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Simmons First National Corporation (SFNC) Q3 2017 Earnings Conference Call Transcript

Simmons First National Corporation (NASDAQ: SFNC)

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Q3 2017 Earnings Conference Call
Oct. 23, 2017, 10:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Simmons First National Corporation third quarter 2017 earnings conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will host a question and answer session, and our instructions will be given at that time. If, during the conference, you require operator assistance, please press star then zero on your telephone keypad. As a reminder, this conference may be recorded. It is now my pleasure to hand the conference over to Mr. David Garner. Sir, you may begin.

David Garner -- Investor Relations Officer

Good morning! My name is David Garner, and I serve as the 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. All other guests in this conference call are in a listen-only mode. A transcript of today's call, including our prepared remarks and the Q&A session will be posted on our website, simmonsbank.com, under the Investor Relations tab.

During today's call, and in other disclosures and presentations made by the company, we may make certain forward-looking statements about our plans, goals, expectations, estimates, and outlook. I remind you of the special cautionary notice regarding forward-looking statements, and that certain matters discussed during this call may constitute forward-looking statements, and may involve certain known and unknown risks, uncertainties, and other factors which may cause actual results to be materially different from our current expectations, performance, or estimates. For a list of certain risks associated with our business, please refer to that Forward-Looking Information section of our earnings press release, and the description of certain risk factors contained in our most recent Annual Report on Form 10-K, all as filed with the US 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 is 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 Makris -- Chairman and Chief Executive Officer

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 Bank Corp. and First Texas BHC were approved by both the Federal Reserve and shareholders. We closed these transactions on October 19th. This time, I'd like to welcome all associates from Bank S&B 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 retaining our life, health, and employee benefits insurance services. In our press release issued yesterday, we reported record net income of $28.9 million for the third quarter of 2017, an increase of $5.4 million compared to the same quarter last year. Diluted earnings per share were $0.89, an increase of 17.1%. Included in the third quarter earnings was an after-tax gain of $1.8 million on the sale of the insurance lines of business. Also included were $721,000.00 in net after-tax, merger-related, and branch rightsizing costs. Excluding the impact of these items, company's core earnings were $27.7 million for the third quarter, an increase of $3.4 million compared to the same period last year. Diluted core earnings per share were $0.86, an increase of 8.9%.

Our loan balance at the end of the quarter was $6.3 billion. Total loans increased by $78 million during the quarter. The legacy loan portfolio grew by $228 million, of which approximately $36 million migrated from acquired to legacy. An additional $13 million increase is related to loan participations with Southwest Bank. $163 million of acquired loans and loans in our liquidating portfolios paid off during the quarter. We continue to experience good loan demand, although the rate of growth is lower than we experienced in the first two 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. Increase in 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 costs continue to offset gradual increases in rates on earning assets. We have experienced non-time 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 non-interest income for the quarter was $36.3 million, a decrease of $544,000.00 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 a previously charged-off acquired loan. Included in income for the quarter was $3.7 million of gain related to the sale of our property and casualty insurance lines of business.

Non-interest expense for the quarter was $66.2 million, while core non-interest expense for the quarter was $65.3 million. Incremental increases in all non-interest expense categories over the same period in 2016 are the result of our acquisitions over the last year. Our efficiency ratio for the quarter was 55.06%.

At September 30th, 2017, the allowance for loan losses for legacy loans was $42.7 million with an additional $391,000.00 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 .1 million coverage. This equates to a total coverage ratio of 1.08% of gross loans. The ratio of credit mark and related allowance to acquired loans was 2.27%.

During the third quarter our annualized net charge-offs, including credit card charge-offs 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 during the same period last year. We expect to continue to build the allowance as we migrate more acquired loans, especially with the addition of Ban S&B 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 of last year, while our tangible book value per share was $25.64, an increase of 7.7% from 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.

Questions and Answers:

Operator

Thank you, sir. Ladies and gentlemen, at this time, if you would like to ask a question over the phone, please press star then one on your telephone keypad. If your questions have been answered or you do wish to remove yourself from the queue, simply press the pound key. Once again, ladies and gentlemen, that is star then one to ask a question. And our first question will come from the line of Michael Rhodes with Raymond James. Please proceed.

Michael Rhodes -- Raymond James -- Analyst

Hey, good morning, guys. How are you? Good. Hey, 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, and 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 accept? And then, any sort of read from the two acquisitions and what they saw in the third quarter, and how that might impact fourth-quarter trends. Thanks.

George Makris -- Chairman and Chief Executive Officer

Michael, sure. Several of us can probably weigh in on that question. First of all, to you and everyone else, let me apologize for the timing of our announcement this quarter due to the closing last week. We wanted to get that behind us before we announced earnings so we could talk about that today, and we've got some other conflicts this week, so 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 two quarters. I'll also mention that our consumer finance portfolio and our indirect lending portfolio continue to work down. Those two portfolios decreased by 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 two acquisitions, I think one of the most unusual things that I've seen with regard to what usually happens in acquisitions, is that generally, our main objective is to maintain loan balances where they were when we announced the transactions. I think you'll find that both Bank S&B and Southwest Bank had grown their loan portfolios 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 gonna 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 yet. So, Barry, if you don't mind addressing that.

Barry Ledbetter -- Chief Banking Officer

Hey, 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've closed some very large CRE loans in Nashville, also in Kansas City, that we expect to be funding in the next couple quarters. On that -- a lot of those deals, we get a lot of equity on the front end, and so our -- 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. We're starting to see an increase in the Springfield market with the addition of some additional lenders we've added in the last couple months. 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 Makris -- Chairman and Chief Executive Officer

And Michael, I would say that we use as a benchmark here 7% annualized loan growth as 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-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 Rhodes -- Raymond James -- Analyst

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

George Makris -- Chairman and Chief Executive Officer

I'm gonna let Bob talk about how the core margin's gonna look, but let me just say that with regard to increasing in our allowance, it may not be a one-dollar-for-one-dollar trade-off, increasing income and 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 gotten rid of most of the junk out of our acquired portfolios, and while we still have 2.2% coverage in that acquired bucket, the acquired bucket isn't as large as it used to be. So, going forward, I would expect no real substantial inquiries as a result of accretion income. Because most of that's gonna go straight into the allowance to cover those migrated loans.

So, Bob, you might want to just talk about what a blended net interest margin might look like.

Bob Fehlman -- Chief Financial Officer

Yeah, Michael, we're still -- we think there'll probably be about a three or four basis point decline in the margin when you put all the deals together. We still think the 370-380 range is a good range for us on core margin.

When you look on GAAP, it's gonna be very bumpy 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 two recently closed acquisitions. We're projecting, next year, somewhere in the $10-12 million range for accretion on those two deals when you put them together. Those are estimates at this time; we'll be suring 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, $52 million, somewhere in that range, when you put the two acquisitions in. these banks are pretty clean banks, and we're basically -- I think the loan mark is roughly about 110-115% of their allowance that they currently have.

Michael Rhodes -- Raymond James -- Analyst

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

Bob Fehlman -- Chief Financial Officer

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

Michael Rhodes -- Raymond James -- Analyst

Okay, that's helpful. I'll hop out. Thanks, guys, for all the color.

George Makris -- Chairman and Chief Executive Officer

Thank you.

Operator

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

Matt Olney -- Stephens -- Analyst

Hey, Greg. Good morning, guys. George, you mentioned getting the balance sheet ready for the two acquisitions and I want to make sure I understand this. It looks like the securities portfolio did shrink this quarter, and the yield 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?

Bob Fehlman -- Chief Financial Officer

Hey, Matt. This is Bob. We currently have about $1.6-1.7 billion in securities portfolio. Roughly it's about 19-20% 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 quarters, and as we absorb the two acquisitions.

I would say we did have a little decline in our yield for this quarter. Part of it was related to last quarter, as we prepared for some liquidity needs on the loan portfolio, so we sold $120-150 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 calls, and so basically our yield went up a little bit in the second quarter a little bit higher than normal.

Also, this quarter, as George mentioned, we were 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 costs. We 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.

Matt Olney -- Stephens -- Analyst

So, just to clarify, that 16-7% target that 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 right?

Bob Fehlman -- Chief Financial Officer

That's exactly right. We're not gonna get there overnight, but we don't have the target to be at a high, you know, 19-20% of assets long-term as loans go up. We prefer the investments to move over to the loan portfolio.

Matt Olney -- Stephens -- Analyst

Understood, OK. and given the deals have closed now, can you speak to the impact of Durbin? When that's gonna hit you, and what that amount would be?

George Makris -- Chairman and Chief Executive Officer

Well, Durbin would hit July 1st, 2018. And we anticipate right now that that will be a $12 million pre-tax impact on revenue, on an annual basis.

You know, the trade-off, Matt, is closing early to be able to provide the capital and the support for the growth that the two acquisitions need versus delaying Durbin. And 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 had that.

I will say this, though: 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've got enough tier 1 and enough tier 2 capital to support the levels of loan growth that we see out in the market today. So, there may be some more shifting of, say, debt that doesn't qualify for tier 2 into tier 2, qualified that they're in 2018. So, that's the next big issue for us. You know, we lose tier 1, treatment of trust preferred after we cross $15 billion. We don't know where the Choice Act is gonna go, and what that means with regard to the 10% leverage ratio, but we've got our eye on that ball and we'll make the appropriate decision sometime in the next six months on what we'll do about that.

Bob Fehlman -- Chief Financial Officer

And just as reference, the loss of the TruPS is about 50 basis points on the leverage ratio. Still puts us at about nine-four, nine-three, even after the loss of that.

Matt Olney -- Stephens -- Analyst

And Bob, does that include the impact of the pending -- or, I'm sorry, the recently closed deals as well?

Bob Fehlman -- Chief Financial Officer

Yes, Matt, that's a pro forma estimate that you put all the deals together and back up, the TruP impact from tier 1, and it's about nine-three, nine-four is our pro forma numbers right now.

Matt Olney -- Stephens -- Analyst

That's helpful. Last question from me: I assume the next two, 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?

Bob Fehlman -- Chief Financial Officer

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

George Makris -- Chairman and Chief Executive Officer

Matt, let me give you the schedule. We obviously are gonna have some merger-related costs associated with these two 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 also we'll offset that a little bit with costs saves associated with that converger. Bank S&B 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 non-interest expense a little bit and what that's gonna look like. So, if you just put together the third quarter Simmons non-interest expense from a core basis, and the First Texas, and Southwest Bank Corp., we're gonna be in the $93 million-per-quarter range. By the third quarter of 2018, we expect costs 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 gonna fall in the 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 save 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 gonna look like and as we're able to achieve those cost saves.

So, hopefully, that sort of gives you a target in time. Unfortunately, we can't project right now when that savings is actually gonna hit.

Bob Fehlman -- Chief Financial Officer

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

Matt Olney -- Stephens -- Analyst

Okay, that's very helpful. Thank you, guys.

Operator

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

Stephen Scouten -- Sandler O'Neill -- Analyst

Hey guys, good morning. Can you talk a little bit more about maybe the expense run rate? Not so much maybe pro forma, but even in this current quarter, what precipitated the decline and the other 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 Makris -- Chairman and Chief Executive Officer

Stephen, I would just say that our folks have done an excellent job in maintaining their expense base. We also probably achieved a little more savings that we had originally anticipated with First South systems conversion. We closed five branches associated with that because of the market overlap. So, we didn't leave any market over there, we just had an excessive number of branches and you probably noticed that we added some $4 million to our OREO balance based on those closed branch locations.

So, I think we have just probably exceeded our original expectations with regard to our ability to integrate and achieve those cost saves. Bob, I don't know if you have anything to add to that.

Bob Fehlman -- Chief Financial Officer

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

Stephen Scouten -- Sandler O'Neill -- Analyst

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

George Makris -- Chairman and Chief Executive Officer

Well, I'll take a stab at it and Bob can correct me. You know, Stephen, most of our expense is 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 BSA area in order to handle the increased volume. We'll increase our community development officers based on CRA requirements in new markets that we'll undertake, but no significant one-time expenses remain, at least that I'm aware of. And Bob, you may want to address that.

Bob Fehlman -- Chief Financial Officer

Yeah, and I would say, I think as George said, I think our non-interest expense -- we believe 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 other consulting fees to get us up to these points; as we move into next year, some of that cost will move into either systems or into people in the modeling. But the overall cost is built in, it may just move from one bucket to another.

Stephen Scouten -- Sandler O'Neill -- Analyst

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

George Makris -- Chairman and Chief Executive Officer

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 past quarter. We think that'll even out going forward, and we certainly hope that our loan yield increases higher than our cost of deposits. We were very aggressive last quarter with some deposit promotions, particularly in the commercial area. We're very comfortable with where we are. We don't see a great increase in our deposit costs from where they are today, and in fact, if we can shift some of the deposits from some of the acquired banks -- there are 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, than we're gonna see going forward, and we would hope that both loan yields and deposit costs move up proportionately going forward. Barry, you might have a little different perspective on that, but I think that's the plan.

Barry Ledbetter -- Chief Banking Officer

Oh, 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 from treasury management, and we've hired a couple treasury management officers in some large markets that have done a lot of CRE loans, so we feel very positive going forward about the inquiries on some core deposits with some large commercial accounts.

Stephen Scouten -- Sandler O'Neill -- Analyst

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

Operator

Thank you. And our next question will come from the line of Will Curtis with Piper Jaffray. Please proceed.

Will Curtis -- Piper Jaffray -- Analyst

Good morning, everyone. George, can you update us on your appetite for future MNA, as you think about next year? Do you think the pace may slow down a little bit now that you've gained scale with the recent deals, or would you still feel comfortable doing multiple deals? So, I guess I'm just curious if your view on MNA has changed in any way after a pretty active year.

George Makris -- Chairman and Chief Executive Officer

Well, first let me make sure everybody understands that we are totally focused right now on the successful integration of both Bank S&B and Southwest Bank. That's a big deal to us, we've worked long and hard at it, and so have the associates at both of those banks. So, that is our top priority and we think that there is substantial growth 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 continuous market to where we currently are, but we have a lot of really priority markets in our current footprint, where we would really like to grow. So, we will have continued discussions, and maybe some new discussions, with some potential merger partners in some markets where we currently have a presence but not as big a presence as we would like to have.

So, I think what you will probably see is a shift, a little bit, from acquisitions in new markets to acquisitions in current markets that will increase our market share and help us deploy some of our non-interest income lines of businesses in markets that could be very attractive for us.

So, you probably know that on a pro forma basis, our non-interest income is gonna go from about 33% down to the mid-20% level. We need to build that up back over 30%, and we're gonna do that in the existing market. So that'll 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 six months, we're certainly prepared to go ahead and push that button.

Will Curtis -- Piper Jaffray -- Analyst

Okay, thanks. Very helpful. And then maybe just a last one -- I apologize if I missed it -- any sense for when you think you'll have a decision made on Heartland?

George Makris -- Chairman and Chief Executive Officer

We know that by the end of the year we will make a decision. It could be within three weeks. It's really too early to tell. We're taking a look at all our options in the market, and that is a sale of a 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 with maintaining their base of business. We got some very good folks that we 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, and fortunately the assets greater than the liabilities.

So, we're just gonna see how all that plays out in the marketplace, and hopefully, we'll know within two to three weeks which direction we're gonna go.

Bob Fehlman -- Chief Financial Officer

And Will -- just as George said, those are -- you can see on 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.

Will Curtis -- Piper Jaffray -- Analyst

Got it. Thank you very much.

Operator

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

Brady Gailey -- KBW -- Analyst

Hey, good morning guys. So maybe one more on MNA. George, now that you're over $14, headed to $15 billion in assets, what is the size range that you would look to acquire? Would you even consider a deal under a billion? Or what's the new sweet spot for MNA?

George Makris -- Chairman and Chief Executive Officer

Well, a 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 a billion dollars 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 footprints 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 Gailey -- KBW -- Analyst

Alright, and then my second question is on the provision. You know, if I listened to y'all's comments about the reserve, it sounds like we'll start to see some upward pressure on the provision. I know -- I think y'all got it to about $20 million for this year, so that's about $5 million a quarter. How much upward pressure do you think will be on the provision in 2018?

George Makris -- Chairman and Chief Executive Officer

Well, I still think based on our legacy portfolio, the current $5-5.5 million a quarter will take care of that. It's really gonna 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 at Bank S&B and Southwest Bank are very, very clean portfolios. So, our mark is very close to what they consider to be an appropriate allowance today. So, if we book a mark that's close to the allowance they need for their portfolio, as their loans migrate, that accretion income will go into our allowance to build it up to where it needs to be. So, that's about as much guidance as I can give you. We won't see tremendous benefits from accretion income dropping to the bottom line going forward.

Brady Gailey -- KBW -- Analyst

Okay, great. Thanks for the color, guys.

Operator

Thank you. And as a reminder, ladies and gentlemen, if you would like to ask a question at this time, please press star and then one on your telephone keypad. One moment for additional or follow-up questions.

...

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 Makris -- Chairman and Chief Executive Officer

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

Operator

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

Duration: 45 minutes

Call participants:

David Garner -- Investor Relations Officer

George Makris -- Chairman and Chief Executive Officer

Michael Rhodes -- Raymond James -- Analyst

Barry Ledbetter -- Chief Banking Officer

Bob Fehlman -- Chief Financial Officer

Matt Olney -- Stephens -- Analyst

Stephen Scouten -- Sandler O'Neill -- Analyst

Will Curtis -- Piper Jaffray -- Analyst

Brady Gailey -- KBW -- Analyst

More SFNC analysis

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