Simmons First National Corporation
Q1 2016 Earnings Call Transcript

Published: 15 Dec 2016

[Operator:]

Good day, ladies and gentlemen, and welcome to the Simmons First National Corporation Analyst 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 conference call is being recorded. I would now like to introduce your host for today’s conference Mr. David Garner. Sir, you may begin.

[David Garner:]

Good afternoon. My name is David Garner and I serve as Chief Accounting Officer for Simmons First National Corporation. We want to welcome you to our teleconference and webcast. Joining me on the call today are George Makris, Chairman and CEO; Bob Fehlman, Chief Financial Officer; Marty Casteel, CEO of Simmons Bank; Barry Ledbetter, Chief Banking Officer and Mark Funke, President and CEO of Southwest Bancorp Inc. The purpose of this call is to discuss the information and data provided by the company in our press release issued yesterday afternoon regarding the Southwest Bancorp acquisition. We will begin our discussion with prepared comments, followed by a question-and-answer session. We have invited institutional investors and analysts from the investment firms that provide research on our company to participate in the question-and-answer 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 new Web site simmonsbank.com under the Investor Relations tab. I would remind you of the special cautionary notice regarding forward-looking statements and that certain matters discussed in this presentation 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 from our current expectations, performance, or achievements. Forward-looking statements regarding the Southwest Bancorp acquisition are based on currently available information. Actual results could differ materially after the consummation of this acquisition. Additional information on factors that might affect our financial results is included in our Form 10-K filings. With that said, I’ll now turn the call over to George Makris.

[George Makris:]

Thanks David, and good afternoon. Welcome to our conference call related to acquisition by Simmons First National Corporation of Southwest Bancorp and its wholly-owned subsidiary Bank SNB, subject to certain closing conditions, and customary and regulatory and shareholder approvals. As David said, if you’ve not already done so, you may access information related to the transaction on our Web site at www.simmonsbank.com under the Investor Relations heading. The combinations Simmons Bank and Bank SNB will produce an organization with an outstanding foundation for additional growth and a broad and prosperous footprint which will include the states of Arkansas, Oklahoma, Tennessee, Texas, Missouri, Colorado and Kansas. Within that footprint are some very impressive Metropolitan markets such as Little Rock, Northwest Arkansas, Oklahoma City, Tulsa, Stillwater, Dallas/Fort Worth, Austin San Antonio, Denver, Nashville, Knoxville, Memphis, St. Louis, Springfield, Kansas City and Wichita. We’re really excited about the opportunities to increase our presence in each of those markets by leveraging our longer balance sheet and by offering our wide range of products and services to both commercial and retail customers. Growth in this metro markets will complement or highly successful community banking operations in smaller communities throughout our territory. Founded in 1894 Bank SNB has a long and storied history in Oklahoma market and we look forward to continuing that legacy. We plan to maintain the Bank SNB brand in those markets, well offering the wide range of Simmons products and services such as our nationally recognized credit card portfolio and our exceptional trust services. Likewise, we look forward to integrating some very specific expertise offered by Bank SNB across our entire footprint, such as a very successful healthcare relationship management program. Mark Funke, CEO of Southwest Bancorp and Bank SNB will join the Simmons Bank Board and will be the President of the newly establish Southwest Division of Simmons Bank. Mark will manage all banking operations within the states of Texas, Oklahoma, Kansas and Colorado. We will focus on expansion within those high growth markets both by continued pursue of great merger partners and by attracting additional talent to the Simmons team. Mark is with us this morning, joining us from Oklahoma City and I’ll ask him to make a few comments.

[Mark Funke:]

Thank you very much, George. I appreciate that introduction and on behalf of all the associates of Bank SNB, we really do look forward to this new association with Simmons Bank. The team that we build at Bank SNB over the last several years has the experience and expertise to take advantage of the benefits of a larger institution and to use the scale to the benefit of our customer base throughout the states that we currently serve in. We believe the success that Simmons has experienced in retail banking and SBA lending and wealth management will enhance the offering that Bank SNB currently has and gives us a tremendous opportunity to expand our customer base. Simmons has been very successful in growing through acquisition and through organic growth in the markets they are in and I really look forward along with all the associates at Bank SNB to that continued success in the Southwest region.

[George Makris:]

Thanks Mark and we welcome you and all your associates to the Simmons team. We’ll now open the lines for questions from Analyst and institutional investor and I’ll ask the operator to come back on the line for additional instructions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Brady Gailey with KBW. Your line is open.

[Brady Gailey:]

I wonder if you could provide a little more detail on the cost saves. You’ve said 35% but I know that you’re not really in most of the OKSB’s markets, so there is not much overlapping. Can you just give us a little detail on where the cost saves will come?

[George Makris:]

We’ll try to do that and I will tell you that that has been a discussion we’ve had with Mark and Joe and their team for a few months now to make sure that we identified those opportunities. The efficiency ratio with Bank SNB is in the 60s. Ours right now is 56, so if we just achieve that, that’s pretty good savings by itself. Not to mention that there are additional expenses related to being a publicly traded company that we think will be eliminated in this transaction and Brady, I will just point you to a similar transaction that we had several years ago in Tennessee, when we acquired First State Bank. We didn’t have any presence in Tennessee, we had cost saves of a little above 30% and when you add the opportunity with the expenses related with publicly traded company, we believe 35% is very achievable number.

[Brady Gailey:]

Okay, I know that OKSB had hired a lot of good talent recently and they are really kind of ramping up on the organic growth side. I know legacy Simmons has talked about a forward growth rate of somewhere in that 5% to 7% range. And now you’re in some new great markets, seems like OKSB was getting to the point where it really was growing nice. Does this acquisition increase the organic growth profile of Simmons?

[George Makris:]

I would say absolutely, and quite honestly the talent that Mark and his team have put together throughout their footprint is one of the most attractive elements of this entire transaction and Mark if you don’t mind, if you would just speak to your expectations with regard to growth in new markets going forward.

[Marty Casteel:]

Sure, George. Thanks and Brady, thank you. You’ve followed our company for a long time, so you will know that over the last several years we worked hard to build the commercial team. And our commercial team has been built primarily in the bigger markets in Texas, and now Colorado and certainly in Oklahoma. And we’ve hired a lot of talent into the organization, which we feel will do well going forward with a larger base and more capacity. But the product base that Simmons offers us that we clearly don’t have today is a wonderful SBA platform. We are in many markets that we could utilize in SBA platform that will add a great product line for our company. Secondly, we also have really a lighter consumer product platform then what Simmons offers. So that will add value to us as well. I think the organic growth possibilities for us in our market given the additional product set also on the trust side, which we haven’t talked about will help us gain customer base in a greater way in our markets. So I know that and talking with our market leaders across our system, they have a fairly large level of excitement about the capacity opportunity with Simmons. And so I do look for better organic growth for our company. And perhaps we can add some things with our healthcare platform into the Simmons platform to help also with organic growth. So I look forward to that.

[Brady Gailey:]

Okay. Great. And then lastly on M&A, George you’ve announced three deals here this year, this last one was a big one, but it takes you over $10 billion. Do you -- at this point, do you take a pause and just kind of integrate what you’ve got, makes sure you cost 10 or now that your over 10, do you get more aggressive in M&A just to go ahead and keep the growth up via acquisition?

[George Makris:]

Well, I guess I would start that by saying, I wouldn’t expect us to announce anything else this year. But, Brady I would tell you that our strategy is not changed and that is as we are able to develop relationship with excellent companies whose culture is similar to Simmons in the markets that we believe makes sense is within our footprint. We will continue down that path. So we continue to have very good discussions with several potential merger partners that would really enhance our franchise. So we will continue down that path, we don’t have any preconceived idea or timeline that says our asset base has to get to a certain level. We believe that we have made a lot of preparations across $10 billion, we certainly will be prudent about the integration of Bank SNB and the Simmons bank to make sure that we adequately prepare, because one of the interesting dynamics now is that all of our future merger partners are going to be expected to be $10 billion compliant on day one. So we’ve had a little cushion in the past to get to that level, well we’re past that now. So we’ll make sure that all the integration appropriately addresses all the compliance and regulatory issues that come with $10 billion mark. We think it’s a very manageable process, we’ll continue down the path of M&A and when we are able to come to terms with a great merger partner, we are going to push that button.

[Brady Gailey:]

Okay. Great. Thanks for the color. And congrats on the deal.

[George Makris:]

Thanks very much.

[Brady Gailey:]

Thanks.

[Operator:]

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

[David Feaster:]

I want to talk -- piggyback a little bit on the organic growth. You got a lot of potential revenue synergies, there are several fee businesses that overlap, you’re also getting the healthcare lending. Could you maybe talk a little bit about the puts and takes here and maybe how we should think about accretion, if we included the potential revenue synergies and the loss Durbin revenues?

[George Makris:]

Well, first of all, I would say that when we model these transactions, we do not model revenue synergies. So I would tell you, in our models that’s zero. Even though, if it turns out to be zero, both Mark and I are going to be pretty disappointed. So we expect that there will be revenue synergies, I think Mark touched on some of those opportunities earlier and that is we’ve got credit card portfolio, we’ve got an excellent wealth management program, all of those are non-interest income lines of business for us. We expect to be able to roll those out. We believe that that’s pretty significant. Now I’m going to let Bob talk a little bit about the Durbin impact and how that fits into the model that we put in front of you all.

[Bob Fehlman:]

Yes. If you look at -- about 2018 is when we expect the first impact. I would be about half a year. We’re estimating as a combined company right now to be about 3.7 million after-tax, that’s about $0.09 a share on today’s share count. I mean we would be hopeful by the time 2018 rolls around, 2019, we’d have a greater share count, more acquisitions, we’re still waiting to see what happens there, but right now this would be about $0.09 the first year. And then the full year is about 7.3 million after-tax, that’s about $0.18 a share, again on today’s share count. So if you look at this transaction, we’ve had a lot of questions overtime. How do you overcome that Durbin amendment, and we look at this one transaction, while it shouldn’t be burdened with the impact of Durbin, it more than recovers the cost of Durbin with just one transaction. So we’re pretty proud of that affect and we’ll be working at other acquisitions. As George said down the road in the next couple of years, that dilution impact for more shares outstanding it will be less impact per share.

[David Feaster:]

Okay. In your accretion expectations. Do you have any rate hikes assumed in there?

[Bob Fehlman:]

In the modeling for this, you know that we’re pretty conservative when we -- on our modeling and we do not have any rate projection increases in for Southwest Bank and I know when they did their modeling for their budget, they also initially didn’t have any in theirs either.

[David Feaster:]

Okay, good. I know you’ve been prudently preparing for 10 billion already and with some of that investment already baked in your expense run rate, could you maybe give us some thoughts on how much expenses are left in the preparation for crossing 10 billion?

[George Makris:]

Well, I would say by the time, we submit our first DFAST results. We’ll spend another $1.5 million to $2 million just on the DFAST process. And we expect that the ongoing costs will be between $500,000 and $700,000 a year to maintain those models internally. So that’s going to be a pretty expensive process for us. Hopefully it will be spread over a larger asset base, it won’t be that significant financial impact on us. So that’s a real expense, we believe that most of the other regulatory expansions are going to just be scalable, based on larger size. So we have the infrastructure in our compliance program and our audit program, so that we will just need to add capacity to those program to be able to handle a larger size. Those are principally the major costs that we’ve incurred to prepare for the $10 billion mark.

[David Feaster:]

Okay, last one from me, you’re picking up the healthcare lending. Could you maybe just give me some -- what are your thoughts on this space and their portfolio, and maybe are there any other specialty business lines that you’d be interested in expanding it?

[George Makris:]

I will just tell you that we’re well aware of the expertise that Bank SNB has in healthcare lending arena and that is really exciting to us. Mark if you don’t mind, would you sort of take that, I know you all have spent some time in your organization talking about the opportunities that we have in the current Simmons brand that really enhances that healthcare lending.

[Mark Funke:]

Thanks George. We’ve build a broad expertise across our footprint in healthcare and that’s one of the things that we have consistently talked about in our calls and somewhere in the neighborhood of 25% to 27% of our portfolio was in healthcare, but its diversified healthcare across a footprint that includes memory care and assisted living and surgical hospitals, specialty hospital and a variety of different types of healthcare. If you look at the Simmons footprint, Southwest Missouri, Tennessee, Arkansas, Little Rock all those areas represent very prime markets that had significant healthcare opportunities, both large and small and so I am very hopeful that over a period of time as we merge our companies together, then we’ll be able to take that platform on a broad basis across the entire footprint for the merged company. We’ve got good expertise in that area, we’ve had a good track record and healthcare will continue to grow. It obviously requires an expertise, to pay attention to markets and geography and the types of businesses and so on that fit under healthcare, but I am confident we can do that and with this Simmons’ size and scale in the markets they’re in I think it will be a great opportunity for the merged company.

[David Feaster:]

Great, thanks and congratulations again.

[George Makris:]

Thanks David.

[Operator:]

Thank you. And our next question comes from the line of Matt Onley with Stevens. Your line is open.

[Matt Olney:]

George, I wanted to ask about the Simmons’ footprint now, which I believe is seven states, incredible to think about the growth over the last few years at Simmons, but you know in your prepared remarks, that you’re in some really nice MSAs now. It feels like the footprint is spread out quite a bit geographically. Could you talk more about that and talk about the challenges that are driving improved profitability and efficiency with the footprint that you have now?

[George Makris:]

Sure, we do have a pretty wide footprint and we’ve discussed this with Mark quite a bit, and I’ll take you back to what’s happened in our current footprint. If you recall we got into some pretty nice markets specifically St. Louis and Wichita with FDIC deals. We didn’t have a whole lot of share in those markets as a result of those acquisitions, but if you recall over the last two years those two markets, because of the talent that we’ve been able to develop, have led our company in long growth. So we believe that Mark currently that caliber of talent in place in some of the markets that we will real drivers of future growth and we think that we have demonstrated in the past the ability to do that for talent acquisition. And then I’ll turn to building out share through acquisition. We still have the Hardeman County, Jackson, Tennessee acquisition that hasn’t closed and merged yet. That will give us increased share in the Jackson, Tennessee, MSA. We had the Citizens acquisition in Athens, Tennessee that gave us scale in the Knoxville market. So Matt, really what has been outlined for us through this acquisition are other key target markets, where we will really focused on how to grow our share of business in those markets. I don’t think the diversity of the markets has any impact on our ability to grow or be efficient and the reason I say that is, as you know we are very committed to what we consider to be the Community Banking model and that is when we put leadership in the community, we want those people in charge of the banking business in that community. And that means as much as the decision making as is possible, we will push down that local level and they will be supported by a local management and not by someone sitting in our office in the central location. So we believe that we’ve been able to manage that community banking philosophy over our current [indiscernible] footprint and we don’t see a seven state footprint being anymore of a challenge than we have currently today.

[Matt Olney:]

And George the follow-up, given that you are over $10 million of assets, can you talk about what the minimum threshold is for future acquisitions? It seems like previously, I think it was about $0.5 billion was kind of the minimum threshold is that correct and has that changed at all?

[George Makris:]

I would say that $0.5 billion is probably our low threshold in any acquisition, but it’s really going to depend on what that institution looks like if they have a specialty lending focus, if they’re in a market where we need to scale. So if it’s in the market I would say, yes, $0.5 billion is still our threshold, if we happen to consider a new market, we’re still stuck on $1 billion or more. We think that’s the kind of scale we need in a market to keep that community banking philosophy going.

[Matt Olney:]

Okay. That’s helpful. And then if I could, I was going to ask Mark a question. Mark, you’ve been at Southwest Bancorp now I think for over four year and made a lot of progress. Can you talk about why you felt that now was the best time to partner up with a larger partner? And then secondly, can you talk about the sales process to the extent that you can, what is the full-scale process? And then finally, ultimately why did do you feel Simmons was the best partner for you guys?

[Mark Funke:]

Well, I just talk about it from a current standpoint, where we are positioned, as you know we have worked really hard over the last several years to improve the credit quality in our portfolio and put really good talent in our system. And the kind of talent that we put in our system is scalable to a much larger institution and in order to really give the talent in our organization the ability to take full advantage of what we‘ve put together, we needed more scale. And to find a partner like Simmons in this process that complements us so well, both geographically and with the product mix, It just made sense and I’ve had the opportunity to know George Makris for several years and Marty and the others over at Simmons and we’ve become acquainted over the years and it’s just a good natural partnership that’s going to work really well in the long run. So I think we complement each other very well, they had the scale that we needed all along and I think it will work out very well for us going forward.

[Matt Olney:]

Okay. Well, thank you for that Mark and congrats. And George, Marty, Bob congrats you guys too.

[George Makris:]

Matt, let me add one thing to that. And I should have mentioned this earlier, we were talking with Brady about future M&A. As you know, Mark is a great banker and well-known in his footprint. And as he and I discussed the ability to growth through acquisition, especially at Oklahoma and Texas and Kansas and Colorado. Mark has nimble contacts than we do in that market currently and as we started talking about our potential for success independently it became clear, I think to us, that collectively we have a much better chance to be successful in growth in those markets together than separately. And at least for me that made quite an impression and certainly something that I think we’ll be able to take advantage of going forward.

[Matt Olney:]

Thank you.

[Operator:]

Thank you. And our next question comes from the line of Stephen Scouten with Sandler O’Neill. Your line is open.

[Stephen Scouten:]

Question for you George. I mean, I know, you’ve been asked a couple of questions here about incremental M&A and it sounds like, you don’t think there is a definitive hold on incremental deal that you would do something if the right deal came along. But specifically, you’ve talked about scale in new markets and probably mean the billion dollars in new markets, but obviously with this entry into Colorado and Texas, OKSB was well short to that. So how do you think about specifically needing to add scale in those markets and kind of how you build out those franchisees?

[George Makris:]

Well, it certainly is a priority for us. I think we have probably met our goal of $1 billion or more, when you take a look at Bank SNB collectively. Even in our footprint, like we had in Tennessee, we were short outlier in Knoxville MSA and we have made that a priority to get more scale in that market. I would tell you this is going to be a priority say in Austin, San Antonio, Denver that we’re going to support those leadership teams to help them grow our presence in those markets as well. I don’t want to underestimate for a minute the scale that Bank SNB has in Oklahoma. I mean that’s where their legacy is, the bulk of the business is there, that is an attractive market and has additional growth potential just purely based on the new size of the combined company. So while each market individually is not a billion dollars that isn’t really the way we look at the transaction, we look at it as tremendous opportunities in some really key markets to continue to build scale.

[Stephen Scouten:]

Okay. That makes sense. And I know, you talked a little bit about the fact that this should increase your organic growth potential for the combined company, but with some of the previous deals you’ve seen some run-off probably in the first year before maybe that growth took hold. Do you think that will be different with this transaction given its kind of current run rate and growth profile or would you expect to see some attrition there on the front end?

[George Makris:]

Well, we don’t expect to see any attrition. I don’t mean to speak for Mark. I think he would probably agree with that, I am going to tell you what one of the real big differences is here in this transaction versus some of the others that we’ve had. If you recall, most of our other transactions have had leadership that was close to retirement age, they either retired right after we announced the transaction or within a year or two after the transaction. We’re also excited that Mark is going to be the leader in this territory. So it’s going to be business as usual. Same leadership in place, just more resources to continue to grow with. Mart you might want to talk a little bit about your expectations post-closing with regard to maintenance and grow of the business.

[Mark Funke:]

Thanks George. I wouldn’t anticipate a run-off of business because of this acquisition. We may run-off some business that we don’t need any more, don’t want anymore because of the credit quality, but certainly not any good business. I think that our customer base will understand that this is an enhancement that it gives us more capacity, it gives us a broader product set, it adds wealth management trust products. So our bankers are excited about that, so I think the risk of run-off for us in the Southwest region is minimal and I think our bankers are looking forward to taking the Simmons footprint, product set and adding it to ours. So I don’t see that as a risk in this transaction.

[Stephen Scouten:]

Okay, that’s helpful guys and I know yesterday we’ve finally got another rate hike and it remains to be seen what that does moving forward, but the expectation for higher rates has definitely increased and George I know you guys have a good bit of fixed rate loan and OKSB to my knowledge due to some floors isn’t maybe overtly asset sensitive in the first 100 basis points. So can you talk a little bit about the combined asset sensitivity and what sort of benefit you might garner if we do indeed see an increase in rate environment here?

[Bob Fehlman:]

Yeah, this is Bob. I’ll start-off and say first-off, we’ve got 45% to right under 50% of our loans are either variable or will mature within the first year. So we believe we’ll have a nice impact from that. It will take a little bit of period for some of those to re-price, it will be overtime. But just like everybody else, but we are slightly asset sensitive right now. We’ve kept our security portfolio relatively short, it’s in the 3.5 year range. So we have maturities rolling off over the next year so we’ll be able to reinvest those. So I think just like most banks you’re going to see with moderate increases, you’re going to see a moderate increase in the benefit of net interest income over a period of time, a measure [ph] fees. Again in this model and in the modeling, we didn’t put any rate projection increases for Southwest Bank, but obviously we have one and the market is indicating there might be another one or two next year, that all could change, but that’s not in our forecast right now. So Mart I don’t know if you have additional comments on your side?

[Mark Funke:]

I would say the same thing. I think the modest rate hikes will certainly be of some benefit to us. We’re about 65% floating and about 35% with fixed or and/or floors in them. So I think we’ll benefit somewhat from the rate environment, but it will have to move up a little bit more to give u a real boost in our net interest margin, but I think it’s certainly to our advantage and I would also think based on what we heard yesterday that this may not be the last rate increase we’ll see in the next 12 months.

[Stephen Scouten:]

Yeah. Definitely, definitely. Okay, that’s great. And then one last one from me and I don’t know if you guys have done any of the math on this, I know people are just beginning to do so, but if we did see a lower corporate tax rate environment, say if corporate tax rates declined to 25%. Have you started do the math on what your effective tax rate might -- what range that might fall in at that time?

[Bob Fehlman:]

Well, I think we are in the same boat as you know, it’s pretty much math that we would say if you’re going from 39% down to 25%, you’re going to have that same about 25% drop in your rate. So I would assume, if we are at a 33%, you’re going to have a 20%-25% drop in that rate.

[Stephen Scouten:]

Okay. Then nothing around your balance sheet that would create any sort of large scale deviation from that?

[Bob Fehlman:]

No, no. We don’t see anything.

[Stephen Scouten:]

Okay. Great. Well, thanks guys. I really appreciate the time and congrats on the deal.

[Bob Fehlman:]

All right. Thanks.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Peyton Green with Piper Jaffray. Your line is open.

[Peyton Green:]

Just a question on the EPS guidance on Slide 10, the plus 4% in ‘18 and the plus 6% in ’19. Is that net of the Durban expense, I mean the lost Durban income and also the DFAST expenses?

[Bob Fehlman:]

Peyton, no it is not. Those are the -- that’s the benefit from this transaction. As you can see we have a partial year increase of savings in 2018. With this sized transaction and the complexity we have internationally scheduled the conversion from one bank into Simmons Bank, into the first quarter of 2018. So we’ll see it will take a second quarter, I believe third quarter that the deal would close, first quarter of 18 is when we’d expect the conversion and integration to happen. So we will see very little cost saves in 2017, about 75% of our projections in ’18. So the way we look at this is the standalone transaction and that’s how we presented on Page 10. So if you go back to where we show the Durban amendment, what we talked about before, the imputed impact of this is accretive to the impact of Durban by several pennies. But again that’s project EPS impact a couple of years down the road. There is going to be a lots that changes, we would expect from now till then. So, we again feel this deal on its own was a good deal and then two, it more than covers the cost of the Durban impact if you were to combine the two.

[Peyton Green:]

Okay. And then maybe just a second question, with the 35% cost saves and I guess the street expectations for OKSB are about 8% annualized loan growth over the next couple of years. Is -- I mean, would you think that slows some while the integration is going on? I mean, I know you don’t expect run-off given that there is not going to be a leadership change and that they probably have some ample opportunity, but I mean you’d feel good about 8% as a base case, is that still fair even though you’re going after 35% cost saves?

[George Makris:]

Mark made us feel good about that, Mark how do you feel about that 8%?

[Mark Funke:]

I feel fine about it, I think that that is definitely a likely and probable opportunity for us and we’ll work hard to make that happen.

[Peyton Green:]

Okay. And then Bob, on the deposit side, is the cost -- is the increased assessment on deposit cost is that embedded in the expense savings guidance?

[Bob Fehlman:]

No, we have done nothing in our model. Again, we’ve modeled pretty conservative. It is really just on the non-interest expense side. We have not model benefits on non-interest income or the margin impact, whether it’s on the interest income or the cost size. Now there is if we -- if there is some high costs that are borrowings because those get restated to market at closing, so there is some of those costs that would have a benefit going forward. But we’re not looking -- we don’t have a modeling on the cost save benefit from the deposit re-pricing.

[Peyton Green:]

Okay. And then I was just talking also about the FDIC assessment rate going up once you cross the 10 billion mark. Is that --?

[Bob Fehlman:]

Yes. We’ve got that -- I’m sorry, I misunderstood that. Yes, we’re at obviously a lower rate right now and then where we cross the 10 billion that would be in there. But yes those projections are in there.

[Peyton Green:]

Okay. So that’s included in the 4% ’18 guidance, that’s fair?

[Bob Fehlman:]

Yes.

[Peyton Green:]

Okay. All right. Great. Thank you very much.

[Bob Fehlman:]

Thank you.

[Operator:]

Thank you. And I’m showing no further questions at this time. I’d like to turn the call back to Mr. Makris for closing remarks.

[George Makris:]

Well, thanks to each of you for joining us today. I can’t express our excitement about this potential opportunity. I think is going to be a great long-term benefit for both of our companies, our shareholders and most importantly our customers. So thanks again for joining us and we’ll look forward visiting with you later and Merry Christmas to everyone.

[Operator:]

Ladies and gentlemen, thank you for participating today’s conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.