson Harralson:]

I can get you that number.

[Tyler Stafford:]

Perfect, okay. Thanks guys, that's it.

[Operator:]

And our last question comes from the line of Brad Milsaps from Sandler O'Neill. You may begin.

[Brad Milsaps:]

Hey, Jefferson. I just wanted to follow-up with your kind of expense guidance related to the acquisition. Did I understand correctly, you said 5% of the $400 million in loans just roughly what expenses would represent?

[Jefferson Harralson:]

That's right, that's correct.

[Brad Milsaps:]

Okay, alright. I thought I understood this well and maybe it's I'm just missing it. But we are if you are a gross yield of 40 million on the loans and you bring over 20 in expenses, where do the I guess the assumption is your cash is coming from somewhere else to pay off their funding. Because when do that math, I can't quite get there I guess. It doesn't seem like there's quite of accretion with 20 million in annual expenses but I may be missing something and likely so.

[Jefferson Harralson:]

Let's, maybe we'd take that piece of it offline and we can walk it out of there.

[Brad Milsaps:]

Okay, that helps. Alright, thanks.

[Operator:]

And I'm showing no further questions at this time. I will now like to turn the call back to Chief Executive Officer, Jimmy Tallent for closing remarks.

[Jimmy Tallent:]

Thank you, operator. And on behalf of all of us here today, we want to thank you for being on the call and certainly your interest in United Community Bank. Any additional follow-up questions, don’t hesitate to reach out to any of us. Also too, a reminder of the Investor Day on February the 22nd, if you do or would like to attend, please let Jefferson know. And I think that will be a great day and a time to really see firsthand face-to-face with a lot of the management of this company. And last but certainly not least, I want to thank our United team once again for a great quarter and a great year. And with that, we hope you all have a great day.

[Operator:]

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.