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Operator
Good day, ladies and gentlemen, and welcome to the Simmons First National Corporation Third Quarter 2017 Earnings Conference Call.
(Operator Instructions) As a reminder, this conference may be recorded.
It is now my pleasure to turn the conference over to Mr. David Garner.
Sir, you may begin.
David W. Garner - CAO, EVP and IR Officer
Good morning.
My name is David Garner, and I serve as Investor Relations Officer of Simmons First National Corporation.
We welcome you to our third quarter earnings teleconference and webcast.
Joining me today are George Makris, Chairman and Chief Executive Officer; Bob Fehlman, Chief Financial Officer; Marty Casteel, Chairman and CEO of Simmons Bank, one of our wholly owned bank subsidiaries; and Barry Ledbetter, Chief Banking Officer.
The purpose of this call is to discuss the information and data provided by the company in our quarterly earnings release issued yesterday and to discuss our company's outlook for the future.
We will begin our discussion with prepared comments, followed by a question-and-answer session.
We have invited institutional investors and analysts from the equity firms that provide research on our company to participate in the Q&A session.
(Operator Instructions) 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 in other disclosures and presentations made by the company, we may make certain forward-looking statements about our plans, goals, expectations, estimates and outlook.
I'll remind you of the special cautionary notice regarding forward-looking statements and that certain matters discussed during this call may constitute forward-looking statements and may involve certain known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from our current expectations, performance or estimates.
For a list of certain risks 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 is filed with the U.S. Securities and Exchange Commission.
Forward-looking statements made by the company and its management are based on estimates, projections, beliefs and assumptions of management at the time of such statements and are not guarantees of future performance.
The company undertakes no obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information or otherwise.
Lastly, in this presentation, we will discuss certain GAAP and non-GAAP financial metrics.
Please note that the reconciliation of these metrics are contained in our current report filed yesterday with the SEC on Form 8-K.
Any references to non-GAAP core financial measures are intended to provide meaningful 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.
I will now turn the call over to George Makris.
George A. Makris - Chairman of the Board, CEO and Chairman of Simmons First National Bank
Thanks, David, and welcome to our third quarter earnings conference call.
These past few months have been eventful and full of achievements, and I would like to begin by highlighting several of many.
First, our previously announced mergers with Southwest Bancorp and First Texas BHC were approved by both the Federal Reserve and shareholders.
We closed these transactions on October 19.
This time, I'd like to welcome all associates from Bank SNB and Southwest Bank to the Simmons family.
We look forward to a great partnership.
Second, I'm also proud to announce that First South Bank has been fully integrated with Simmons Bank.
I commend the integration teams for successfully completing the systems conversion over Labor Day weekend.
Third, Simmons Bank became the sole shareholder of Heartland Bank via public auction.
Simmons is currently evaluating the next steps with respect to the institution.
Lastly, we completed the sale of our property and casualty insurance businesses while reclaiming our life, health and employee benefits insurance services.
In our press release issued yesterday, we reported record net income of $28.9 million for the third quarter of 2017, an increase of $5.4 million compared to the same quarter last year.
Diluted earnings per share were $0.89, an increase of 17.1%.
Included in the third quarter earnings was an after-tax gain of $1.8 million on the sale of the insurance lines of business.
Also included were $721,000 in net after-tax merger-related and branch rightsizing costs.
Excluding the impact of these items, the company's core earnings were $27.7 million for the third quarter, an increase of $3.4 million compared to the same period last year.
Diluted core earnings per share were $0.86, an increase of 8.9%.
Our loan balance at the end of the quarter was $6.3 billion.
Total loans increased by $78 million during the quarter.
The legacy loan portfolio grew by $228 million, of which approximately $36 million migrated from acquired to legacy.
An additional $13 million increase is related to loan participations from Southwest Bank, $163 million of acquired loans and loans in our liquidating portfolios paid off during the quarter.
We continue to experience good loan demand, although the rate of growth is lower than we experienced in the first 2 quarters this year.
Our loan pipeline, which we define as loans approved and ready to close, was $245 million at the end of the quarter.
In addition, we still have $689 million in construction loans not yet funded.
Our concentration of construction and development loans was 64%, and our concentration of CRE loans was 257% at the end of the quarter.
All of our regions are still experiencing good loan growth.
The company's net interest income for the third quarter of 2017 was $78.8 million, 15.8% increase from the same period last year.
Accretion income from acquired loans during the quarter was $2.9 million compared to $4.9 million in the same quarter last year.
Our net interest margin for the quarter was 3.91%, which was down from 4.08% in the same period last year.
The company's core net interest margin, which excludes the accretion, was 3.77% for the third quarter compared to 3.79% in the same quarter of 2016.
Increases in deposit cost continue to offset gradual increases in rates on earning assets.
We have experienced onetime deposit growth of $725 million over the last year related to acquisitions and internal growth.
Cost of interest-bearing deposits increased 12 basis points from the prior year.
We continue to project that our cost of funding will increase as a result of increased competition for deposits and recent Fed rate hikes.
Our noninterest income for the quarter was $36.3 million, a decrease of $544,000 from the same quarter of 2016.
We experienced a decrease in income of $1.2 million related to our mortgage business.
In addition, during the third quarter of 2016, we recorded a $2 million recovery related to the previously charged-off acquired loan.
Included in income for the quarter was $3.7 million of gain related to the sale of our property and casualty insurance lines of business.
Noninterest expense for the quarter was $66.2 million, while core noninterest expense for the quarter was $65.3 million.
Incremental increases in all noninterest expense categories over the same period in 2016 are the result of our acquisitions over the last year.
Our efficiency ratio for the quarter was 55.06%.
At September 30, 2017, the allowance for loan losses for legacy loans was $42.7 million, with an additional $391,000 allowance for acquired loans.
The company's allowance for loan losses on legacy loans was 82 basis points of total loans.
The loan discount credit mark was $25 million for a total of $68.1 million of coverage, which equates to a total coverage ratio of 1.08% of gross loans.
The ratio of credit mark and related allowance to acquired loans was 2.27%.
During the third quarter, our annualized net charge-offs, including credit card charge-offs, to total loans were 32 basis points.
Excluding credit card charge-offs, our annualized net charge-offs to total loans were 27 basis points.
The provision for loss during the quarter was $5.5 million compared to $8.3 million in the same period last year.
We expect to continue to build the allowance as we migrate more acquired loans, especially with the addition of Bank SNB and Southwest Bank.
Our capital position remains very strong.
At quarter-end, common stockholders' equity was $1.3 billion.
Our book value per share was $39.03, an increase of 6.4% from the same period last year, while our tangible book value per share was $25.64, an increase of 7.7% in the same period last year.
Tangible common equity was positively impacted by $7.2 million due to a reduction in intangible assets related to the sale of the insurance lines of business.
This concludes our prepared comments.
We'll now take questions from our research analysts and institutional investors.
I'll ask the operator to please come back on the line and give the instructions for queuing in for those calls.
Operator
(Operator Instructions) And our first question will come from the line of Michael Rose of Raymond James.
Michael Edward Rose - MD, Equity Research
I just wanted to start, if we could, on loan growth.
I think the guidance that you gave last quarter was about $100 million a quarter in net growth.
I know that includes all the moving pieces.
So if I look at the pipeline this quarter, it looks like it was down about $100 million, but the unfunded balance of closed loans in the construction book was up about $100 million.
So I guess how should we think about growth going into the fourth quarter?
What types of seasonality should we expect?
And then any sort of read from the 2 acquisitions and what they saw in the third quarter, how that might impact fourth quarter trends?
George A. Makris - Chairman of the Board, CEO and Chairman of Simmons First National Bank
Michael, sure.
I'd certainly love (inaudible) handle that question.
First of all, to you and everyone else, let me apologize for the timing of our announcement this quarter due to the closing last week.
We wanted to get that behind us before we announced earnings, so we could talk about that today.
And we've got some other conflicts this week, so it just happened to fall on a very inopportune time.
I don't think we'll be releasing on Sunday anymore going forward.
So I apologize to all of you who had to do work over the weekend, when that's not normally what we do.
Back to loan growth.
We are still very pleased with what we're seeing in the market, even though the pace has slowed down a little bit from what we experienced in the first 2 quarters.
I'll also mention that our consumer finance portfolio and our indirect lending portfolio continue to work down.
Those 2 portfolios decreased by a total of $29 million during the quarter, and they're moving down collectively about $9.5 million a month.
So as we continue to work out of those, we will have that sort of as a basis that we have to overcome, first of all.
What we're seeing is good loan growth across our entire footprint.
And with regard to our 2 acquisitions, I think one of the most unusual things that I've seen with regard to what usually happens in acquisitions is that generally, our main objective is to maintain loan balances where they were when we announced the transactions.
I think you'll find that both Bank SNB and Southwest Bank have grown their loan portfolio significantly since those announcements, and quite honestly, they still have good loan pipelines as well.
While they're not on our call today, we do know the loan growth that they're experiencing there.
I'm going to ask Barry Ledbetter, our Chief Banking Officer, if he wouldn't mind addressing loan growth and, particularly, the construction pipeline.
We just haven't quite made it to the funding portion of that.
So Barry, if you don't mind addressing that.
Barry K. Ledbetter - Chief Banking Officer of Simmons First National Bank and EVP of Simmons First National Bank
Okay, George.
Again, as was addressed earlier, we've got about $689 million in loans that have closed that we've not yet funded.
We funded -- we closed very large CRE loans in Nashville, also in Kansas City, that we expect to be funding in the next couple of quarters on that.
A lot of those deals, we get a lot of equity on the front end, and so we get the investors to put their money on the front end.
And so you'll see those continue to increase.
We feel very good about our pipeline again.
We're starting to consistently see the growth in northwest, Little Rock, Northeast Arkansas, Missouri and Kansas City, those markets.
St.
Louis, Kansas City, continue to be strong, and we're starting to see an increase in the Springfield market with the addition of some additional lenders we've added the last couple of months.
And also in Jackson, Tennessee, we're starting to feel better about that loan growth with the addition of First South and that leadership.
Also, in Knoxville, we should see continued loan growth in there with the addition of some new lenders there, so overall, we feel very good about our pipeline going forward and with the loan growth.
George A. Makris - Chairman of the Board, CEO and Chairman of Simmons First National Bank
And Michael, I would say that we use as a benchmark here a 7% annualized loan growth.
That's what we budget, and that's what we would expect going forward.
Certainly, the addition of Southwest Bank and their 30% annualized loan growth they've experienced this year, we don't know if that will continue for multiple quarters going forward.
But certainly, they still have a lot of opportunities there.
One of the things that we've done during the last quarter is sort of rearranged our balance sheet, increased our core deposit base in order to be able to absorb that loan growth and keep our loan-to-deposit ratio in the 90% range, which is what our risk appetite calls for.
Currently, it's down around 86%, so we've got a little bit of capacity that we've built to absorb these new acquisitions.
Michael Edward Rose - MD, Equity Research
That's great color, guys.
Just one more question for me, just on the margin.
How should we think about the addition from the 2 deals and what that will do to the accretion?
I think you guys have guided to about $14 million in accretion for the year.
It looks like it will be a little bit above that.
But I think you have a $25 million mark remaining.
What will the 2 deals add?
And then can you just give some color for expectations for the core margin going forward?
George A. Makris - Chairman of the Board, CEO and Chairman of Simmons First National Bank
I'm going to let Bob talk about how the blended core margin's going to look, but let me just say that with regard to accretion in our allowance, it may not be a $1 for $1 trade-off accretion income in adding to our provision, but as you'll notice, our total coverage is down to 1.08%, so it really can't drop much lower than that.
We've got rid most of the junk out of our acquired portfolios.
While we still have 2.2% coverage in that acquired bucket, the acquired bucket isn't as large as it used to be.
So going forward, I would expect no real substantial increase as a result of accretion income because most of that's going to go straight into the allowance to cover those migrated loans.
So Bob, you might want to just talk about what the blended net interest margin might look like.
Robert A. Fehlman - CFO, Senior EVP and Treasurer
Yes, Michael.
We're still -- we think there's probably about 3 or 4 basis point decline in the margin when you put all the deals together.
We still think of 3.70% to 3.80% range is a good range for us on core margin.
When you look on GAAP, it's going to be very lumpy in the first -- in Q4 and into early next year.
I would expect it to be somewhere in that 4% range, give or take, on both sides of it.
You're correct.
We're still projecting close to $14 million for accretion for the remainder of the year.
We're still going through the valuation on the 2 recently closed acquisitions.
We're projecting next year somewhere in the $10 million to $12 million range for accretion on those 2 deals when you put them together.
Those are estimates at this time.
We'll be shoring those up as we go in.
Our loan discount balance was about $25 million at the end of the quarter.
We'll be adding close to $50 million, $52 million, somewhere in that range, when you put the 2 acquisitions in.
These banks are pretty clean banks and were basically -- I think the loan market's roughly about 110% to 115% of their allowance that they currently have.
Michael Edward Rose - MD, Equity Research
Okay.
So just a quick follow-up.
So that $10 million to $12 million is just from the 2 deals.
What would you expect from the previous?
I'm just trying to get the all-in numbers (inaudible).
Robert A. Fehlman - CFO, Senior EVP and Treasurer
Yes.
I'm glad you followed up on that.
We're expecting that our core to go from $14 million, David, to about $7 million, so about half next year.
So we would expect $17 million to $19 million all-in next year.
Operator
And our next question will now come from the line of Matt Olney with Stephens.
Matthew Covington Olney - MD
George, you referenced getting the balance sheet rate for the 2 acquisitions, and I want to make sure I understand this.
It looks like the securities portfolio did shrink this quarter and the yields came down.
Can you just speak to the size that you anticipate that being from a legacy Simmons standpoint and how much more shrinkage will be there?
Robert A. Fehlman - CFO, Senior EVP and Treasurer
Matt, this is Bob.
We currently have about $1.6 billion, $1.7 billion in securities portfolio.
Roughly, it's about 19% to 20% of our total assets.
Our target level as we go forward is probably a little lower than that, maybe in the 16%, 17% of total assets.
You did notice we did shrink it a little bit this quarter.
We'll allow that to run down as we get more loan growth over the next couple of quarters and as we absorb the 2 acquisitions.
I would say we did have a little decline in our yield for this quarter.
Part of it was related to last quarter as we've prepared for some liquidity needs on the loan portfolio.
So we sold $120 million, $150 million of securities at that time.
That reduced the portfolio a little bit.
We also were up in the second quarter because the 10-year dropped, which caused some callables to hit.
So basically, our yield went up a little bit in the second quarter, a little higher than normal.
Also this quarter, as George mentioned, we're preparing our balance sheet for some leverage to prepare deposits in there.
So we did go out and get some deposits, which increased a little bit of our deposit cost.
We've put some of that money basically in short-term investments.
It was a positive arbitrage but a very small one, so it had a negative impact on our investment portfolio for the quarter, but it's preparing as we get into this Q4 and first quarter for the acquisitions.
Matthew Covington Olney - MD
So just to clarify that 16% to 17% target you have, it sounds like it may take a few quarters to get there, and initially, we could be a little bit on the high end of that.
Is that fair?
Robert A. Fehlman - CFO, Senior EVP and Treasurer
That's exactly right.
We're not going to get there overnight, but we don't have the target to be at the high 19%, 20% of assets long term as loans go up.
We'd prefer the investments to be -- to move over to the loan portfolio.
Matthew Covington Olney - MD
Understood, okay.
And given the deals have closed now, can you speak to the impact of Durbin, when that's going to the hit you and what that amount would be?
George A. Makris - Chairman of the Board, CEO and Chairman of Simmons First National Bank
Well, Durbin will hit July 1, 2018.
And we anticipate right now that, that will be a $12 million pretax impact to revenue.
Robert A. Fehlman - CFO, Senior EVP and Treasurer
Annual basis.
George A. Makris - Chairman of the Board, CEO and Chairman of Simmons First National Bank
On an annual basis.
The trade-off of that is closing early to be able to provide the capital and the support for the growth that the 2 acquisitions need versus the delay in Durbin.
We erred on the side of going ahead and protecting that potential growth in the market.
I think that was probably a good decision, and quite honestly, it's a first world problem, and we're glad we have that.
I will say this.
So the next real threshold for us is $15 billion.
And while we're not quite there yet organically, we should easily get there in 2018.
As we continue to look at our capital ratios, we've got to make sure that we got enough Tier 1, enough Tier 2 capital to support the levels of loan growth that we see at the market today.
So there may be some more shifting of, say, debt that doesn't qualify for Tier 2, into Tier 2 qualified debt during 2018.
So that's the next big issue for us.
We lose Tier 1 treatment of trust preferreds after we cross $15 billion.
We don't know where the CHOICE Act is going to go and what that means with regard to a 10% leverage ratio.
But we've got our eye on that ball, and we'll make the appropriate decisions sometime in the next 6 months on what we do about that.
Robert A. Fehlman - CFO, Senior EVP and Treasurer
And just as a reference, the cost of the truPS is about 50 basis points on the leverage ratio.
Still puts us at about 9.4%, 9.3% even after the loss of that.
Matthew Covington Olney - MD
And Bob, does that include the impact of the pending -- or I'm sorry, the recently closed deals as well?
Robert A. Fehlman - CFO, Senior EVP and Treasurer
Yes, Matt.
That's the pro forma estimate.
If you put all the deals together and back out the TruPS impact from Tier 1, it's about 9.3%, 9.4% is our pro forma numbers right now.
Matthew Covington Olney - MD
Okay, that's helpful.
And last question for me.
I assume the next 2 or next few quarters could be a little bit noisy as you integrate these acquisitions.
Can you give us some details on expectations of some non-core items the next few quarters?
Robert A. Fehlman - CFO, Senior EVP and Treasurer
Matt, it is going to be very, very lumpy over the next 2 quarters.
Some of those costs will hit in this quarter and fourth quarter, and some will hit in the first quarter as we're moving in.
I don't have the exact numbers of investments right now, but both deals -- I mean, I don't have that right now.
George A. Makris - Chairman of the Board, CEO and Chairman of Simmons First National Bank
Matt, let me give you the schedule.
We're obviously going to have some merger-related costs associated with closing these 2 deals that will hit in the fourth quarter.
We're going to convert Southwest Bank into Simmons Bank in the first quarter of 2018, so we'll have some costs associated with that.
But we'll also offset that a little bit with cost saves associated with that conversion.
Bank SNB will be converted over Memorial Day weekend in May, so we'll have some merger-related costs associated with that transition.
But then by the third quarter of 2018, we ought to be feeling the full impact of cost saves from both those acquisitions.
Now -- so let's talk about noninterest expense a little bit and what that's going to look like.
So if you just put together the third quarter Simmons noninterest expense from a core basis and the First Texas and Southwest Bancorp, we're going to be in the $93 million per quarter range.
By the third quarter of 2018, we expect the cost saves to save us around $9 million a quarter fully recognized.
Now it's a little too early to tell how much of that's going to fall into fourth quarter of '17, the first quarter and the second quarter of '18.
But by the third quarter of '18, we hope to have that full $9 million per quarter realized from a cost saves standpoint.
Remember, though, that if our growth continues as it has this year, we may have some expense increases associated with the infrastructure needed to support that growth.
So we'll try to keep you updated as we determine what that growth is going to look like and as we're able to achieve those cost saves.
So hopefully, that sort of gives you a targeted time, but unfortunately, we can't project right now when that savings is actually going to hit.
Robert A. Fehlman - CFO, Senior EVP and Treasurer
And Matt, this is Bob.
Just looking back, I would project we've got about $22 million after-tax merger-related costs for the 2 deals.
And this is just our best estimate at this time.
I would expect about 75% of that to hit in Q4, the other 25% in the next couple quarters.
Those are just rough -- well, very rough estimates, but it's somewhere in that $22 million on an after-tax basis.
Operator
And our next question will come from the line of Stephen Scouten with Sandler O'Neill.
Stephen Kendall Scouten - MD, Equity Research
Can you talk a little bit more about maybe the expense run rate, not so much maybe pro forma but even in this current quarter kind of what precipitated the decline in the other noninterest expense, in particular, and if there was anything abnormal there that maybe led you to be even better than kind of where you guys had guided?
George A. Makris - Chairman of the Board, CEO and Chairman of Simmons First National Bank
Stephen, I will just say that our folks have done an excellent job in maintaining their expense base.
We also probably achieved a little more savings than we had originally anticipated with First South systems conversion.
We closed 5 branches associated with that because of the market overlap.
So we didn't leave any market over there.
We just had an excessive number of branches.
And you probably noticed that we added some $4 million to our OREO balance based on those closed branch locations.
So I think we have just probably exceeded our original expectations with regard to our ability to integrate and achieve those cost saves.
Bob, I don't know if you have anything to add to that.
Robert A. Fehlman - CFO, Senior EVP and Treasurer
No, I think that's good.
I think everybody is hitting on target pretty well on the expense savings.
We look at it as the core expense for the month, and it was about $65 million.
That was fairly close to -- in line with what our expectations were.
Stephen Kendall Scouten - MD, Equity Research
Okay, great.
And maybe on the kind of DFAST side of things, the expense build related to, ex Durbin, what the other costs are.
I mean, what's the progression of expense build for that?
I mean, how much of that, I guess, do you still think you have already built in the run rate today?
Or how much do you think might need to come from those preparations in kind of '18 and '19?
George A. Makris - Chairman of the Board, CEO and Chairman of Simmons First National Bank
Well, I'll take a stab at it, and then Bob can correct me.
Stephen, most of our expenses are already built in.
We don't have to submit our first DFAST submission until 2020 based on 2019 data.
In 2018, we plan to submit a test, DFAST submission, and our only expense is going to be associated with data warehouse, which we would do anyway, and some modeling expense to get that done.
So we think that we have already built in most of the expense associated with crossing $10 billion, except for the Durbin impact.
What you'll see going forward is just incremental increase based on volume.
So as we continue to grow, we'll add in the [BSA] area in order to handle the increased volume.
We'll increase our community development officers based on CRA requirements in the new markets that we'll undertake.
But no significant onetime expenses remain, at least that I'm aware of, and Bob, you may want to address that.
Robert A. Fehlman - CFO, Senior EVP and Treasurer
Yes.
And I would say, I think as George said, our noninterest expense, we believe that most of those costs are in there.
It will change from one bucket to another bucket.
We may have spent money on professional fees and others, consulting fees to get us up to these points.
As we move into next year, some of that costs will move into either systems or into people in the modeling, but overall cost is built in.
It may just move from one bucket to another.
Stephen Kendall Scouten - MD, Equity Research
Okay.
That's really helpful.
And maybe one last question for me on the deposit side.
You mentioned kind of the deposit cost going up this quarter to build in preparation of the deals.
What are you guys thinking that competitive environment is going to be like moving forward?
Kind of do you have an idea run rate from a basis point perspective, maybe how deposit costs creep up quarter-over-quarter?
And along with that, your loan-to-deposit ratio on a pro forma basis is good but higher than where you guys have traditionally run the bank.
So how do you think about that?
And what is your level of comfort versus how much more do you have to bid up to get more deposits?
George A. Makris - Chairman of the Board, CEO and Chairman of Simmons First National Bank
Well, we think we're at a competitive rate right now.
And our deposit rate increase outpaced our loan yield by a couple of basis points this last quarter.
We think that will even out going forward, and we certainly hope that our loan yield increases higher than our cost in deposits.
We were very aggressive last quarter with some deposit promotions, particularly in the commercial area.
We're very comfortable with where we are.
We don't see a great increase in our deposit costs from where they are today.
And in fact, if we can shift some deposits from some of the acquired banks -- there's some pretty high deposit costs in some markets, and we may actually have the opportunity to reduce some of those costs to offset what we see in increased deposit costs in some of our legacy markets.
So we think this last quarter was probably higher with regard to an increase and what do we see going forward.
We would hope that both loan yields and deposit costs move up proportionately going forward.
And Barry, you might have a little different perspective on that, but I think that's what we are planning.
Barry K. Ledbetter - Chief Banking Officer of Simmons First National Bank and EVP of Simmons First National Bank
I think you said it well.
And I think the other thing, too, is we've had a real emphasis probably in the last 90 days on treasury management, and we've hired a couple of treasury management officers in some large markets that have done a lot of CRE loans.
So we feel very positive going forward about the increase on some core deposits with some large commercial accounts.
Operator
And our next question will come from the line of Will Curtiss with Piper Jaffray.
William Davis Curtiss - Senior Research Analyst
George, maybe can you update us on your appetite for future M&A as you kind of think about next year?
I mean, do you think the pace may slow down a little bit now that you've gained scale at the recent deals?
Or would you still feel comfortable doing multiple deals?
So I guess I'm just curious if your view on M&A has changed in any way after a pretty active year.
George A. Makris - Chairman of the Board, CEO and Chairman of Simmons First National Bank
Well, first, let me make sure everybody understands that we are totally focused right now on the successful integration of both Bank SNB and Southwest Bank.
That's a big deal to us.
We've worked long and hard at it and so have the associates of both of those banks, so that this our top priority.
And we think that there's substantial growth to be had from that successful integration.
That being said, we also believe that there are more opportunities for acquisitions in our current footprint.
Not that we wouldn't consider one that's a contiguous market to where we currently are, but we have a lot of really priority markets in our current footprint where we would really like to grow.
So we will have continued discussions and maybe some new discussions with some potential merger partners in some markets where we currently have a presence but not as big a presence as we would like to have.
So I think what you'll probably see is a shift a little bit from acquisitions in new markets to acquisitions in current markets that will increase our market share and help us deploy some of our noninterest income lines of businesses in markets that could be very attractive for us.
So you probably know that on a pro forma basis, our noninterest income is going to go from about 30% down to the mid-20% level.
We need to build that up back over 30%, and we're going to do that in the existing markets.
So that will be a little bit of a shift.
We're in no rush to get there.
But to the extent that we find a good partner in the next 6 months, we're certainly prepared to go ahead and push that button.
William Davis Curtiss - Senior Research Analyst
Okay.
That's very helpful.
And then maybe just the last one, and I apologize if I missed it.
But any sense for kind of when you think you'll have a decision made on Heartland?
George A. Makris - Chairman of the Board, CEO and Chairman of Simmons First National Bank
We know that by the end of the year, we will make a decision.
It could be within 3 weeks.
It's really too early to tell.
We're taking a look at all our options in the market, and that is sale of the whole bank, sale of the assets.
But we're also taking a look at integrating it into Simmons Bank, which would also be a good alternative for us.
That came about so quickly that we really didn't have time to investigate all those options until we actually had control of Heartland Bank.
I will say this.
The Heartland associates have done a very good job of maintaining their base of business.
We've got some very good folks that we've put in place as management of that institution, and it has stabilized.
So we're very fortunate that there's still some value in that asset.
You probably noticed the way it was booked on our balance sheet, assets held for sale, liabilities held for sale.
Unfortunately, the assets are greater than the liabilities.
So we're just going to see how all that plays out in the marketplace, and hopefully, we'll know within 2 to 3 weeks which direction we're going to go.
Robert A. Fehlman - CFO, Senior EVP and Treasurer
And Will, just as George said, those are -- you can see in our balance sheet the other assets held for sale and other liabilities held for sale.
Both of those are at the estimated fair value that we have at 9/30.
Operator
And our next question will come from the line of Brady Gailey with KBW.
Brady Matthew Gailey - MD
So maybe one more on M&A.
George, now that you're over $14 billion, headed to $15 billion in assets, what is the size range that you would look to acquire?
I mean, would you even consider a deal under $1 billion?
What's kind of the new sweet spot for M&A?
George A. Makris - Chairman of the Board, CEO and Chairman of Simmons First National Bank
Well, $1 billion still sort of sits as a sweet spot.
And quite honestly, Brady, as we've mentioned before, a lot of that has to do with the kind of business that the producers have been used to booking in those institutions.
However, I'll say this.
If we find an institution that's smaller than $1 billion that has some specialty lending lines of business like agriculture, we would certainly have an interest.
And there are plenty of those in our current footprint that we should consider.
So I'm not ruling out any size necessarily.
It really just depends on the makeup of the bank's loan portfolio, the producers they bring to the table and, really, the synergistic effects that we can put into place as a result of that acquisition.
Brady Matthew Gailey - MD
All right.
And then my second question is on the provision.
If I'd listened to you all's comments about the reserves, it sounds like we'll start to see some upward pressure on the provision.
I know -- I think you all guided to around $20 million for this year.
That's about $5 million a quarter.
How much upward pressure do you think will be on the provision in 2018?
George A. Makris - Chairman of the Board, CEO and Chairman of Simmons First National Bank
Well, I still think based on our legacy portfolio, the current $5 million, $5.5 million a quarter will take care of that.
It's really going to depend on how quickly those loans migrate into our legacy portfolio.
Once again, our total coverage right now is just barely above 1%, including the credit mark and the allowance.
Now I'll tell you, I get a little nervous thinking about that total coverage dropping below 1%.
And Bob also mentioned that the acquired portfolios of Bank SNB and Southwest Bank are very, very clean portfolios.
So our mark is very close to what they consider to be an appropriate allowance today.
So if we book a mark that's close to the allowance they need for their portfolio, as their loans migrate, that accretion income will go into our allowance to build it up to where it needs to be.
So that's about as much guidance as I could give you.
We won't see tremendous benefits from accretion income dropping to the bottom line going forward.
Operator
(Operator Instructions) And I'm showing no further questions at this time.
So now it's my pleasure to hand the conference back over to Mr. George Makris, Chairman and Chief Executive Officer, for closing comments and remarks.
Sir?
George A. Makris - Chairman of the Board, CEO and Chairman of Simmons First National Bank
Well, thank you very much, and once again, thanks to all of you for joining us this morning.
We apologize again for the inconvenient scheduling of this.
We promise it will be a onetime event.
Thanks again for your participation.
I hope you have a great day.
Operator
Ladies and gentlemen, thank you for your participation on today's conference.
This does conclude the program, and we can all disconnect.
Everybody, have a wonderful day.