Simmons First National Corporation (SFNC) Q2 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Simmons First National Corporation Second Quarter Earnings Call and Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Burt Hicks, Investor Relations Officer. Please begin.

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

Thanks Burt, and welcome to our second quarter earnings conference call. In our press release issued yesterday, we reported net income of $22.9 million for the second quarter 2016, an increase of $2.9 million or 14.4% compared with the same quarter last year. Diluted earnings per share were $0.75, an increase of $0.08, or 11.9%. Net income for the second quarter included the effect of the following non-core items. $2 million in after-tax branch right-sizing expenses and $226,000 in after tax merger-related expenses. Excluding the impact these items, the Company’s core earnings were $25.1 million for the second quarter, an increase of $2.6 million or 11.8% compared with the same quarter last year. Diluted core earnings per share were $0.82 an increase of $0.07 or 9.3%. Our core efficiency ratio for the quarter was 57.1% compared to 58.4% in the same period last year. Our core return on assets for the quarter was 1.34% compared to 1.17% in the same period last year and our core return on tangible common equity for the quarter was 14.76%, which also compared favorably to 13.8% in the second quarter of 2015. At $5 billion our loan portfolio increased $201 million or 4.2% over the same period last year. Total loan growth is $83.8 million or 1.7% over the first quarter of 2016. During the quarter $60 million migrated from the acquired loan portfolio to the legacy loan portfolio. Despite strong competitive pressure on both rate and terms, we’ve resisted amending our loan terms. We expect our annualized loan growth to be approximately 5% to 7% year-over-year. The company’s net interest income for the second quarter was $66.6 million, a decrease of $6.6 million or 9% from the same period of 2015. The decrease was attributable to a $5.4 million reduction in acquired loan accretion, also our provision expense included replenishment of a $2 million fraud charge-off over an agricultural loan, which carried a pass rating and for which recovery is unknown at this time. Our net interest margin for the quarter was 4.17%, which was down from 4.47% in the same period last year. Included in interest income was the yield accretion recognized on acquired loans of $4.7 million for the second quarter, which is down from $10.1 million in the same quarter last year and $8.1 million in the first quarter of this year. The company’s core net interest margin, excluding the accretion was 3.88% for the second quarter of 2016, compared to 3.87% in the same quarter of 2015. Our core non-interest income for the quarter was $36.9 million an increase of $11.4 million or 45% over the same period last year. The increase in non-interest income was primarily due to increased mortgage lending income, trust income, debit and credit card income, gains on the sale of investment securities and the elimination of the FDIC indemnification asset amortization. Core non-interest expense was $60.5 million, a decrease of $1.1 million or 1.8% from the first quarter of 2016. At June 30, the allowance for loan losses for legacy loans was $33.5 million with an additional $1 million allowance for acquired loans. Company’s allowance for loan losses on legacy loans at June 30 was 0.9% of total loans and 77% of non-performing loans. In the legacy portfolio non-performing loans as a percent of total loans were 1.17%. The loan discount credit mark was $38.3 million for a total of $72.8 million of coverage. This equates to a total coverage ratio of 1.44% of gross loans. The ratio of credit mark and related allowance to acquired loans is 2.96%. The 2016 year-to-date net charge-off ratio excluding credit cards was 24 basis points and the year-to-date credit card charge-off ratio was 1.25%. During the quarter our OREO balance decreased $10.6 million or 26% including disposition of several properties that we acquired through our Metropolitan and FDIC assisted transactions. We will continue to strategically manage our OREO portfolio and look for opportunities to decrease that balance further during the reminder of the year. Our capital position continues to remain very strong at quarter-end common stockholders equity was $1.1 billion and our tangible common equity ratio was 10% up from 9.7% from the first quarter of 2016. On May 18 we announced acquisition of Citizen National Bank of Athens, Tennessee. We expect to close the transaction later this year and will convert the banking operations in the fourth quarter. Citizen’s nine branches will complement our existing two locations, in the Knoxville MSA. After closing the transaction Simmons Bank will be in Top 10 Tennessee deposit franchise. During the second quarter we closed 10 branch locations. We evaluate many factors in this process including market trends, branch performance and coverage areas. We will continue to look forward to invest in new and innovative channels to meet the evolving needs of our customers. This concludes our prepared comments. We’ll now open the phone line for questions from our research analysts and institutional investors. At this time, I’ll ask the operator to come back on the line and once again explain how to queue in for questions.

Thank you. [Operator Instructions] The first question comes from Brady Gailey of KBW. Your line is open.

Thank you. Good afternoon, guys.

Hey, Brady.

Hi, Brady.

I notice that the accretable yield was a little lower than I had forecast that was down notably from last quarter. I know you have been talking about down $15 million versus last year, which kind of backs into I think a $31 million number. How do we think about accretion for the back half of this year?

Brady, we did have a little lower accretion than we projected for the second quarter, also I think we gave guidance at about $5 million, was about $4.7 million and that was based on cash flows. Those numbers are hard to project based on when these loans mature, if they payoff, if there is credit issues. We are projecting with cash flows just to give you a little guidance for the balance of the year somewhere in the $4 million a quarter range, so even at the level we are at to a little below. We probably will exceed that number if the cash, if the maturities and payoffs and refinancing happens before that. We would probably exceed that number. But right now based on cash flows we see that probably in the $4 million per quarter range at the balance of the year.

Okay. So how much is left in that bucket to be realized?

We have about $40 million total in the credit mark and David, I think you have that number, but I think $12 million or so that is related to impaired and the balance of that is related to the normal accretion that would happen over the next two years. Just to give again it’s a hard number to give guidance on, but we would expect that number to probably being half next year that we book this year. So if we are booking $20 million to $21 million this year I would expect that number to be half that or maybe a little above that into 2017.

Okay. And the $20 million to $21 million for this year that’s just cash flows it could be more than that depending on maturities, right.

Right. We are already at $12 million and so if we book another $4 million per quarter and the balance that’s what the normal cash flows. Again, that number could exceed that if we have payoffs, refinancings, so forth.

Okay. And then I know you all have talked about the core margin being around 3.90% to 4%. It was just a smidge less than that this quarter. Is that – is the core margin – is that still the right way to think about it? 3.90% to 4%?

Well, I would tell you, first quarter was a little better than we estimated. A part of it was the rate movement up by the Fed, second quarter rate movement coming down. You can see the quick – the pressure in the loan portfolio. So we saw a little bit of pressure on our loans in the second quarter than we did in the first quarter. Our guidance right now is probably more than 3.85% to 3.95%, I would think this third quarter will be at or a little above where we are in the second quarter because of our Ag portfolio. And then again when you get into the fourth quarter, it will probably decline a little bit because those Ag loans will payoff. But our guidance would be a little bit lower than we were in the second quarter and probably at 3.85% to 3.95%.

Okay. And then lastly for me, George, you announced the CNB deal. You talked about doing two deals this year. Is that still the hope, maybe announcement of one more deal in 2016?

Well, it’s certainly is our hope and we have several discussions underway. There are a couple that could possibly be announced this year. I don’t know that we would actually get those closed during the fourth quarter it may be the first quarter of next year before they close but we could certainly announce another transaction before the end of the year. I will also mention since you brought it up, today we did receive Federal Reserve approval for the Citizens Bank transaction. So we got that approval about as quickly as was possible. I think that’s a good sign.

Yes, that’s great news, congrats. Thanks for the color guys.

Sure, Brady.

Thank you. The next question is from Matt Olney of Stephens. Your line is open.

Hi, thanks. Good afternoon, guys.

Hi, Matt.

Hi, Matt.

I want to start on credit quality. There were some negative migrations this quarter. The non-performing loans ticked up. What drove that increase of NPLs? And then, secondly, net charge-offs also ticked up. And I believe George mentioned some fraud losses in 2Q that caused some charge-offs. Any color there?

Matt, I’m going to let Barry talk about the asset quality overall. But I want to address the fraud charge-off. So last week of the quarter, we learned about an agricultural loan from a customer that we’ve had for a long time, some grain that we held receipts on, when the grain actually wasn’t there. So we charged-off full amount that we thought, we had as a loss of $2 million. That loan carried a pass rating at the time so we didn’t have any specific reserves. And it depleted our allowance by that amount. We are still a little unclear about our opportunity for recovery, because it’s turned into fairly complicated situation, so we’ll be dealing with that for some time. But the way we project our allowance is in an acceptable range and we felt it was appropriate to replenish that $2 million charge-off with an additional allowance during the quarter. So that explains the unusual allowance allocation. I hope that answers your question, but fraud charge-off, we are still unclear about our potential for recovery there. But I’m going to let Barry talk about just the general asset quality.

Overall again, we still feel good about our asset quality. We had an increased non-performing loans some of that was related to that same agri loan that we charged-off on the part that’s still on non-accrual, we feel that we are well secured, shouldn’t have any further losses on that part of the credit. The rest of them were just smaller loans scattered throughout our footprint. As far as a charge-offs again without that charge-off we would be back at our 16 basis point charge-off ratio, which is quite normal for the banks. Overall, we still feel good about asset quality. On non-performing assets, we did have a significant decrease in ORE of about $7.5 million it went from $38 million to $30.5 million. We have several other pending sales approximately almost $8 million that we expect to close hopefully within this next quarter. So overall, I think you continue to see our non-performing assets declined and our asset quality remain pretty stable.

Okay, that's helpful. Thanks for that. But as far as the allowance, we've had some credit noise the last two quarters, and the allowance ratio continues to decline. How do we think about that provision expense going forward from here?

Matt, our normal provision expense is about $2.5 million a quarter. We think that will be adequate going forward that could jump around a little bit based on the migration in acquired loans into our legacy loan portfolio. So I’ll mention one more time that those migrated loans that come into our legacy portfolio are only the ones that have pass ratings. So they, in our formula require very little reserve allocation. The ones that are impaired stay in the acquired bucket and they still have the credit mark against it. So we take a look at our credit mark plus our allowance to our total loan portfolio, that ratio was 1.4%. So there is still quite a bit of coverage in that acquired loan portfolio. And just the math alone because of the small allocation we make to pass loans as those migrate over will force that percentage down we think that our allowance has been adequate and in fact, we probably have a harder time justifying the size of the allowance then the fact that we’re not putting more in that.

Okay, thanks for that, George. And then as far as – on fee income, anything behind the higher level of other fee income that was the increase from 1Q into 2Q?

Bob here, there were a couple of things that happened in the second quarter one is Barry mentioned, we had a very good quarter from the sale of OREO we did have some gains, on the sale of OREO that’s where that would show up. And we also through some of our credit card vendors have some promotional incentives based on growth in revenue and things like that. So the second quarter is where we generally recognize that income. So I would say anything that’s out of the ordinary would be and probably those two categories as one-time not repeatable levels of income.

Okay. And then last question for me. The press release mentioned the sale of securities in the quarter as part of a rebalancing strategy. Anything else you can tell us about that rebalancing strategy? And what does that mean going forward?

Yes. Matt, this is Bob. We restructured about $180 million. One was to position ourselves for better cash flows in the future. Also reduce the number of CUSIPs if you put all the banks that we’ve acquired over a period of time we had thousands of CUSIPs. So we’re continuing to consolidate those. So we put before our treasury management guy, saying, we really want to rebalance some of this portfolio and your charge is to go out and improve the yield by as much as you can. He picked up about 20 basis points in this. We said, you can extend the portfolio, because we are below our peers significantly, so you can extend it a little bit. He went out and extended it about 9 basis points while picking up the 20. And as a result, we picked up about $3.5 million in gains. We also had some gains from calls during the quarter as rates came down. We did this very early in the quarter, probably in the April and May timeframe. So it was kind of balanced for the year. We did it before the 10-year dropped significantly. So we didn't pick up as much gain as we would have, but yet we had a better reinvestment opportunity. Going forward, we're going to actively manage investment portfolio. If an opportunity exists that we think it better positions our portfolio, we'll take it. If not, we'll let it go where it is. But we'll continue to – you may see this in other quarters going forward. You don't guarantee it will, but we'll continue to look for opportunities.

Thanks, guys.

Okay. Thank you.

Thank you. The next question is from David Feaster of Raymond James. Your line is open.

Good afternoon, guys.

David, how are you?

I'd like to start on cost control. You guys have done a tremendous job there – second straight quarter that you guys have been below your guided core expense range, and there's additional cost savings from the branch closures. And then, with the strength in the mortgage, I would have thought that there's some incentive comp for those guys. So the salaries coming down even more impressive. Is that $62 million to $63 million a fair run rate, or is it sustainable at the closer to $60 million level?

Well, we certainly hope to drive it down from its current level. And let me explain a little bit about what went on. I think I mentioned before that as we were consolidating all the banks, we had a group come in and do an efficiency study for us in 17 functional areas to help us understand what the appropriate staffing models might look like. We knew that we were not necessarily prepared to meet all those standards right away because of some changes in processes and IT systems which we have put in place now. So I will tell you that our headcount from March 31 until the end of the quarter was down 61. And we'll continue on our staffing right-sizing for the rest of the year. So we expect that salary expense ought to be well under control at this point. I'll also mention that those branches actually closed on June 30. So we got zero cost saves associated with those branch closings. So we'll start picking up that expense savings in the third quarter. So I would tell you that $60.5 million is probably a good number now. If we are successful in some of these staffing models, we ought to see that continue to decline throughout the rest of the year.

Okay, let's talk on loan growth a minute. Legacy loan growth remains extremely strong. Is this a sustainable – you know, the $150 million to $200 million level of paydowns – is that what you're expecting going forward, or do you think that will slow down?

Well, we do believe that we'll continue to have those paydowns. And I want to break our market up into really two categories. So our rural markets, the ones that aren't just flush with additional loan growth – we're just beating each other up in the market, quite honestly. And there's a lot of pressure on rates. In some of our growth markets, we still see good opportunity for loan growth. And Barry might give you a little more color on where that's happening. We've had to make a decision, because we've seen some loosening of terms, you know, extensions of maturities – those kinds of things that we're just not prepared today to do. So we will compete on rate, and you can see that in our net interest margin. Where we won't compete is on things that we think put more risk into our loan portfolio. So, Barry, if you wouldn't mind just addressing some of the markets where we are doing really well?

In the last quarter, again, we had $83 million loan growth. About $40 million of that was in agri loans, basically mainly in Southeast Arkansas and Northeast Arkansas, where we have a large agri presence. As we look forward to this quarter, we've got about $156 million in the pipeline, and about 69% of that is in Missouri and Kansas; 23% in Tennessee; and about 8% in Arkansas. One of the things we've talked about in the past was to look at our high- growth markets and try to build some openings that we have we have there. And I'm pleased to report on Kansas City, we've hired a lender who's got 24 years banking experience in that market. He's a very large C – commercial – loan officer, and we feel very good about that hire. And he started work this past Monday, so we feel very good about that. Again, we are willing to duplicate that in Nashville, and Knoxville, and even in Little Rock. So going forward we feel good with our model. Our Community Banks continue to grow. But as we look at our growth markets, we've got to continue to add some large lenders who can really move the needle in those markets for us.

Okay. Well, that’s all I got. Most of my questions have been answered. Thanks, guys.

Thanks, David.

Thank you. The next question is from Stephen Scouten of Sandler O’Neill. Your line is open.

Hey, thanks guys. Good afternoon.

Hi, Stephen.

Question just to kind of follow-up on that line of questioning regarding loan growth: it sounds like you said about 5% to 7% net loan growth. Is that a number you think is probably true for the foreseeable future, or are you just kind of speaking through the remainder of 2016?

Well, I think it’s certainly doable for the foreseeable future. And now, you know, for us sitting around this table, as we merge with another bank, at least the first 12 months after that merger we are focused on retaining the business we have. So that’s when all the vultures come out. And they’re going after all our customers, and we’ve got to do our best to retain the business that we acquired. And I think we’ve been fairly successful with that. And I think we are on the tail end of that retention process, and we’re really on the front end of concentrating on growth in those new markets. So as Barry said, we have identified those markets where we need to provide additional resources. And I think the 5% to 7% is a sustainable level.

Okay. And as you speak to kind of the need to hire some bigger lender players in some of these markets that you trying to target, what does that process look like? Would you look to hire teams of lenders, or is that taking advantage of dislocation from M&A? And specifically, did you see any sort of opportunities in Nashville from, like, the Avenue transaction that closed or anything along those lines?

I’ll take a crack. And Barry, he’s welcome to chime in, or Marty. You know, one of the challenges we have, Stephen, is that we are a much bigger organization than we were independently with any bank, including Simmons. And what that means is our loan limits have grown pretty substantially. And we may have limited ourselves in the past based on our internal loan limits, and it’s just changing the mentality of our current staff to recognize those additional opportunities. We may have a big borrower that may have seven or eight loans. We can only book two of them at the time. Well, we can book all of them now. So we have some low-hanging fruit, but it’s an education process of making our current lenders comfortable with a bigger base of banks supporting them. So that’s what I mean by rolling out these resources, training. But it never hurts to go in and get someone who’s experienced – and Barry mentioned a recent hire in Kansas City with bigger-bank experience and a customer base that supports our new lending opportunity. So it’s a mixture of both. We’ve got excellent lenders on staff now. It’s to remind them that they have more resources available to them. But to also go out – we can attract some lenders who have been used to big portfolios, big loans in some key markets that we couldn’t attract before.

Okay. That’s helpful, thanks. And then maybe, lastly, just touching back on the M&A front. I know you said you are still hoping to be able to announce something, probably not close of this year, but definitely still try to announce something. Can you give us an idea of maybe size of targets you are really trying to focus on at this point? And also, is it still kind of the outskirts of metro areas? Is that kind of the way to think about it?

Well, I would tell you that – I’ll answer it this way. We have determined that we are not going to cross $10 billion until 2017 at the earliest. So any acquisition that we would announce that had any chance of closing in 2016 will keep us below the $10 billion mark. I’ve mentioned this before: I think we probably all underestimated a little bit the preparation necessary to be a $10 billion bank. And we have spent a considerable amount of time and effort internally with our regulators, with outside consultants on the DFAS process to be prepared to cross $10 billion and not have to address any of these issues after the fact. So what we’re looking at now are probably some smaller transactions that may fill in some footprints where we currently do business. But we’re still very active in talking to larger banks in new markets, which collectively will get us past that $10 billion mark. And we hope that we are successful with some of those in the next 12 to 18 months.

Okay, great. Thanks so much for the color. I appreciate it.

Sure.

Thank you. [Operator Instructions] The next question is from Peyton Green of Piper Jaffray. Your line is open.

Yes. Thank you. Good afternoon. George, maybe this is the way to kind of distill the overall transformation of the company. But if I had to break it down into these three categories, how would you categorize – or characterize your progress and kind of the policies and procedures aspect of going from, really, a community bank to a regional bank? And then the branch and FTE optimization would be the second. And then the third would be integrating your products and services across the Company.

Okay. I'll see if I remember all those. If I forget, let me know. The first one is the transformation – and I'll use our loan policies, Peyton, as an example. So as you can probably expect, each bank had their own loan approval process; they had their own loan authorization limits for individual lenders for certain committees. We brought all that into a common structure, with the idea that we will try to continue to have as much local decision-making as possible in order to take care of our customers' needs. So we've broken that down into regional loan committees. And quite honestly, our director's credit committee has changed its purpose quite a bit. It used to be very active in actually looking at loans and approving loan packages. And now they are more of a risk management group. So they're very active in looking at our policies, looking at committee reports, checking our asset quality lender by lender, our exceptions to policy, and so forth. So that has changed quite a bit since we have begun this process. I'll also mention our human resources policy. As you can imagine, all of the banks had different sets of benefits; they had different compensation packages. We have merged all that together, so that our commercial loan officers are all paid the same way in all of our markets. That was all across the board a year and a half ago. So it has been an extensive process to merge all these cultures, all these policies together into one we can operate with as innate to, we say, a $15 billion corporation. IT is another big area where we brought divergent policies and procedures, security processes, together. And we expect our infrastructure out to $15 billion to $20 billion. So we have a scalable process and procedures now that we think will take us even to the next level. That's required a lot of work from a lot of people in all the banks. So we didn't just take a Simmons policy and shove it down people's throats. We spent a lot of time with representation from all the banks to come up with what we felt were best practices to develop these new policies. So that's sort of a general 30,000-foot view of how we have dealt with policies and procedures. From a branch and FTE allocation process, we used an outside consulting firm that came in when we were merging banks to take a look at each one of the banks, the efficiency that they had in these functional areas, and what we should look like when we put all the banks together. Since that time, we've had him come back in, and – after we have enhanced particularly some IT processes – to take a look again and tell us what our goal ought to be from an appropriate staffing standpoint. And they've done that. And I will tell you, there are two or three areas in the bank where we have real opportunity. One of those you see the results of periodically, and that is branch rightsizing. That's not necessarily all driven by inefficiency on our part; a lot of that is driven by consumer habits. So we see a lot more dependence on electronic banking, which means that our brick-and-mortar locations aren't seeing the same number of transactions that they have in the past. We're about to the point, though, we're getting ready to take a look at our entire branching structure and determine where we need those branches, what those branches need to look like. So it could be that in the future in a specific geography, we may close three branches but actually build one in a better location with better services for our customer base in that location. So we'll continue that efficiency process. And then integration to products and services; as we mentioned before, we have several unique products and services that offer real good non-interest income opportunities for us. A credit card is a prime example. We just completed an internal offering to our existing customers and approved 10,000 new credit card applications during the quarter. That's up from normal 3,000 approvals during the quarter. So we're seeing some real progress in being able to offer products and services, at least across our entire footprint. Now, there are a couple of products and services that are going to be slower-go than others. For instance, our investment business, we can't go out and just create that overnight with our existing customers. That is a people issue. So as we find appropriate staff to expand our investment products and services, we'll do that. Another one is consumer finance. We've talked about that; that is very specific to markets in Tennessee. It has a high compliance risk associated with it. So for us to be able to roll out those products across our entire footprint will take much discussion and much planning, and I wouldn't expect that to happen anytime soon. So we do have some products and services that are going to be easier to roll out than others. I think you're starting to see some of that gradual increase in that revenue in our non-interest income line item. We expect to see that continue.

Okay. And then, I guess, with the branch rightsizing opportunity, I mean, would you say your – the 10 branches that you did consolidate, is that the first effort, and that now you'll start rolling through it more, I guess, kind of twosies and threesies here and there? Or how would you characterize the next opportunity set there?

Let me just sort of tell you what that process is. So we have weighed rank our branch efficiencies. So there's always a bottom 10, okay? So we got rid of the last bottom 10; now there's a new bottom 10. And we are in the process of evaluating those right now with what the proper process is to deal with increased efficiencies there. As we have added banks, Peyton, as I'm sure you can imagine, we have some overlap in some rural markets and probably too many locations for the customer base that we have in some of those places. In some of those places, we might be the only Bank there. And therefore it's a little harder to close that location than just a pure numbers issue. But I will tell you that as soon as we finish one round of branch rightsizing, we're looking at the next possible round. So it would not surprise me if sometime in the near future we didn't identify a few more that we could consolidate and become even more efficient in our branching model.

Okay. And then did the credit card – when would you expect the credit card improvement to benefit revenue and balances?

This is Marty Casteel. We have brought in a new leader in our credit card division. He has a tremendous amount of experience in promoting credit card in the banking environment, primarily in selling through the branches. And that's really what we're focusing on. We are focusing on our customer base right now. George mentioned some of the success we've seen in offering new accounts and getting acceptance to our existing customer base – main customer base, not credit card base. We have done direct mailings. We've had like a 2% acceptance rate in the direct mailings that’s better than industry. It is of course its not what we were looking for. We're looking for better penetration there. Their applications approved in June were up 90%, just for reference purposes. And again the focus is on our existing customer base, bank customers. And we are seeing some traction there. We are doing some things also even in the debit card area, is introducing some better options for us with business debit cards. So you are going to see I think a measured success in our credit card and debit card activities based on the initiatives that we have in place now and that we are executing.

Okay, great. Thank you very much for taking my questions.

It is a pleasure Green

Thank you there are no further questions in queue at this time. I’d like to turn the call back over to George Makris for closing remarks.

Well, once again, thanks to all of you for joining us. And it really is an exciting day for us. We received federal approval for the Citizens Bank transaction. That's going to be very important of our franchise in East Tennessee. Great folks, great family owned bank and we look forward to welcoming all of those folks into our Simmons family. So I’ll leave our call today with that welcome to our Citizens folks and looking forward to visiting with you next quarter.

Thank you. Ladies and gentlemen this concludes today’s conference. You may now disconnect. Good day.