Independent Bank Group Inc (IBTX) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Independent Bank First Quarter 2017 Earnings Conference Call. (Operator Instructions)

I would now like to introduce (inaudible) conference call to Mr. James Tippit. You may begin, sir.

Good morning, everyone. Welcome to the Independent Bank Group first quarter earnings call. We appreciate you joining us this morning. The related earnings press release and a slide presentation can be accessed on our website at ibtx.com.

Before we get started, I would like to remind you that remarks made today may include forward-looking statements. Those statements are subject to risks and uncertainties that could cause actual and expected results to differ. We intend such statements to be covered by safe harbor provisions for forward-looking statements. Please see Page 4 of the text in the release or Page 2 of the slide presentation for our safe harbor statement.

All comments made during today's call are subject to that safe harbor statement. Please note that if we give guidance about future results, that guidance will be only a statement of management's beliefs at the time the statement is made, and we do not publicly update guidance.

In this call, we will discuss a number of financial measures considered to be non-GAAP under the SEC's rules. Reconciliations of these financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are included in our release.

I'm joined this morning by David Brooks, CEO; and Michelle Hickox, CFO. At the end of their remarks, we will be happy to address questions.

With that, I will turn it over to David.

Thanks, James. Good morning, everyone, and thank you for joining us. As usual, I will briefly touch on some highlights and then turn it over to Michelle to cover the operating results.

We are off to a good start in 2017. First quarter earnings remain strong and continue to improve. Net income was $15.7 million and represents a 26% increase in net income from the first quarter of 2016. ROA was 1.08% and return on tangible equity was 15.5%, which represent another quarter of increases in these ratios. A quarterly earnings and annual trend chart is on Page 6 of the slide deck.

Loan growth continues to be solid at 11.5% annualized for the first quarter, which historically is a seasonally low quarter for us. We continue to see growth in all markets across our footprint. Asset quality remains strong with credit metrics improving during the quarter from an already historical low. While not included in our first quarter results, we focused significant effort on the completion of the Carlile acquisition, which closed on April 1. Now we can get to work on the integration and efficiencies we expect from this merger, with the operational conversion planned for early fourth quarter of this year.

Michelle is going to go over more details on the first quarter operating results, and I will conclude with some final thoughts at the end. Michelle?

Thank you, David. Good morning, everyone. Please note that Slide 5 of the presentation includes selected financial data for the quarter. Our first quarter core net income was $16 million or $0.84 per diluted share compared to $12.4 million or $0.67 per diluted share for the first quarter of last year and $15.5 million or $0.83 per diluted share for the linked quarter.

As you can see on Slide 7, net interest income increased to $47.9 million for the first quarter from $46.5 million in the fourth quarter, and the net interest margin increased 8 basis points from the fourth quarter and decreased 41 basis points from the same quarter last year. While we do see an increase in deposit costs over last quarter of 5 basis points, our earning asset yield increased by 12 basis points from the fourth quarter. This was driven by improvement in investment yields and interest paid on cash balances, but we did see our loan yield increase by 3 basis points as well.

Total noninterest income increased $113,000 compared to the first quarter last year and decreased $641,000 compared to the previous quarter. The increase from last year is primarily due to increased service charge income, increased earnings on BOLI policies acquired in July 2016, offset by a decrease in mortgage fee income. For the linked quarter, the decrease is primarily due to a drop in mortgage fee income, but also related to nonrecurring income we recognized in the fourth quarter for a change in bank card vendors. First quarter mortgage income is normally seasonally lower, but has also been impacted by increases in interest rates.

Total noninterest expense decreased $491,000 from the first quarter of last year and increased $667,000 from the prior quarter. The decrease from prior year is primarily related to lower acquisition expenses. Salary and benefit expense increased from fourth quarter due to increased health care benefit cost, annual pay adjustments and seasonal payroll tax increases for restricted stock vesting and bonuses. This increase was partially offset by a decrease in acquisition and FDIC insurance expense. The provision for loan loss expense was $2 million for the quarter, which decreased slightly compared to the linked quarter at $2.2 million and a decrease of $974,000 from the prior year.

Prior year provision expense was higher due to reserves taken for the energy portfolio. Generally, provision expense correlates with net loan growth and level of charge-offs or specific provisions. Slide 12 in the slide deck illustrates our provision expense and charge-offs in each reported period. Our effective tax rate for the quarter was 30% compared to 33.1% and 33.4% in the prior year and linked quarter respectively. The decrease in our tax rate was related to tax benefits recognized on vesting of restricted stock during the quarter. This is due to adoption of new accounting guidance, which is effective in 2017. In previous periods, this benefit was recorded directly to additional paid-in capital. Loan growth during the quarter was good, with loans held for investment growing 2.8% from December 31, 2016, or 11.5% on an annualized basis. We continue to experience growth in all of our markets. See Slide 9 for annual growth comparisons. All of our credit quality metrics remained strong. Total nonperforming assets represented 0.27% of total assets at March 31, 2017, compared to 0.34% of total assets at December 31, 2016, and 0.62% at March 31, 2016. Charge-offs remained low at 0.02% annualized for the quarter. As illustrated on Slide 13, the energy portfolio decreased to $106 million at March 31, 2017, versus $125.3 million as of December 31, 2016 and now represents only 2.3% of total loans. The energy-related allowance is 5% of the energy portfolio at quarter end. Deposit composition and costs are illustrated on Slide 14. We experienced good deposit growth in the quarter, with total deposits of $4.72 billion at quarter end compared to $4.58 billion at year-end 2016. Our specialty treasury group has been successful attracting deposits. The average cost of interest-bearing deposits at 58 basis points was up 5 basis points from the fourth quarter of 53 basis points and up 10 basis points compared to the first quarter prior year at 48 basis points. While we have not increased our stated rates on deposit products, we do have certain variable rate deposits that were impacted by the Fed's December and March rate increases.

Borrowings used for liquidity and interest rate risk purposes as needed remained stable during the quarter.

Note on Slide 15, our capital position as of March 31, 2017. Our TCE ratio increased to 7.24% and our total capital-to-risk weighted assets was 11.44%. All regulatory ratios improved from year-end and remain in excess of well-capitalized levels.

That concludes my comments this morning. So I will turn it back over to David.

Thanks, Michelle. 2017 has started off on a really positive note for us. Loan growth continues to be solid, and we experienced continued improvement in earnings and profit billing metrics. I'm especially proud of our teams for executing the Carlile acquisition so efficiently and timely. Our ability to get this transaction from announcement to close in only 4.5 months demonstrates how we continue to execute our acquisition strategy as well as the strength and experience of our entire team. Carlile team was also a big part in helping us make this happen. We are very excited to have them on board with Independent Bank now and look forward to growing in our new markets, including Colorado. We remain focused on consistent, strong earnings performance, enhancing our shareholder value and we believe our first quarter results continue to demonstrate our commitment to those goals. Thank you for joining us today.

And we will now open the call to questions.

(Operator Instructions) Our first question comes from Michael Young with SunTrust.

One of the start made on the loan growth side, obviously very strong in the first quarter. Could you maybe give us a feel for maybe geographically where that was driven? And particularly, David, I'm just curious, I know Houston was growing a little slower last year with the energy downturn. Has that picked back up now?

It has. Actually not ironically, Michael, to your question, but we grew at our strongest growth in Houston, slightly stronger than North Texas, and then Austin was off a little bit in terms of growth pace in the first quarter. Again, just -- that's just nothing, but they closed a number of deals late in the fourth quarter. And they've got a good pipeline here for the second and third quarter so -- but actually in terms of deals closed in the first quarter on a percentage basis, we closed more in Houston than any of our other markets and -- but again, robust growth across all of our markets.

Okay, great. So you closed more deals, and did you have a tailwind from maybe some fund-ups as well on some existing stuff?

Yes. We did have -- because we do have some construction projects going in several of the markets, that was part of the growth in the first quarter as well.

Okay. Perfect. And then maybe staying on the geographic front, Denver, maybe you could give us an update on the kind of Colorado strategy? Now that you've had some time to review it and the deal is closed, what your thoughts are there?

Yes. And so -- we did get our deal close April 1 and -- but even prior to that, in the first quarter, once the deal was announced late in the fourth quarter -- in the first quarter, we spent some time, our senior team, up there and have really worked hard to get to know that market. I have worked hard to get to know some of the bank leadership up there that other banks that we'll be competing with. And we really like everything we felt about the Denver and that front range north of Denver and South of Denver, those markets, very positive. We think their growth, their demographics, their growth -- current growth prospects are every bit as good as the 3 markets we're in, in Texas. So we like them a lot. I'd say we're still early in the process. Michael, I've told our board to expect it to take 3 or 4 quarters here for us to really get a feel for the market. We're in the market right now hiring some talent and just looking at our footprint to see where we want to be a year from now. But we're encouraged by the market, and we're working hard to figure out a way to make that work for us.

Our next question comes from Brady Gailey with KBW.

So just one more follow-up on Colorado. It feels like there could be a couple of banks for sale in Denver. Is that something that you all would potentially be interested in?

We would -- or are looking at all possibilities, Brady. And there have been a couple of announced deals up there recently, and I think there will be more here over the next few quarters. It appears there -- a lot of people are trying to grow their market share in Colorado. So that's a factor as we think about how we're going to grow there that there are a lot of banks up there looking around for opportunities to grow. So that all factors in. I don't think we'll be looking for a major acquisition there in the short term, Brady. So we're -- we could add on a small piece here and there, but I don't think we would be a player. I don't think we would be a player for a bank like the size of Carlile or bigger up there.

Okay. And I know there was kind of the one-time benefit to the tax rate in the first quarter, but maybe some color on where you think the forward tax rate should be for the rest of the year?

I think our -- if you look at our normal tax rate, it's probably going to be closer to around 33%, which it has been over the last few years. We do have some more stock grants vesting this quarter that will benefit it. I don't think the number's going to be quite as big, but it should be close. But then we will also have some expense this quarter related to the acquisition that won't be deductible. So it'll offset that a little bit, but I would generally think about our tax rate at 33%. With this new accounting guidance, it will be more volatile when we have stocks that vest.

Okay. And then finally for me, I mean, David, maybe just your updated thoughts on your capital base. I know TCE is a little thin, but it will get higher with Carlile. You're also still over the 300% CRE-to-capital. We're just seeing more and more banks that are over 300% decide to raise capital to get back under 300%. So maybe just updated thoughts on kind of where you guys stand on the capital front? And how you're looking at the rest of the year?

Right. We feel good about where we are. I think, Michelle, right now, our TCE is 7% -- at the end of the quarter, was 7.30%.

Right. No, on a pro forma basis with the Carlile deal, it's over 7.50%. I think it's about 7.52%.

Yes. So it's going to -- the capital level will go up a little bit when we consolidate them at the end of this quarter, in terms of financial statements and call reports and things, Brady. So 7.5-plus percent on the TCE ratio. Our -- we're still projecting our CRE ratio with the merger to be 3.80-or-so. And so we'll start with the fact it is not our objective to be below 300%. That has not been our history or our policy or our strategy. So again, we're paying close attention to it, and we also don't intend to be at 500%, but -- so in answer to your question or I think the implication, Brady, is we do not intend to raise capital to try to push that ratio down further. Any capital we raise at this point would be in connection with a merger/acquisition-type transaction. And other than that, we do not expect -- if we were not able to do any M&A for the next 18 months, for instance, say, the balance of this year and all of '18, I would not expect that we would raise any capital to support the organic growth. With our profitability level, we can support the organic growth that we expect over the next 18 months.

Our next question comes from Brett Rabatin with Piper Jaffray.

I wanted to ask, you guys have about 9% of your portfolio in health care and your clean credit quality quarter, but I'm just curious if you guys have kind of taken a look at that portfolio given we've had a few banks that have managed to have a charge-off or 2 or one-off kind of situations? Have you guys scrubbed that portfolio? And do you see anything that maybe has any similarities to what the market's been seeing?

Yes. Thanks, Brett. I know there has been some attention around the health care lending here this quarter. Our portfolio is quite granular. It's the same type of health care lending we've been doing for the last 25, 30 years, which is doctor practices, medical office buildings, equipment loans to doctors and specialists. We do not have any shared national credits in the health care space. So we have not participated in any of the kind of the big roll-up strategies or hospital consolation strategies or any of those things that maybe have gotten a little more attention lately. So we continue -- we've been a strong health care lender now for 30 years suburban growth. As new hospitals build, for instance in our home headquarters community here in north of Dallas, McKinney, has gotten a new large regional hospital in the last couple of years to go with another large regional hospital that's been here for the last 30, 40 years. And so we now have 2 major regional hospitals, that growth related to that second hospital coming in and all the new doctors and all the new practices and the fact our community over the last -- and this is just indicative of the North Dallas space we've talked about lately with all the new headquarters coming in here to the North Plano, Frisco, McKinney area. The community has grown from 40,000 people to 170,000 people. That creates new opportunities in the health care space. And we have all of our loans originated by us. We have -- we don't buy participations in health care loans. We don't have hospital -- we don't make loans for hospitals specifically. Almost all of our loans have guarantors, doctors, individually guarantee and a practice loan or a new building loan. And our exposure is spread across all of our markets, North Texas, Austin, Houston where we have strong health care lenders in all of those markets. And our portfolio is very granular, very small pieces. Average loans in that space are going to be under $1 million if you look at our whole portfolio. So no concerns at all. We have, obviously with the attention that it's gotten here lately, we've been paying close attention. But we feel good about where we are and we are going to continue that -- we like that business a lot.

Okay. That's great color around that. And then, I guess, the other thing I was curious about was just going back to Carlile. Thinking about the expense (inaudible), I know you said fourth quarter integration, just thinking about the $17 million-or-so that you're going pull out the first year, is the pace kind of more back-end loaded in the next few quarters? Or can you give us any color around the expense base from Carlile?

Yes. Let me handle that from a high level first, and then Michelle may have some more specific comments on what I miss here, Brett, but that's a great question and a great pick-up on your part that we got the acquisition closed really on the shortest end of our window, when we thought we would be able to get it done in a little over 4 months from announce to close. And so that's a good news, because I think there's always deal risk in these things, and there's always world geopolitical risk and all those things. And so we do like to get our deals closed as quickly as we can. Things that don't tend to change as much the quicker you get it done. But that said, in this case, we've got the longest or furthest out data conversion and operational conversion of the bank that we've had on any of our transactions. So typically, we're looking at around 3, 4 months after we close on a deal to do the operational and data conversion. In this case, we are not doing that until early October. So it's a 6-month window where we'll run with 2 separate systems, and so almost all of your personnel saves and data saves and all that doesn't happen until after you do that operating conversion. So that will be -- we really won't see all those saves until during the fourth quarter. So they won't show up on our run rate until first quarter of '18. And so when we did our modeling last year around this acquisition, the thought was that we thought we'd get it closed in early, mid-second quarter, get the data converted in the third quarter and then have pretty good chance at some earnings accretion in the fourth quarter. I think our thinking on that, it has pushed back a bit, Brett, to your point. And also, there's another factor that I wanted to mention, in connection with that, and it is that, while we have had a very robust retail mortgage operation inside of the historic Independent Bank footprint, mortgage is a bigger piece of Northstar's bottom line, Carlile's bottom line than it is of ours. And so as an example, it would be maybe around 1% of our net profit at Independent, it's closer in that 12%, 13% of what Northstar is bringing over. So that business was slow in the first quarter. Now we didn't own it in the first quarter, so it doesn't affect our numbers in the first quarter. But there could be some headwind as we're looking out for the balance of this year, second, third and fourth quarters around that retail mortgage piece coming in from Carlile. And also, they have a very small mortgage warehouse operation that was also off a bit in the first quarter. So we're just looking at that. And I think we had projected, and when we announced this Carlile acquisition in November of last year, Brett, we said that our models were showing 3.5% or so accretion in earnings in '17 from the deal, which would have been $0.12, I believe, Michelle said. I think -- we think now, given the 2 factors we're talking about, one, the delayed operating conversion into the fourth quarter; and then secondly, some headwind on -- that all banks are facing on mortgage right now for the balance of this year, would cause us to think we're not going to get quite that much accretion in '17 from this transaction, but we feel really good. Michelle has done a lot of analysis the last couple of weeks and in preparation for the call here around the cost saves and looking at the mortgage operation and all that. And we feel really good about what we -- at the announcement of the acquisition, what we said we thought the '18 accretion would be, we feel really good about that number at this point. But again, we think probably it's going to be little less in '17 because of those 2 factors.

Our next question comes from Brad Milsaps with Sandler O'Neill.

Michelle or David, just a follow-up on the expense question. You guys have done a great job of controlling standalone Independent Bank expenses. Maybe a touch higher than I was maybe looking for this quarter, but you did a good job of explaining that. Just sort of excluding Carlile, would you suspect that this -- the first quarter run rate would be pretty close to where you would be? Or do you think some of the seasonal factors kind of reverse out and this would kind of be a high point for the year, excluding Carlile?

Right. If you -- if we're looking at Independent Bank only, I think this was a high expense quarter for us. There is a significant amount of expense in comp related to our restricted stock grants. It's great when our stock trades at the highest level ever, but that also creates additional expense, because when we -- those vest, the bank covers not just the bank's part of the payroll tax expense but it covers the employees as well and then bonuses. So I think there was about $600,000 of that type of expense in the first quarter that you won't see in our run rate going forward.

Okay, that's helpful. And then just to follow up on Brett's question regarding Carlile. I think their expenses have been running close to $19 million, maybe it bumped up some in the fourth quarter as they took care of merger-related stuff. But is that $19 million a pretty good run rate kind of to start with for the first, maybe, couple of quarters and then that's where it starts to dive after you do the conversion later this year? Is that kind of how to think about those numbers?

Yes. I think that's a good way to think about it, that we really want...

Okay. Do we really -- go ahead, sorry.

No. I was just going to say, like David said, we really aren't going to see any significant cost saves on their noninterest expense until fourth quarter.

Okay, so it'll run closer to their run rate for the next couple, and then in the fourth quarter, you start to see it come out.

Right.

Our next question comes from Matt Olney with Stephens.

Going back to the loan growth discussion, I think you got some paydowns in the energy book this quarter. I'm curious if you think energy will continue to be a net drag on your growth in 2017 as it was last year?

I don't. So I would say I would moderate a little bit what I said, I think, at the January call about year-end, Matt, in that it was, again, a bit of a headwind in the first quarter, which was a little surprising to us. And some of it were paydowns on a couple of classified credits, which we are continuing to work on. But we also -- some of our good customers who had a lot of room available under their line and we were expecting them to draw up in order to start drilling, they did start drilling in the first quarter, but they went and raised equity to do it rather than drawing up on their lines. So -- and in some cases, they paid down their lines with the equity raised. So we got some paydowns we weren't expecting, and then we approved 2 new energy deals in the first quarter; one of them funded, one didn't. And so as we look out and then spoke with our credit guys yesterday about this, Matt, and as we look out for the balance of the year, we do expect there to be some net growth in our energy portfolio, but I would say it's not, right now, just what we see today in April of '17, it doesn't look like the opportunity is going to be as robust as I thought they would be going into the year. I think part of that just, again, the price volatility, the market getting spooked when prices dropped back into the 40s for a while. So I think this may be the environment we're kind of living in for a while is the way we're thinking about it today. And this idea that prices are going to settle in, in the mid-50s and slowly creep to 60 and 65, I mean, we'd love to see that and a lot of people would, but we just aren't counting on that at this point and just continue to think the volatility hurts activity in the market and hurts the opportunity. And again, we are not having historically been out looking for big participations and big [ snicks ]. So when we are trying to grow it organically, relationship wise, it's just a long shot to do that, but we think it's the right way for us to do it. And so we approved a couple of deals, and we expect to approve a couple more in the second quarter. And we think that we are close to the bottom here on paydowns. And so -- but -- so I don't think it'll be a big tailwind like I kind of hoped it might be for this year, Matt, but I do think we'll have net growth in the portfolio. So no, it won't be a headwind for us.

Okay. That's helpful, David. And then on the deposit costs, I think you mentioned in prepared remarks that deposit costs were up 5 basis points. Can you make some more commentary about just the overall cost of deposits, repricing as you see the next few quarters? And then as you layer in Carlile, just talk about their overall deposit base, and what that means for deposit costs in the future?

We haven't really raised any of our stated rates on deposits to this point, Matt. We do see pressure on public funds. The bidding on those has become a bit more aggressive. Exception requests from customers that have a significant amount of funds, and when I mean that it's like over $5 million, we've made some exception processing on -- in addition to this, we do have some variable rate deposits now. I think where most of the pressure on -- where the increases have come from. I don't think you're going to see a similar increase in our deposit base in the second quarter without a rate increase. And with Carlile, their deposit costs are actually a little bit lower than ours. In fact, I think on a combined basis, deposit cost is down about 3 basis points. So I don't expect to see the same increase this quarter and then would expect the same sort of increase we got last year unless we get more rate increases. I guess that's the way to look at it.

Our next question comes from Michael Rose with Raymond James.

Most of my questions have been answered. But just wanted to get some color on Carlile's results this quarter. I don't think the call reports are out, but I think if I looked last quarter, they had some loan and balance sheet shrinkage. Just wanted to get any sort of updates on the first quarter and their performance?

I think the numbers are going to have a lot of noise in them, Michael, for the first quarter. They expensed through a lot of change control payments and all of their deal costs and everything. So on a core basis -- I don't know, Michelle, have you looked at their core enough to know?

Yes, I think on a core basis, their numbers were similar to fourth quarter, but they did -- they have a lot of deal costs on their side.

And I think from a balance sheet standpoint, I think their loans were relatively flat. Loans and deposits were...

The loans and deposits?

Yes.

Were fairly flat for the quarter.

Right. Right. And so I think -- yes, so that's an interesting kind of question leading into -- we're actually quite encouraged as we -- our senior loan team has been around their foot -- across the Northstar footprint. And we actually really like the lending team that we're getting in this group, in this acquisition. And we really like the opportunity we think to lay our lending strategy across that and our balance sheet across that footprint. And we mentioned in the call when we announced the deal that they've got a nice SBA platform that we think we can roll out across all of our historic Independent Bank footprint. And so there's some real opportunities to grow. Now history tells us that there's always a little bit of loan refinancing and payoffs and things in a transaction like this. So we're really studying right now and coming up with our combined budget and expectations for the balance of this year and revising our longer-term model for '18 and '19, so we're still working on that. I think we can give your more color on that in the next quarter's call. We'll have a quarter under our belt with the Carlile team, and then we'll -- I think have a better feel for what we think the growth expectations are for that Northstar footprint. But we're -- early on, we're encouraged and think we're getting some really talented folks who understand the relationship banking. And we're going to continue to add to our team. So we've got a renewed focus maybe on hiring lenders and lending teams across, not only the Northstar footprint, but including our historic Independent Bank footprint. And there seems to be some nice activity on that front in terms of the possibility of adding some C&I lenders and some experienced banker across our entire footprint.

That's great color. And maybe as a follow-up, David, you had mentioned, even on a combined basis kind of a low double-digit loan growth outlook, with energy waning, that obviously helps, and the hires that you're talking about, I think, there's been some dislocations with some announced deals in some of the markets, specifically another deal in Fort Worth. Maybe if you can just kind of address that from, I guess, a 2017 outlook? Is that still a good expectation?

Well, I certainly think in '18 it is, Michael, that we're going to be able -- by 2018, we'll have everything consolidated with some hires we are looking at making. We still think of 2018 being a good low double-digit growth-type of model. For '17, I'm hedging a bit here just because it's -- we've only -- we closed with 3 weeks ago. So we're really assessing that still as we're doing our modeling and budgeting for 2017. We're certainly -- we certainly feel good about the independent side of it and being able to grow our Dallas, Austin and Houston markets in that low 12%, 13% kind of range for the balance of this year. The Northstar piece of it, I would think would be slightly less than that would be our sense now. But again, we'll have more color on that by the end of this quarter.

Okay. That's helpful. Maybe just one more for me. I don't know if you guys will hit it by the end of next year, but you guys are getting pretty close to $10 billion. What have you done to date from a planning perspective there? Do you have at least a rough estimate for what the cost could be? And then maybe how much that is in the run rate?

Well, I think, if we're looking at going over $10 billion organically, the earliest that would happen to be end of '18 and possibly not even until after that, depending on our growth rate. But we have started looking at that, engaging consultants. To this point, we really don't have any expense related to that, to date. Most likely, in '17, we could spend $500,000 at the most on consulting-type expenses. I think you're going to see most of that expenses come in '18 related to us going over $10 billion. And then, if we do an acquisition that's going to put us over $10 billion quicker than that, we would certainly assume those costs quicker and plan to get ready related to the acquisition.

Yes. So I would add to that, Michael, that because we continue to look for acquisition possibilities, M&A-type things, I think it's much more likely that we go through $10 billion with an acquisition or series of acquisitions, and we will certainly put those costs associated with going through $10 billion into our modeling as we look at our next acquisition deal. So we're kind of looking at it on 2 pathways, if you will. As Michelle said, organically, we, for whatever reason, don't make any acquisitions in the next 2, 3 years. When would we go over it and how do we expense it and that model says we spend about $0.5 million this year and then would spend some amount, obviously, much greater than that in '18 as we prepare for it. The much more likely pathway in my mind is that we make an acquisition or 2, and as a part of that when we look at the earnings accretion, we'll back out of that earnings accretion from those acquisitions, the amount it costs us to go through $10 billion. So that's the more likely when we announce an acquisition in some point here that we'll have very detailed numbers for you regarding how much we put in that model for $10 billion plus expense.

And I'm not showing any further questions at this time. I'd like to turn the call back over to our host.

Well, great. If there are no further questions, that'll conclude our first quarter 2016 earnings call. We really appreciate your attendance and your interest in Independent Bank. Hope everyone has a great day. Thanks.

Ladies and gentlemen, so that concludes today's presentation. You may now disconnect and have a wonderful day.