Simmons First National Corporation (SFNC) Q2 2017 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, today's conference call is being recorded. I would now like to turn the conference over to David Garner. Please go ahead.

Good morning. My name is David Garner, and I serve as Investor Relations Officer for 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, Chairman and CEO of Simmons Bank, our wholly-owned bank subsidiary; 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 website simmonsbank.com under the Investor Relations tab. During today's call and 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 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, in this presentation we will discuss certain GAAP and non-GAAP financial metrics. Please note that the reconciliation of these metrics is contained in our current report filed with the U.S. Securities and Exchange Commission yesterday on Form 8-K. Any references to non-GAAP core financial measures are intended to provide meaningful insight. 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 David. And welcome to our second quarter earnings conference call. First, I would like to welcome our new associates from Hardeman County Investment Company and its subsidiary bank First South Bank to the Simmons team. We closed that transaction on May 15 and will convert systems in September. We look forward to our continued growth and success in Tennessee. In our press release issued yesterday we reported net income of $23.1 million for the second quarter of 2017. Diluted earnings per share were $0.72. Included in the second quarter earnings were $3.7 million in net after-tax merger-related and branch right-sizing costs. Excluding the impact of these items, the company’s core earnings were $26.8 million for the second quarter of 2017. Diluted core earnings per share were $0.84. Our loan balance at the end of the quarter were $6.2 billion, total loans increased by $448 million during the quarter, which included $253 million of loans from the Hardeman acquisition. The legacy portfolio grew by $368 million of which approximately $63 million migrated from acquired legacy, $35 million of the increase is related to loan participations with Southwest Bank, our pending acquisition [indiscernible] Texas was is evidence of the very strong loan growth. $110 million of acquired loans and loans in our liquidating portfolios paid off during the quarter. We continue to be encouraged by the growth trends in our loan portfolio. Our loan pipeline which we define as loans approved and ready to close, was $345 million at the end of the quarter. In addition, we have $594 million in construction loans not yet funded. Our concentration of construction and developed loans was 60% and our concentration of CRE loans was 245% at the end of the quarter. All of our regions are experiencing good loan growth. The company’s net interest income for the second quarter of 2017 was $76.8 million a 15.4% increase from the same period last year. Accretion income from acquired loans during the quarter was $4.8 million compared to $4.7 million in the same quarter last year. Our net interest margin for the quarter was 4.04% which was down from 4.14% in the same period last year. The company's core net interest margin which excludes the accretion was 3.79% for the second quarter of 2017 compared to 3.86% in the same quarter of 2016. We expect the increases in deposit costs will continue to offset short term increases in rights owned earning assets. We've experienced non-time deposit growth of $970 million over last year. Total deposits increased by $395 million related to the Hardeman acquisition. Cost of interest bearing deposits increased 4 basis points from the prior year. We continue to project that our cost of funding will continue to increase as a result of increased competition for deposits and recent [indiscernible] heights. Our non-interest income for the quarter was $35.7 million, an increase of $5.7 million from last quarter. Fees on deposit accounts increased primarily due to the addition of Hardeman during the quarter; included in income for the quarter was a $1.3 million gain related to the sale of the guaranteed portion of several SBA loans. Our year-to-date gain on the sale of SBA loans is $1.7 million versus $1.8 million in the same period of 2016. In addition, we recognized the gain of $2.2 million on the sale of approximately $150 million of securities to provide liquidity for strong loan demand. While we were able to take advantage of favorable market rights to realize a gain on the sale of securities; our gain this quarter was $1.5 million less than the realized gain in the same quarter of 2016. Non-interest expense for the quarter was $71.4 million while core non-interest expense for the quarter was $64.7 million. The incremental increases in all non-interest expense categories over the same period in 2016 are the result of our acquisition of Hardeman during the quarter as well as our acquisition of Citizens Bank in the third quarter of 2016. Professional services increased $1 million primarily related to the enhancement of our risk management programs in anticipation of surpassing $10 billion in assets. Our efficiency ratio for the quarter was 56%. It's important to note that both the revenue and expense numbers include the First South Bank operation for 46 days. At June 30, 2017, the allowance for loan losses for legacy loans was $41.4 million with an additional $391,000 allowance for acquired loans. The company's allowance for loan losses on legacy loans was 0.83% of total loans. The loan discount credit mark was $28.4 million for total of $70.2 million of coverage. This equates to a total coverage ratio of 1.12% of gross loans. The ratio of credit mark and related allowance to acquired loans was 2.3%. During the second quarter, our annualized net charge offs including credit card charge-offs total loans were 23 basis points. Excluding credit card charge-offs our annualize net charge-offs total loans were 19 basis points. The provision for loss during the quarter was $7 million compared to $4.6 million during the same period last year. The increase in provision expense is primarily due to the addition of $714,000 or acquired loans and the greater than expected lease in loan growth during the quarter. Based on our projections, we expect total provision for 2017 to be approximately $21 million compared to $20.1 million in 2016. In June, we executed the sale of 35 classified loans with a discount of principle balance of $13.8 million. The acquired loan portion of the sale was open to a benefit of $1.4 million of accretion income and a $714,000 increase in provision expense for acquired loans resulting in a net benefit of approximately $700,000. We will continue to explore options to manage problem assets remaining from the FDIC Metropolitan portfolios, as well as options to further reduced problem loans. Our capital position remains very strong. At quarter end, common stockholders' equity was $1.2 billion, our book value per share was $38.31 an increase of 6.8% from the same period last year while our tangible book value per share was $24.71, an increase of 5.5% from the same period last year. As mentioned earlier, we closed the Hardeman County Investment company transaction on May 15. Our team along with Hardeman management team worked very hard to complete the merger. We continued to work through the regulatory application and shareholder approval processes for the previously announced Southwest Bank Corp. and First Texas Bank Holding company unit acquisition. We look forward to closing those transactions and welcoming those associates who customer to Simmons. This concludes our prepared comments. We will now open the phone line for questions from our research analysts and institutional investors. At this time, I will ask the operator to come back on the line and once again explain how to queue in for questions.

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

Hey good morning guys.

Hi, Brady.

Well if you look at your core margin, it's been coming on the upper end of the range you have talked about the 370 to 380. Is that range for the core margin still appropriate for the back half of this year and in the next year?

We think it is for the balance of the year, if you noted we have almost $600 million of unfunded construction loans that we expect fund throughout the rest of the year, those were booked at rates earlier this year, so we were pretty much locked into that and we expect to continue to have upward pressure on our deposit cost, so we think any incremental benefit we get on new loan pricing will be offset by deposit so we think it's going to be static pretty much for the rest of the year.

And then I know in the past you've given some color about forward looking yield accretion, I know that -- should naturally gone off but you also just closed the deal and you've got two more coming in hopefully by year end, but how do you think about yield accretion going forward as well?

Well, Brady I'll just give you what our scheduled accretion is for the next two quarters, and remember these can be lumpy as payoffs or we work out loans, but right now for Q3 we're projecting about 2.5 million and Q4 about 2 million and again that's scheduled payment, so that puts us right at about the $14 million level for the year, that's pretty close to in line with what we've been saying. None of that includes the pending deals, those pending deals that will kind of blow it out once those deals -- the accretion comes on, on those yields.

And then lastly from me, as we near the closing of these two deals, I'm sure there comes a point where if it gets close enough to year end you'll just push the closing to 2018 just so you can have another year of Durban [ph], how do you think about the timing there, and would you prefer these deals to now close in 2018?

Brady, we prefer the Durban amendment be repealed, then we wouldn’t have to worry about that. But since it's probably not going to be, I think it is certainly our preference to close these deals, as soon as we can, combine our balance sheets because all 40 institutions are experiencing really good growth. And we need to combine our organizations in order to keep that engine moving forward. So, we believe we're on track and can close in, as quickly as early October. We try to be nice to the accountants in the group, so we'll close anything right at the end of the quarter, so I would tell you that for some reason, closing our approval got delayed into December that would be the trigger that would make us want to go January because we'll have to combine for reporting purposes, not only Simmons but Southwest Bank and Bank SNB at the end of the year and that would be pretty risky prospect if we didn't close deals until mid-December. So, we're really pushing -- everything's on track right now, we'll file our combined desk for the SEC Monday, we'll have shareholder meetings established well before the October timeline, so we're going to take care of everything on our end to make sure that we're prepared for an October closing. And you know as well as I do things can happen outside of our control every now and then, but I'll tell you that the things that we control will happen on that timeline.

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

So, I must start off on credit quality, legacy non-accruals and NPLs ticked up again this quarter as did charge-offs and that excludes the classified legacy loans that you guys sold, can you just talk about what drove the increase and maybe your general thoughts on credit and if there is anything in your book that might cause you concern?

David I’ll take that and I am look at it Marty and Barry, maybe can chime in here in a minute or two. I think we mentioned earlier this year that we had an isolated loan off shore portfolio that had some significant issues we discovered earlier this year. Those quite honestly aren’t getting any better, they are not getting any worst either but they are still paying around. So, one of our objectives between now and the end of the year, is going ahead and figure out what to do about managing those problem credits and I wish I could tell you they're in the $100,000 range but I think cumulatively they are probably a little north of $10 million. So, we have got our work cut out for us there, we think we are adequately reserved for any potential losses that we may have in those credits, but that will be at least through the end of the year if I were managing that. Otherwise our credit quality is pretty stable, I will just go ahead and touch on our provision for the quarter, we had $368 million added to our legacy portfolio this quarter and all of that requires a provision and I think what you will see going forward is more of an equal balance between accretion income and provision expense. We have most of the FDIC accretion and most of the metropolitan accretion, those big numbers that we had on the books behind us, so if you look at our bar compared to our acquired loans it's down to 2.3% but it used to be much, much higher than that, so the good loans that come over will have some accretion income associated with the mark and probably most of that’s going to move right into the provision. So, if our loans keep grow like they are we'll keep adding to that provision. I think it's important to note that we have a very disciplined process to determine the appropriate range for our allowance and if you will note that our allowance, the legacy loans was flat from quarter to quarter, so that’s evidenced that as our loans grow we are going to maintain that discipline to make sure that our allowance is popped up for that loan growth. So, it's just one of the determents to loan growth, I might also mention that that the end of the quarter, we had a quarter end number of $368 million we had to provide for, but that 368 didn’t grow on the first day of the quarter, so our average loan growth was about $260 million during that quarter, so our revenue during that quarter didn’t keep up with the provision that we had to make at the end of the quarter and that’s just nature of the accounting behind that. So, if we continue to grow we'll continue to look at that. We don’t have any concerns internally about our asset quality, our loan portfolio was so diversified, when you take a look at credit card, consumer lending, commercial lending, ag lending, we're very comfortable with our credit quality and with our provision associated with it. Marty do you have anything to add to that?

Well I'll just add that this isn't much in addition what you said but we did have two credit relationships in a single market that we reported on before, very isolated, those relationships totaled about $10 million and we didn't take a more aggressive approach as far as reserving for those credits, and actually moved one to non-accrual within the quarter about just under $5 million relations to one of the two, so that accounts for most of the change in that allowance.

Just following up on legacy loan growth, it was really stout this quarter, and notably driven by CRE and construction, I know you're well below the CRE concentration guidelines, but your concentration has grown significantly, so I'm just curious, where are you comfortable with that growing to? And maybe as a follow-on, could you highlight your retail exposure both on the CRE and C&I side, and maybe your thoughts on that space?

Well we're comfortable growing to 100 and 300. We just don't know how quickly we're going to get there. And you know, the nature of the beat is this, we've got substantial construction loans yet to be funded, but as we fund those some of the construction loans, will go more permanent financing, so that C and D number is pretty fluid. We've still got one heck a lot of capacity in both of those ratios, and as our balance sheet grows we'll create more. As our profit building capital grows, that helps those ratios as well. So, we're pretty comfortable along the lines of continuing to grow in those two areas. With regard to retail exposure, I'll just tell you that we're very aware of trends in the retail industry, particularly big box, I'll tell you we have very little big box retail exposure and I'll ask Marty and Barry if they'd like to add a little more color there.

Yes, I just think what George has said we just have very little exposure, big box or retail or small spread centers with limited exposure, so we feel very good about our retail across our footprint and it's pretty diverse [ph] our footprint as well.

David I'll add this, just to the retail, the flip side of them with trends in big box retail, and brick-and-mortar is the online business and there are several pockets of intermodal facilities across the country that are really-really growing with distribution centers for Amazon and others. And quite honestly, we've been fairly successful in dipping our toe into some of those developments through some in-market borrowers who are very-very experienced in that arena. So, as opposed to having negative trends in our portfolio from a retail exposure, we think we're actually benefiting from the growth trends in the online shopping.

Last one from me just on expenses, you guys kind of had given the 64 million run rate in the past, but this quarter you were able to actually decrease expenses on a core basis despite the inclusion of Hardeman which is incredibly impressive. Can you just talk about your expense expectation in the back half for the year and maybe some color on the incremental costs of the fast [ph] and other investments related to crossing $10 billion that are how much is your run rate and how much remains?

Well we were pretty proud of our expense control and remember that Hardeman was only in our books for half of the quarter but also remember that we haven’t converted system, so we have realized full call saves yet, so we think that that might be pretty close to a wash going forward. We still think to target $65 million a quarter in the run rate is good for us. We don’t anticipate any other real extraordinary expenses with regard to surpassing $10 million until we get closer to the timeline for our first the fast [ph] submission. Now remember regardless when we close these deals and cross $10 million, our first the fast [ph] submission is going to be in 2020 based on 2019 debt, so we will do a trial run probably in 2019 on 2018 data but and that cost is probably going to be $3 million to get through that first submission but that’s going to be a little further down the road. Right now, what we are doing is building data warehouse that will allow us to combine all this data that has to be fed into these the fast [ph] models out of one data warehouse instead of disparate systems. We've spent lot of that money already, I would tell you that the next level of signature for us is going to be on the IT side as we build out this data warehouse. So, we think $65 million is a good run rate based on where we are today, and you know if we close this deal in October, I won’t give you a different answer, but next time you ask this question, so you hang around Simmons enough and things change pretty regularly. But we are pretty proud of where we are and we think that we have already have sold most of the expense one-time expense associated with gearing up for $10 million. Now we will continue to proportionately add our risk management programs as our balance sheet grows but we are prepare today for that $10 million mark.

Thank you, and our next question comes from Stephen Scouten of Sandler O'Neill. Your line is now open.

Hey guys thanks for taking my questions here, appreciate it.

Hey Stephen.

Question for you on loan growth, I mean obviously it was really strong this quarter, it sounds like that should continue and you said its continued across the other two pending acquisitions as well but, can you frame that up a little bit in terms of how we can think about through year end. I know you had mentioned kind of some pipeline numbers last quarter, but were there any kind of targets that you have or expectations for net growth through year end?

Well, for the last couple of quarters, we talked about $500 million loan growth for 2017, we missed that one, we're already past that, so we talked internally and we believe that at a minimum we ought to be looking at an additional $100 million quarter in loan, we've got our year-end adjustments so we'll have our agro loans peak sometime in September, start to pay down towards the end of the year, we'll have our credit cards start to peak in December, it'll start paying down in January but across the Board we feel pretty good about the continued loan growth; now remember we have two declining portfolios, we have our indirect lending portfolio that declined about $26 million during this quarter and we think that rate will probably continue and we also have our consumer finance portfolio which declines about $4 million a quarter. So, we think $100 million a quarter of net growth is probably very reasonable objective for us.

And George just to clarify I know you just said net growth but just to be clear, that's what you expect on total loans, not thinking about just legacy loans, or worrying about migration from one portfolio to another, but that's on the total loans of -- call it, what is it 6.27 million today?

That's correct, that's correct.

And then thinking about the pending deals, I know you said you guys follow the applications on the 14th, and I believe in previous conversations you had said you're going to wait after your safety and [indiscernible] to file those applications, so did you get back any findings from that safety and [indiscernible], can you -- is there anything you can tell us about your level of confidence about getting these deals done and kind of regulatory outlook to that end?

I can tell you that yes, we did get some results back from the safety and soundness [ph] and that's about all I can tell you. We've had examiners in here as you probably know since January. I'll just put it like this, if we felt there were any regulatory issues that would prevent, the approval of the application, we wouldn't have filed them.

And then maybe lastly from me is ongoing back to the expense just briefly, is there any update that you guys have on the expected I know the timing of when Durban comes could be '18 or could be '19 depending upon the timing of the close, but do you have any update on the actual dollar amount of what you expect to see there, or has that changed at all?

Yes, we're still along the same line as Durban, now that's going to be an income item, but at $12 million again if we cross $10 million on December 31st of this year then that would begin on July 1st of next year, so it'd be 6 million if we cross after July -- December 31st, then it would begin July 1st of '19.

And the 1 million in professional fees that were incurred, that's going to stay within the run rate is that correct, or is any of that kind of one-time consulting or preparation fees that might dwindle down?

That will probably stay. That's sort of the last piece of gearing up for $10 million and to be able to absorb these two acquisitions, so we think that that's going to be a part of our run rate.

At some point down the road though, some of that professional fees could have moved over to salaries or other buckets, but we think the expense bases there regardless growing.

And then maybe one other clarifying line item here on the intangible amortization that nearly doubled the sum if I'm looking at that right quarter, must have looked at an annualized number, I know you might have checked that, but was there any changes there that I am missing?

Stephen its David. Yes, that’s a $1.5 million a quarter roughly and that’s what appears in several quarters.

Thank you. [Operator Instructions]. And our next question comes Matt Olney of Stephens. Your line is now open.

Want to go back to the loan sales that you guys did this past quarter and, I am curious how did you determine which loans to sell in this process and what's the remaining amount of loans that you consider selling from here going forward?

I’ll just touch on this, Marty can talk about how we determine which loans, we don’t have any other active loan sales underway right now. We would put [ph] our portfolio and identified ones that we felt like were salable, and Marty you might want to talk a little bit about that.

Yes, that’s exactly right, we also look at loans that while we felt very much assured they were collectable we just felt like we are also going to be a lot of chronic classified loans, so that really was the criteria we used, if it was a chronic classified loan, we considered it to be a part of that pool of loan we were willing to sell.

You know in that we were looking at both of these pools, we sold the pool in the first quarter and won the second quarter, we were looking at both of these at the same time, one closed in the first one and the second I think we had about a $600,000 loss on the first one and $700,000 gain here. So, to us we were looking at close to $30 million almost and basically getting out it at breakeven cost to us.

Loans that were causing us distraction and taking away from our future growth we were trying to move out of that.

And just to clarify you I understand that you’re not looking to do additional sales from here?

We don’t have any active persuadable loan sale right now, and that’s not decided at some point in time we wouldn’t consider that but currently we are through with our loan suites.

Okay, understood. And then going back to the provision expense in the second quarter, the $7 million, I think Marty may have mentioned that a portion of that may have been from moving the loan to non-accrual status to $5 million. Did you had to breakout of how much of the provision was from that move and reconcile that whole entire $7 million-dollar amount from that versus good loan growth?

Matt, I would say that and I don’t have that number right off hand and I apologize, I'm looking around here and I'm getting this deer in the headlights look around the table too, so I don’t know that we've got that specifically. I would say that probably half of the incremental, so half of the $2.3 million increase was probably related to specific reserves that we set aside for those credits, but I could be also little bit one way or other.

That’s fine George, I will follow-up after the call. Thank you for answering my questions.

Thank you, and our next question comes from Peyton Green of Piper Jaffray. Your line is now open.

Okay great, thank you. I was wondering if you could tell me how much of the NPA plus 90 movement in the second quarter was related to Hardeman balances?

Do you know what amount?

No, it was very small amount that was moved from the Hardeman, I will tell you in the foreclosed asset bucket, there's about $3 million that was assets held for sale that was branches that we had sold, that had moved to OREO it at -- past the one-year period under GAAP that you're moving from assets held for sale to OREO. So, in the NPA bucket when you're looking at the foreclosed assets, about 3 million to 3.5 million was branches effectively that were moved over.

Yes, and Peyton I might just add to that that since we've changed regulators, the rules have changed a little bit. In the past when we closed the branch, certainly when we did with Metropolitan, we had, we closed 27 branches and all 27 went into assets held for sale, in the future any branches we close will go immediately in to other real estate. So, we will try to point that out as we go forward because that's going to be a huge difference in the way we account for those assets based on what you've been used to seeing with our prior regulators.

And then a separate question, of the 368 million in loan growth in the quarter, how much of that was loans that you might have participated from your pending acquisitions?

Yes, only 35 million that we identified from Southwest Bank.

And then maybe just some color on, George what you're seeing in terms of how they're underwriting credit and what gives you comfort about sustaining loan growth rates for them going forward under the Simmons umbrella?

Well as you probably know Peyton, as you look around the country and markets that are doing extremely well, the Dallas, Fort Worth market is just really-really doing well today. And the economy is very diversified there, there's not a lot of concentration in one industry segment, and Southwest Bank because of their reputation has been able to take advantage of that. We'll tell you this, when we talk about the underwriting at Southwest Bank, almost all of the loans that we participated in this last quarter were loans that were already on their books, that we had a chance to look at during our due diligence space, earlier this year or even at the end of 2016. As we took a look at these participations, we went back to look at our notes in our due diligence and based on what we said then, and the progression between then and the time we actually participated in the loans, those borrowers had done exactly what they said they were going to do. So, I will tell you that we're very comfortable with Southwest Bank and Bank SNB's underwriting standards, but we've had a lot of time to visit back and forth, but we've had a lot of time to talk about our credit approval process as going forward and who is going to participate; there will be a lot of cross population between the legacy Simmons, Bank SNB, Southwest Bank, so we're going to get a lot of good viewpoints in our credit approval process going forward. It is really the fundamental benchmark for legacy Simmons Bank and it's not going to change going forward. So, I tell you we’re just extremely impressed with what’s going on at Southwest Bank, since that’s one you mentioned.

Okay, and then maybe related but unrelated question to the pending acquisitions. The cost savings that you are assuming in the acquisitions of certainly on the high end from footprint extension transactions and also given their importance to you as franchises that will improve your overall growth rate, do you get a sense that there is more importance to keeping the growth rate in place or getting the cost saves, any second thoughts about the cost savings and the firmness around them?

Well what’s most important is keeping the growth rate going. It didn’t do us any good going in and slash and cut into the muscle, so we have had discussions about actually expanding the production and production support groups to keep up their current growth rate and then we are all for that. We will have some natural cost saves just because we won’t do the same thing twice in all these markets, and remember that Bank SNB is publicly traded and just inherently in that kind of organization, there are costs that we won’t have to duplicate, so we think that the 32% to 35% range is probably achievable over time. And if you look back to the basis for those cost saves and the growth that they have, the cost save percentage when we close may not be 32%, it's going to be 32% based on the base when we announce that day early, if that makes any sense, I mean it's just a math issue. Well, so cost saves are important but most importantly is to make sure that we keep the infrastructure to keep the growth going.

Okay, so just to make sure I understood that clearly, the cost saves are [indiscernible] based on the date when you announced the acquisition, and the natural growth in their franchises and increase in their expense based to accommodate growth will stay and so if you better back at expense saves, once we close them and any update on the timing of the conversions do you have the dates firmly locked down?

Well we have two dates scheduled in 2018. The first one will be in February, the second one will be in May, both of them will be over the holiday weekends in those months, like to have three-day weekends to do our conversions, so those are already scheduled with our third-party providers and we don’t see any reason we won’t have both of those conversion days.

And Peyton, first out is on schedule for Labor Day weekend in September.

Thank you. [Operator instructions]. And I am showing no further phone questions at this time. I would like to turn the conference back over to Mr. Makris for any closing remarks.

Thank you very much. And I want to thank everyone for joining us today. We're really looking forward to closing and converting First South Bank over Labor Day, bringing them totally into the Simmons system; we're looking forward to moving through the application process and the approval process for Southwest Bank and Bank SNB, and we're awfully excited about our combined organizations after all that occurs. Thanks again and hope you all have a great day.

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