Simmons First National Corporation (SFNC) Q3 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. And welcome to the Simmons First National Corporation Third Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will host a question-and-answer session and our instructions will be given at that time [Operator Instructions]. As a reminder, this conference may be recorded. It is now my pleasure to hand the conference over to Mr. David Garner. Sir, you may begin.

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

Thanks, David. And welcome to our third quarter earnings conference call. These past few months have been a windfall and full of achievements, and I would like to begin by highlighting several of many. First, our previously announced mergers with South West Bancorp and First Texas BHC were approved by both Federal Reserve and shareholders. We closed these transactions on October 19th. This time, I would like to welcome all associates from Bank SNB and Southwest Bank to the Simmons family. We look forward to a great partnership. Second, I'm also proud to announce First South Bank has been fully integrated with Simmons bank. I commend the integration teams for successfully completing the systems conversion over Labor Day weekend. Third, Simmons bank became the sole shareholder of Heartland Bank via public auction. Simmons is currently evaluating the next steps with respect to the institution. Lastly, we have completed the sale of our property and casualty insurance businesses, while retaining our life, health and employee benefits insurance services. In our press release issued yesterday, we reported record net income of $28.9 million for the third quarter of 2017, an increase of $5.4 million compared to the same quarter last year. Diluted earnings per share were $0.89, an increase of 17.1%. Included in the third quarter earnings was an after tax gain of $1.8 million on the sale of the insurance lines of business. Also included were $721,000 in net after tax merger related and branch rightsizing costs. Excluding the impact of these items, Company's core earnings were $27.7 million for the third quarter, an increase of $3.4 million compared to the same period last year. Diluted core earnings per share were $0.86, an increase of 8.9%. Our loan balance at the end of the quarter was $6.3 billion. Total loans increased by $78 million during the quarter. The legacy loan portfolio grew by $228 million, of which approximately $36 million migrated from acquired to legacy, and additional $13 million increase is related to loan participations with Southwest Bank, $163 million of acquired loans and loans in our liquidating portfolios paid off during the quarter. We continue to experience new loan demand although the weighted growth is lower than we experienced in the first two quarters this year. Our loan pipelines, which we define as loans approved and ready to close, was $245 million at the end of the quarter. In addition, we still have $689 million in construction loans not yet funded. Our concentration of construction and development loans was 64% and our concentration of CRE loans was 257% at the end of the quarter. All of our regions are still experiencing good loan growth. The Company's net interest income for the third quarter of 2017 was $78.8 million, 15.8% increase from the same period last year. Accretion income from acquired loans during the quarter was $2.9 million compared to $4.9 million in the same quarter last year. Our net interest margin for the quarter was 3.91%, which was down from 4.08% in the same period last year. The Company's core net interest margin, which excludes the accretion, was 3.77% for the third quarter compared to 3.79% in the same quarter of 2016. Increases in deposit cost continue to offset gradual increases in rates on earning assets. We've experienced non-time deposit growth of $725 million over the last year related to acquisitions and internal growth. Cost of interest bearing deposits increase 12 basis points from the prior year. We continue to project that our cost of funding will increase as a result of increased competition for deposits and recent fed rate hikes. Our non-interest income for the quarter was $36.3 million, a decrease of $544,000 from the same quarter of 2016. We experienced decrease in income of $1.2 million related to our mortgage business. In addition, during the third quarter of 2016, we recorded $2 million of recovery related to a previously charged off acquired loan. Included in income for the quarter was $3.7 million of gain related to the sale of our property in casualty insurance lines of business. Non-interest expense for the quarter was $66.2 million, our core non-interest expense for the quarter $65.3 million. Incremental increases in all non-interest expense categories over the same period in 2016 are the result of our acquisitions over the last year. Our efficiency ratio for the quarter was 55.06%. At September 30, 2017, the allowance for loan losses for legacy loans was $42.7 million with an additional $391,000 allowance for acquired loans. The Company's allowance for loan losses on legacy loans was 82 basis points of total loans. The loan discount credit mark was $25 million or a total of $68.1 million of coverage. This equates to a total coverage ratio of 1.08% of gross loans. The ratio of credit mark and related allowance to acquired loans was 2.27%. During the third quarter, our annualized net charge offs, including credit card charge-offs, the total loans were 32 basis points. Excluding credit card charge-offs, our annualized net charge-offs to total loans were 27 basis points. The provision for loss during the quarter was $5.5 million compared to $8.3 million during the same period last year. We expect to continue to build the allowance as we migrate more acquired, especially with the addition of Bank SNB and Southwest Bank. Our capital position remains very strong. At quarter end, common stockholders’ equity was $1.3 billion our book value per share was $39.03, an increase of 6.4% for the same period last year, while our tangible book value per share was $25.64, an increase of 7.7% in the same period last year. Tangible common equity was positively impacted by $7.2 million due to reduction in intangible assets related to the sale of the insurance lines of business. This concludes our prepared comments, and we'll now take questions from our research analysts and institutional investors. I'll ask the operator to please come back on the line and give the instructions for queuing in for those calls.

Thank you, sir [Operator Instructions]. And our first question will come from the line of Michael Rose with Raymond James. Please proceed.

Just wanted to start if we could on loan growth, I think the guidance that you gave last quarter was about 100 million a quarter in net growth. I know that includes all the moving pieces. So if I look at the pipeline this quarter it looks like it was down about 100 million but the unfunded balance of close loans in the construction book was off about 100 million. So I guess how should we think about growth going into fourth quarter? What types of seasonality should we expect? And then any read from the two acquisitions, and what they saw in the third quarter and how that might impact fourth quarter trends? Thanks.

Michael sure, several others are probably weighing in on that question. First of all, to you and everyone else, let me apologize for the timing of our announcement this quarter due to the closing last week. We wanted to get that behind us before we announced earnings, so we could talk about that today and we’ve got some other conflicts this week. So just happen to fall on a very inopportune time. I don't think we'll be releasing on Sunday any more going forward. So I apologize to all of you who had to work over the weekend when that's not normal is what we do. Back to loan growth. We are still very pleased with what we're seeing in the market, even though the pace has slowed down a little bit from what we experienced in the first two quarters. I'll also mention that our consumer finance portfolio and our indirect lending portfolio continue to work down. Those two portfolios decreased by total of $29 million during the quarter, and they're moving down collectively about $9.5 million a month. So as we continue to work out of those, we will have that sorted as a basis that we have to overcome, first of all. What we're seeing is the good loan growth across our entire footprint. And with regard to our two acquisitions, I think one of the most unusual things that I’ve seen with regard to what usually happens in acquisitions is that generally, our main objective is to maintain loan balances where they were when we announced the transactions. I think you’ll find both Bank S&B and Southwest Bank had grown their loan portfolio significantly since those announcements. And quite honestly, those still have good loan pipelines as well. While they’re not on our call today, what we do know is the loan growth they’re experience there. I’m going to Barry Ledbetter, our Chief Banking Officer if he wouldn’t mind addressing loan growth and particularly the construction pipeline we just haven’t quite made it to the funding portion of that. So Barry if you don’t mind addressing that.

Again, as was addressed earlier, we’ve got about $689 million in loans that have closed that we’ve not yet funded. We funded -- we’ve closed very large CRE loans in Nashville, also in Kansas City, that we expect to be funding in the next couple of quarters. On that lot of those deals, we get a lot of equity on the front-end. And we get the best group to put their money on the front-end. And so you’ll see those continue to increase. We feel very good about our pipeline again. We’re starting to consistently see the growth in Northwest, Little Rock, Northeast, Arkansas, Missouri and Kansas City, those market segments, Kansas City continue to be strong and we’re starting to see an increase in the Springfield market with the addition of some additional lenders we’ve added in the last couple of months. And also in Jackson Tennessee, we’re starting to feel there about that loan growth with the addition of First South and that leadership. Also in Nashville, we should see continued loan growth in there with the addition of some new lenders there. So overall, we feel very good about our pipeline going forward and with the loan growth.

And Michael I would say, we use this as benchmark here at 7% annualized loan growth as what we’ve budget, and that’s what we would expect going forward. Certainly, the addition of Southwest Bank in their 30% annualized loan growth they’ve experienced this year. We don’t know if that will continue over multiple quarters going forward. But certainly, they still have a lot of opportunities there. One of the things that we’ve done during the last quarter is rearrange our balance sheet, increased our core deposit base in order to be able to absorb that loan growth and keep our loan-to-deposit ratio in the 90% range, which is what our U. S. appetite calls for. Currently, it’s down around 86%. We’ve got a little bit of capacity that we’ve built to absorb these new acquisitions.

That’s great color guys. Thanks for the update there. Just one more question from me, just on the margin. How should we think about the addition from the two deals and what that will do to the accretion? I think you guys have guided to about $14 million in accretion for the year, looks it will be a little bit above that. But again the $25 million mark remaining, what will the two deals add and then can you guys just give some color for expectations for the core margins going forward? Thanks.

I'm going to let Bob talk about how we believe the core margins going to look. But let me just say that with regard to accretion in our allowance, it may not be $1 for $1 trade off, accretion income and adding to our provision. But as you will notice, our total coverage is down to 1.08%. So we really can't draw much lower than that. We’ve got rid of most of the junk out of our acquired portfolios. And while we still have 2.2% coverage in that acquired bucket, the acquired bucket isn’t as large as it used to be. So going forward, I would expect no real substantial increase as a result of accretion income because most of that is going to go straight into the allowance to cover those migrated levels. So Bob, you might want just talk about what the blended net interest margin might look like?

Michael, we think there’re probably about 3 to 4 basis point decline in the margin. When you put all the deals together, we still think of 3.70 to 3.80 range is a good range for us on core margin. When you look on GAAP, it’s going to be very lumpy in Q4 and into early next year. I would expect somewhere in that 4% range give or take on both sides of it. You’re correct. We’re still projecting close to $14 million for accretion for the remainder of the year. We’re still going through the valuation on the two reasonably closed acquisitions. We’re projecting next year somewhere in the $10 million to $12 million range for accretion on those two deals when you put them together. Those are estimates at this time we’ll be showing those up as we go in. Our loan discount balance was about $25 million at the end of the quarter. We’ll be adding close to $50 million, $52 million somewhere in that range when you put the two acquisitions in. These banks are pretty clean banks that we want basically, I think, the loan market is roughly about 110% to 115% of their allowance that they currently have.

So just a quick follow up so that 10 to 12 is just from the two deals. What would you expect from the previous -- I'm just trying to get the all-in numbers…

I am glad you followed up on that. We’re expecting that our core is to go from $14 million, which is about $7 million so about half next year. So we would expect $17 million to $19 million all-in next year.

And our next question will now come from the line of Matt Olney with Stephens. Please proceed.

George, you referenced getting the balance sheet ready for the two acquisitions. And I want to make sure I understand that. So looks like the securities portfolio did shrink this quarter, and the yields came down. Can you just speak to the size that you anticipate that being from a legacy Simmons standpoint, and how much more shrinkage will be there?

Matt, this is Bob. We currently have about $1.6 billion, $1.7 billion in securities portfolio. Roughly it’s about 19% to 20% of our total assets. Our target level as we go forward is probably little lower than that, maybe in the 16%, 17% of total assets. You did notice we did shrink it a little bit this quarter. We’ll allow that to run down as we get more loan growth over the next couple of quarters and as we absorb the two acquisitions. I would say we did have a little decline in our yield for this quarter, part of it was related to last quarter as we prepared for some liquidity on the loan portfolio, so we sold $120 million, $150 million of securities at that time that reduced the portfolio little bit. We also were up in the second quarter because the 10 year drop, which caused some -- so basically our yield went up a little bit in the second quarter little higher than normal. Also, this quarter as George mentioned, we're preparing our balance sheet from some leverage to prepare deposits in there. So we did go out and get some deposits, which increased a little bit of our deposits cost. We put some of that money basically in short-term investments. It was a positive arbitrage with a very small one. So it had a negative impact on our investment portfolio for the quarter. But it’s preparing as we get into this Q4 and first quarter for the acquisitions.

So just to clarify that, 16% to 17% target you have, it sounds like it may take a few quarters to get there and initially we could be a little bit on the high end of that. Is that fair?

That’s exactly right. We’re not going to get there overnight. But we don’t have the target to be at high 19% and 20% of assets long-term as loans go up. We prefer the investments to be move over to the loan portfolio.

And given the deals that close now, can you speak to the impact of Durbin Darwin, when that’s going to hit you and what that amount would be?

Well, Durbin will hit July 1, 2018. And we anticipate that that will be $12 million pre tax impact to revenue.

Annual basis…

On annual basis. The trade off, Matt, is closing early to be able to provide the capital and support for the growth that the two acquisitions need versus delay in Durbin. And we are on the side of going to hit and protecting that particular growth in the market. I think that was probably a good decisions and quite honestly its first low problem and we're glad we have that. We will say that. The next real threshold for us is $15 million. And while we're not quite there yet, organically, we should easily get there in 2018. As we continue to look at our capital ratios, we’ve got to make sure that we got enough tier one and enough tier two capital to support the levels of loan growth that we see after markets does. So there’ll may be some more shifting of say that that doesn’t qualify our tier two and tier two qualified that during 2018. So that’s the next big issue for us. We lose tier one, treatment of trust preferreds after we cross $15 million. We don’t know where the Choice Act is going to go and what that means with regard with 10% leverage ratio. Well, we’ve got our all in that ball and we’ll make the appropriate decision sometime in the next six months on what we do about that.

And just as it reference, the cost of the troughs is about 80 basis points on leverage ratio, still puts us about 94, 93 but even after the loss of that.

And Bob that does include the impact of the pending -- the recently closed deals as well?

Yes Matt, that's the pro forma estimate. If you put all the deals together and back out the trough impact from tier 1 and it's about 9.3, 9.4 is our pro forma numbers right now.

And then last question from me. I assume the next two or next few quarters could be little bit noisy as you integrate these acquisitions. Can you give us some details on expectations of some noncore items the next few quarters?

Matt, it is going to be very-very lumpy over the next two quarters. Some of those costs will hit in this quarter and fourth quarter, and some will hit in the first quarter as we're moving in. I don't have the exact numbers that's in it right now but those deals -- I mean, I don't have that right now.

Matt, let me give you the schedule. We obviously are going to have some merger related costs associated with closing these two deals in the fourth quarter. We're going to convert Southwest Bank in Simmons Bank in the first quarter of 2018. So we'll have some costs associated with that, but we'll also offset that little bit with cost saves associated with that and merge. Bank SNB will be converted over Memorial Day weekend in May. So, we'll have some merger related costs associated with that transition. But then by the third quarter of 2018, we ultimately feeling the full impact of cost saves from both those acquisitions. So let's talk about non-interest expense a little bit and what that's going to look like. So if you just put together the third quarter Simmons non-interest expense from a core basis and the First Texas and Southwest Bancorp, we're going to be in the [$30 million] per quarter range. By the third quarter of 2018, we expect the cost saves save us around $9 million a quarter fully recognized. Now, it's a little too early to tell how much of that's going to fall in the fourth quarter '17, the first quarter and the second quarter of '18. But by the third quarter of '18, we hope to have that full $9 million per quarter realized from a cost save standpoint. Remember though that if our growth continues as it has this year, we might have some expense increases associated with the infrastructure needed to support that growth. So, we'll try to keep you updated as we determine what that growth is going to look like and as we're able to achieve those cost saves. So, hopefully that gives you a target intent. Unfortunately, we can't project right now when that savings is actually going to hit.

And Matt this is, Bob. Just looking back, I would project we've got about $22 million after tax merger related costs with the two deals. And this is just our best estimates this time as I would expect about 75% of that to hit in Q4, the other 25% in the next couple of quarters. Those are just rough -- very rough estimates, but somewhere in that $22 million on the after tax basis.

Thank you. And our next question will come from the line of Stephen Scouten with Sandler O'Neill. Please proceed.

Can you talk a little bit more about maybe the expense run rate not so much maybe pro forma but even in this current quarter what precipitated the decline and the other non-interest expense in particular. And if there was anything abnormal there that may be led you to be even better than where you guys had guided?

Stephen, I would just say that our folks have done an excellent job in maintaining their expense base. We also probably achieved a little more savings than we had originally anticipated with First South system converging. We closed five branches associated with that because of the market overlap. So we didn't leave any market over there, we just had an excessive number of branches. And you probably noticed that we added some $4 million to our OREO balance based on those closed branch locations. So I think we have just probably exceeded our original expectations with regard to our ability to integrate and achieve those cost saves. Bob, I don't know if you have anything to add in that?

No, I think that's good. I think everybody's hit on target pretty well on the expense savings. And we look at it as the core expense for the month and it was about $65 million, and that was fairly close to in line with what our expectations were.

And maybe on the DFAST side of things, expense build related to ex-Durban, what the other costs are. I mean, what's the progression of expense build for that? I mean, how much of that do you still think you have already built in the run rate today? Or how much do you think might need to come from those preparations in '18 and '19?

Well, I'll take a stab at it and then Bob can correct me. Stephen most of our expense has already built in. We don't have to submit our first DFAST submission until 2020 based on 2019 data. In 2018, we plan to submit a test, DFAST submission, and our only expense is going to be associated with data warehouse, which we would do anyway and some modeling expanse to get that done. So we think that we have already built in most of the expense associated with costs and $10 million except for the Durban impact. What you will see going forward is just incremental increase based on volume. So as we continue to grow, we'll add in the BSA area in order to handle the increased volume. We'll increase our community development officers based on CRA requirements in new markets that we'll undertake. But no significant one-time expenses remain at least that I'm aware of. And Bob, you might want to address…

Yes. And I would say, I think as George said, our non-interest expense, we believe that most of those costs are in there. It will change from one bucket to another bucket. We may have spent money on professional fees and others consulting fees to get us up to this point. As we move into next year, some of that cost will move into either systems or into people in the bottling. But the overall cost is built in, it may just move from one bucket to another.

Okay, that’s really helpful. And maybe one last question from me on the deposit side, you mentioned the deposit cost going up this quarter to build in preparation to the deal. What do you guys think in that, the competitive environment is going to be like moving forward, give an idea of run rate from a basis points perspective, maybe how deposit costs creep up quarter-over-quarter. And along with that, your loan to deposit ratio on a pro forma basis is good but higher than where you guys have traditionally run the bank. So how do you think about that and where is your level of comfort versus how much more do you have to bid up to get more deposits?

Well, we think we’re competitive right now. And our deposit rate increase outpaced our loan yield by a couple of basis points this last quarter. We think that will leave and now going forward, and we certainly hope that our loan yield increase is higher than our cost of deposits. We were very aggressive last quarter with some deposit promotions, particularly in the commercial area. We’re very comfortable with where we are. We don’t see a great increase in our deposit cost from where they are today. In fact, if we can shift some deposits from some of the acquired banks there’s some pretty high deposit costs in some markets and we may actually have the opportunity to reduce some of those costs to offset what we see in increased deposit costs in some of our legacy markets. So we think this last quarter was probably higher with regard to an increase and we’re going to see going forward in way we would hold both loan yields and deposit costs move up proportionately going forward. But Barry, you might have a little different perspective on that, but I think that’s my point.

I think, you said it well. And I think the other thing too is we’ve had a real emphasis probably in the last 90 days on treasury management, and we’ve hired couple of treasury management officers into large markets that have done a lot of CRE loans. And so we feel very positive going forward about the increase on some core deposits with some large commercial accounts.

Okay guys, thanks so much. That’s really helpful and congrats on getting those two deals closed. I know it’s good to get that behind you. So congrats.

Thanks, Steve.

Thank you. And our next question will come from the line of William Curtiss from Piper Jaffray from. Please proceed.

George, maybe can you update us on your appetite for future M&A as you kind of think about next year. I mean, do you think the pace may slow down a little bit? Now that you’ve gained the scale with the recent deals, or would you still feel comfortable doing multiple deals? So I guess if I’m just curious if your view on M&A has changed in anyway after a pretty active year?

Well, first let me make everybody understands that we are totally focused right now on the successful integration about Bank S&B and Southwest Bank. That’s a big deal to us. We’ve worked long and part of it and so have the associates at both of those banks. So that is our top priority. And we think that there is substantial growth we had from that successful integration. That being said, we also believe that there are more opportunities for acquisitions in our current footprint. Not that we wouldn’t consider rolling that’s a continuous market to where we currently are, but we have a lot of really priority markets in our current footprint where we would really like to grow. So we will have continued discussions and maybe some new discussions with some potential merger partners in some markets where we currently have a presence, but not as big a presence as we would like to have. So I think what you will probably see is a shift a little bit from acquisitions in new markets to acquisitions in current markets that will increase our market share and help us deploy some of our non-interest income lines of businesses in markets that could be very attractive for us. So, you probably know that on a pro forma basis, our non-interest income is going to go from about 33%down to the mid-20% level. We need to build that up back over 30% and we’re going to do that in the existing market. So that will be a little bit of a shift. We are in no rush to get there. But to the extent that we find a good partner in the next six months, we’re certainly prepared to go ahead and push that button.

And then maybe just the last one and apologise if I missed a bit, any sense for when you think you’ll have a decision made on Heartland?

We know that by the end of the year, we will make a decision. It could be within three weeks. It's really too early to tell. We are taking a look at all our options in the market and that is sale of the whole bank, sale of the assets, but we’re also taking a look at integrating it into Simmons Bank, which would also be a good alternative for us. That came about so quickly that we really didn’t have time to investigate all those options until we actually had control of Heartland Bank. We will say this. The Heartland Associates have done very good job of maintaining their base of business. We’ve got some very good folks that we put in place as management that institution and it has stabilized. So we’re very fortunate that there is still some value in that asset and you probably noticed the way it was booked on own our balance sheet assets held for sale, liability held for sale, and fortunately the assets greater than the liabilities. So we’re just going to see how all that plays out in the marketplace. And hopefully, we’ll know within two to three weeks, which direction we’re going to go.

And Will, just as George said, those are -- you can see in our balance sheet the other assets held for sale and other liabilities held for sale, both of those are at the estimated fair value that we have at 930.

Thank you. And our next question will come from the line of Brady Gailey with KBW. Please proceed.

Maybe one more on M&A. George, now that you're over $14 billion headed to $15 billion on assets. What is the size range that you would look to acquire? I mean, would you even consider a deal under ability and what's the new sweet spot for M&A?

Well, $1 billion still sort of sits as a sweet spot. And quite honestly, Brady, as we mentioned before, a lot of that has to do with the kind of business that the producers have been used to booking in those institutions. However, I'll say this. If we find an institution that’s smaller than $1 billion that has some specialty lending lines of business, like agriculture, we will certainly have an interest. And there are plenty of those in our current footprint that we should consider. So I'm not ruling out any size necessarily, it really just depends on the make-up of the Bank's loan portfolio, the producers they bring to the table and really the synergistic effects that we can put into place as a result of that acquisition.

And then my second question is on the provision, if I had listen to your comments about the reserve, it sounds like we’ll start to see some upward pressure on the provision. I know -- I think I’ll guide it to around $20 million for this year, so that’s up $5 million a quarter. How much upward pressure do you think will be on the provision in 2018?

Well, I still think based on our legacy portfolio and the current $5.5 million quarter, we’ll take care of that. It's really going to depend on how quickly those loans migrate into our legacy portfolio. Once again, our total coverage right now is just barely above 1%, including the credit mark and the allowance. Now, I’ll tell you I’ve got a little nervous thinking about that total coverage dropping below 1%. And Bob also mentioned that the acquired portfolios at bank SNB and Southwest Bank are very, very clean portfolios. So our mark is very close to what they consider to be an appropriate allowance today. So if we book a mark that’s close to the allowance they need for their portfolio as their loans migrate, that accretion income will go into our allowance to build it up to where it needs to be. So that’s about as much guidance as I can give you. We won't see tremendous benefits from accretion income dropping to the bottom line, going forward.

Thank you. [Operator Instructions] And I am showing no further questions, at this time. So now it’s my pleasure to hand the conference back over to Mr. George Makris, Chairman and Chief Executive Officer, for closing remarks and remarks, sir.

Well, thank you very much. And once again, thanks to all of you for joining us this morning. We apologize again for the inconvenient scheduling of this. We promise it’ll be a one-time event. Thanks again for your participation. I hope you have a great day.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude the program and we can all disconnect. Everybody, have a wonderful day.