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Simmons First National Corp (NASDAQ:SFNC)
Q3 2019 Earnings Call
Oct 22, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Simmons First National Corporation Third Quarter 2019 Earnings Call and Webcast.

At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions].

I would now like to hand the conference over to your speaker today, David Garner. Please go ahead, sir.

David W. Garner -- Executive Vice President and Investor Relations Officer

Good morning and thank you for joining our third quarter earnings call. My name is David Garner and I serve as Controller and Chief Accounting Officer at Simmons First National Corporation.

Joining me today are George Makris, Chairman and Chief Executive Officer; Bob Fehlman, Chief Financial Officer and Chief Operating Officer; Steve Massanelli, Chief Administrative Officer and Investor Relations Officer; Marty Casteel, Chairman and CEO of Simmons Bank, our wholly owned bank subsidiary; and Matt Reddin, Simmons Bank's 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 this morning and to discuss the Company's outlook for the future. We will begin with prepared comments followed by a Q&A 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, we will make forward-looking statements about our future plans, goals, expectations, estimates, projections and outlook. I remind you that actual results could differ materially from those projected in the forward-looking statements due to a variety of factors. Additional information concerning some of these factors is contained in our SEC filings, included without limitation, the description of certain risk factors contained in our most recent Annual Report on Form 10-K and the forward-looking information section of our earnings press release issued this morning. The Company assumes no obligation to update or revise any forward-looking statements or other information.

Lastly, in this presentation, we will discuss certain non-GAAP financial measures we believe, provide useful information to investors. Please note that the reconciliations of non-GAAP metrics to GAAP are contained in our current report filed this morning to the SEC on Form 8-K and available on the Investor Relations page of our website, simmonsbank.com.

I'll now turn the call over to George Makris.

George A. Makris -- Chairman and Chief Executive Officer

Thank you, David and welcome to our third quarter earnings conference call. In our press release issued earlier today, we reported net income of $81.8 million for the third quarter of 2019, an increase of $26.6 million or 48.3% compared to same quarter of last year. Diluted earnings per share were $0.84 for the quarter. Included in third quarter earnings were $2.1 million in net after-tax non-core items. We had merger-related costs of $1.9 million, early retirement program expenses of $131,000 and branch rightsizing costs of $118,000. Excluding the impact of these items, the Company's core earnings were $84 million for the third quarter and core diluted earnings per share were $0.87, increases of $27.5 million and $0.26 respectively over the same quarter last year.

I would like to mention that we have been consistent with our inclusion of, among other things, securities gains and losses along with charitable contributions and provision expense in our core results, while excluding items such as merger related costs and branch rightsizing expenses from the core results.

We have done so again this quarter. However, this quarter we experienced several notable events that further impacted our results and never worth additional discussion. First, as is public record, Simmons Bank as a result of its merger with Bank SNB was a participant in a shared national credit to White Star Petroleum, LLC. White Star became subject to bankruptcy proceedings earlier this year and on September 30th, 2019 the Bankruptcy Court authorized the sale of White Star assets through the Section 363 proceed.

Our portion of the shared national credit is $19.1 million. Based on the anticipated net proceeds from pending bankruptcy sale, our loss recognized in the third quarter was $14.7 million. As a result of the loss, we made a special provision of $15 million to increase the allowance to the appropriate level consistent with our historical ratios.

Second, during the quarter we recorded the sale of our Visa Class B common stock. The gain on the sale of the shares was $42.9 million pre-tax. It's been our intention to fund our Simmons First Foundation with part of the proceeds from the sale of the Visa stock. We have previously contributed over $6 million to the foundation as an advance on that commitment. This quarter we contributed another $4 million to the foundation to bring our total contribution to over $10 million since its inception in 2014.

Third, we have previously mentioned our efforts to reduce our CRE portfolio selling some non-relationship loans.

During the quarter, we sold $114 million of loans and recognized $5.1 million loss, including sales fleets. Included in the loan balance was $82 million from the Reliance Bank portfolio and classified loans of $32 million primarily from the acquired portfolios of Bank SNB, Heartland Bank and Southwest Bank.

In summary, the net after-tax effect of these notable items is an increase to net income of $13.8 million for the quarter. I'll speak more on White Star loan later. Our total assets were $17.8 billion at September 30th. Our return on average assets from the third quarter was 1.83% while core return on average assets was 1.88%.

Our efficiency ratio was 43.8%. Our loan balance at the end of the quarter was $13 billion, a decrease of $124.1 million from last quarter. We were successful in reducing our real estate portfolio by $165 million. Our loan pipeline, which we define as loans approved and ready to close, was $639 million at the end of the quarter compared to $419 million at the end of the second quarter of 2019.

The projected weighted average life of the loans in the pipelines is 5.43%. On a consolidated basis, our concentration of construction and development loans was 108% and our concentration of CRE loans was 321% at the end of the quarter. Total deposits at September 30th were $13.5 billion, which was flat compared to last quarter and an increase of $1.1 billion from the year-end 2018.

Our non-time deposits were up $200 million, while our time deposits were down the same amount. Our net interest income for the quarter was $150.2 million. Included in interest income was yield accretion recognized on loans acquired of $9.3 million, which is down from $10.2 million last quarter. Of this amount, $4.4 million or 48% was accretable credit mark related and $4.9 million or 52% was interest mark related. Our net interest margin for the quarter was 3.81% compared to 3.92% at June 30th. The Company's core net interest margin, which excludes all accretion was 3.58% for the third quarter of 2019 compared to 3.66% for previous quarter. The 23 basis point difference between GAAP and core net interest margin included a 11 basis points of credit mark accretion and 12 basis points of interest mark accretion.

The rate decrease in the variable rate loan portfolio preceded our ability to manage deposit repricing, which contributed to the decrease in our net interest margin.

Our non-interest income for the quarter was $83.8 million, an increase of approximately $50 million compared to the same period last year. This increase was mainly a result of the gain on the sale of Visa stock previously discussed. In addition, we recorded a gain on the sale of securities of $7.3 million related to the sale of approximately $89 million of bonds as part of a plan to reduce wholesale funding and rebalance the portfolio. We also had an increase in mortgage lending income of $3 million compared to the same period in the prior year.

Non-interest expense for the third quarter was $106.9 million, an increase of $6.6 million over the same quarter last year. Core non-interest expense for the quarter was $104 million, which represented an increase of $5.5 million when compared to the third quarter 2018. $4 million of this increase was related to the Simmons First Foundation donation mentioned earlier. We also had incremental increases in several operating areas related to our recent acquisition of Reliance Bank.

Software and technology costs increased approximately $2.2 million over the same period in the prior year, related to our Next Generation Banking technology initiative that we had previously discussed. Our incremental IT expenditures during the third quarter were primarily related to this initiative.

I'm pleased to report that we're waiting to see real change associated with our NGB investment. Major milestone was accomplished during the third quarter, when we successfully completed the migration of our core banking platform to our vendor-hosted environment. This is the single largest conversion we've ever done. The seamless transition was very successful and has increased the security and the reliability of our systems.

In addition, on October 16th, we had an extremely successful launch of our new mobile banking app. Our new app makes us a formidable competitor in mobile banking and customer response has been phenomenal as evidenced by the 4.9 star rating from our users. We will continue to expand customer offerings through our digital channels.

At September 30th, the allowance for loan losses for legacy loans was $66 million with an additional $600,000 allowance for acquired loans. Loan discount mark $60.4 million for a total coverage of $127 million. At the end of the third quarter, non-performing assets were $93 million, an increase of $5.4 million from the second quarter. This balance is primarily made up of $72.9 million in non-performing loans and $20.1 million in other non-performing assets, which include $5.9 million in closed bank branches held for sale.

Our annualized, year-to-date net charge-off total loans were 38 basis points and the provision for loan loss for the third quarter was $22 million. The White Star loss is embarrassing and contrary to the credit culture here at Simmons. Because we were only a participant in the credit, we were limited both in our ability to act unilaterally and in our access to timely information. We learned some valuable lessons from this experience. We have changed the approval authority of any emerging loan to a bank like committee. All loan participations must also be approved by the bank like committee. And we are evaluating our whole limits on any single loan and on total borrower data. We will work to exit all purchase syndicated energy credits.

Currently we have $187 million in syndicated energy loans and with [Phonetic] Simmons is not the leading bank. We expect to exit at least $120 million of these credits by the second quarter of 2020.

Our energy portfolio currently includes two credits totaling $17.3 million, which were all non-accrual. Both loans are acquired loans from the Bank SNB portfolio. We've recently done a deep dive into our energy book and while things can obviously change, we're confident we have accounted for all classified credits as of September 30th, 2019 and have reserved them accordingly. In summary, we have balances of $426 million in energy credits or 3.33% of our total loan portfolio. During 2019, we have booked $87 million in new commitments, all of which are Simmons Bank controlled. We have booked no additional energy loans since the second quarter.

72% of the energy portfolio is upstream and only 7% is service related. In the future, we will emphasize that the energy loans we make [Phonetic] should be to customers with deep banking relationships with Simmons. I'd also mention that losses like this impact not only the Bank itself, but also appropriately its management, and I expect White Star wallets [Phonetic] to have a substantial impact on the compensation payable under the incentive plans for over 80 company executives.

Our capital position remains very strong. As of September 30th, common stockholders' equity was $2.5 billion. Our book value per share was $26.36, an increase of 11.4% from last year, while our tangible book value per share was $15.73, an increase of 16.7% from the same period.

Ratio of tangible common equity to tangible assets was 9.1% at September 30th. Our total risk-based capital ratio was 13.2%, while our Tier 1 leverage ratio was 9.1%. In our press release earlier today, we shared our initial projection for the expected increase in the allowance for credit losses that will occur at adoption of the new accounting standard. Based on current work completed today, we estimate that the ACL will increase by approximately 130% and 170% over the allowance based on June 30, 2019 loan levels.

However, when purchased discounts are considered, our ACL will increase by 10% to 30% over the June 30, 2019 total credit coverage ratio. The

estimated increase is driven by changes within the new standard and approaches used in modeling, not due to perceived increase in risk in the portfolio. This projection is simply an estimate as of point in time, modeled under fairly stable economic conditions and does not include the impact of our pending merger with The Landrum Company. We will continue to refine our methodology and assumptions and any adjustment to future reserve levels will be based upon the forecast of economic conditions of that time and the composition of our portfolio among other factors that will be subject to change.

While we expect significant changes related CECL, we do look forward to a single-line item representing the entire allowance for the total loan portfolio. The double counting will still require some explaining, but the current shift from acquired to legacy loan approvals [Phonetic] and elevated provision expense will go away.

We're excited to announce that we still target to complete our previously announced acquisition of The Landrum Company on October 31st, with an expected system conversion during the first quarter of 2020. We're really excited about the expanded market presence in several states, as a result of this merger.

Last week, our Board approved a new stock buyback program up to $60 million. We look forward to using this mechanism as market conditions warrant, as a method to increase shareholder value. Over the past five plus years, we've acquired 10 new banking partners. During that period, we've adopted new associates, products, services, processes, and certainly new markets. Over the next few months, we will evaluate our new organization and make adjustments consistent with our longer-term strategy.

We will continue to build the Simmons brand throughout the states we serve, by investing in those communities. We will examine our line-up of products and services. We will review the make-up of our loan and deposit portfolios, we will plan for the optimization of our physical locations, we will increase our efforts behind digital offerings to our current and future customers, and we will work to make sure we achieve the efficiencies we expect from our investment in technology.

Future M&A activity will be strategic, and we'll be prioritized to provide additional scale and market share in our current footprint similar to our expectations, regarding our newest partnership with Landmark Bank.

This concludes our prepared comments. We will now take the questions from our research analysts and institutional investor. I'll ask the operator to please come back on the line and read the instructions and open the call for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from David Feaster of Raymond James. Your line is now open.

David Feaster -- Raymond James Financial Inc. -- Analyst

Hey, good morning guys.

David W. Garner -- Executive Vice President and Investor Relations Officer

Hi, David.

George A. Makris -- Chairman and Chief Executive Officer

Good morning, David.

David Feaster -- Raymond James Financial Inc. -- Analyst

I'd just like to start on the core margin and kind of what your expectations are looking forward, and the impact of incremental 25 basis point rate cuts, given the market implications of potentially two in the fourth quarter.

George A. Makris -- Chairman and Chief Executive Officer

Well, I guess I'll start there. I think we've said this before that based on our loan portfolio, which is 50% variable pricing, our pricing of loans is going to accelerate versus the repricing of our deposits and it happened in a rising interest rate environment. It's also happening in a lower interest rate environment, and certainly one or two additional cuts will make that problem and even worse.

Now outside this, while we certainly pay attention to our net interest margin, we also try to manage our net interest income, which I think we did very effectively from other means in the third quarter. So we will expect to continue to have downward pressure on our net interest margin as long as the Federal Reserve continues to lower rates especially 25 basis points at a time on consecutive meetings. It's just not a very good position for the banking industry today. It's certainly not driven by readily available economic data. It is really hard to plan around and our work we cut out for it's just like every other work.

Robert A. Fehlman -- Senior Executive Vice President, Chief Financial Officer and Treasurer

David, this is Bob. I'll also point out that in Q4, Landrum will merge into the Company and their margin is lower. So to get a comparable, it will definitely be down a few basis points just on Landrum.

David Feaster -- Raymond James Financial Inc. -- Analyst

Okay. And then switching gears to loan growth, it sounds like demand is there. Given where your pipeline is, could you maybe quantify the payoffs and paydowns in the quarter, and expectations for growth going forward, given your commentary about cautious optimism in the market?

And then, just on the competitive side, I mean, we were hearing anecdotes about less equity and deals and more non-recourse and challenging pricing dynamics. Are you seeing this is as well, and is this causing you to pass on more deals even though demand is good?

Matthew Reddin -- President of Banking Enterprise

David, it's Matt. I'll take the first out of that. Our payoffs -- early payoffs was $500 million in the third quarter. But to your point on the loan opportunities, loan growth, I mean, with our pipeline at $639 million, I will tell you why that's above -- quite a bit above last quarter. We are seeing what others are seeing in the market-owned commercial real estate. While we're managing our concentrations prudently, there is a realistic possibility that some of that approved loan rate at close will fall out because of more competitive banks that are out there, both on rate and on structure, that we will price it and structure it the way -- to our credit standards and it falls out, it falls out and I expect -- we expect to see some of that -- with that sort of pipeline. But the demand is there, but we're cautious on our commercial real estate opportunities that come across our desk.

But I will tell you, in the third quarter, we grew C&I lending $400 million, which was very encouraging. You know that C&I production was true, core C&I customers that we've been pursuing for 12 month on a calling plan, and now we're getting the result of that. So that was very encouraging to us in the third quarter.

David Feaster -- Raymond James Financial Inc. -- Analyst

Okay. So let me -- I guess, looking out to next year, I mean do you kind of expect it to stay in the low-single digit realm or how do you think about loan growth next year?

George A. Makris -- Chairman and Chief Executive Officer

Well, we do expect low-single digit loan growth. We will continue to have to manage our CRE concentration. So while we may originate loans, our correspondent banking unit, they helping us in selling part of those participations to downstream buying. So I think our pipeline is very strong, we're going to be very disciplined in our underwriting standards. We are starting to see some less desirable structures come in the marketplace today. We're going to do our debt level best, stay away from those. It's an election year coming up, false economy, again, for at least another 12 months. We're just going to try to stay as neutral as we possibly can and not bet on either side of the equation.

David Feaster -- Raymond James Financial Inc. -- Analyst

Okay. And then last one for me. Just -- could you talk about your capital priorities? It sounds like you anticipate being more active in repurchases going forward. But how do you look at buybacks versus M&A? And with the Landrum deal and given that you're kind of already in the capital ranges that you've laid out, do you see opportunities to optimize the capital stack to fund repurchases, or do you think you could go to the lower end of your targeted ranges?

George A. Makris -- Chairman and Chief Executive Officer

Well, I think in this time of uncertainty, we would prefer to be at the upper end of our range from a capital standpoint. We're sort of in an adjustment period, David right now. I think I mentioned in the comments that over the last five years or six years, we've put a lot of banks together, we brought a lot of new people, a whole lot of new products, new markets together. Some of that, we will build into our long-term strategy, some of it we'll evaluate. We might decide we don't like this quite as much as we thought we did, and we'll make an adjustment.

the Landrum acquisition, as you know, is our largest to-date. It's in three very distinct markets. So we need some time to be able to integrate and excellent associates that will pick up Landmark into the Simmons organization. So I would expect that from an M&A perspective, we're not going to be really aggressive early on in 2020. The valuation in marketplace today, makes it much tougher to get a deal done under our disciplined metrics. Particularly from a private bank standpoint, it really doesn't understand bank valuation in the aggregate. So we've got plenty on our employees to keep us busy.

From a stock buyback standpoint, you probably saw we sold our Visa shares. And quite honestly, we do what most of our investors do, and that is, we take a look at really good opportunities in the marketplace. Now you probably know that Visa went from $121 a share in December to today $175 plus change. That's a pretty good increase from one year out, I don't care what stock it is. And you know that our stock along with other bank stocks have been depressed. So from an investment standpoint, we just believe it's better to monetize an off-balance sheet investment and take that money and invest it in something we believe has long-term value. So that's how we should at the stock buyback and the timing of the leases cycle. So we're committed to strong capital levels, and of course, with CECL coming in and the impact that it's going to have on capital to begin with, we're more conscious today maintaining those levels than we have been in prior years.

David Feaster -- Raymond James Financial Inc. -- Analyst

Okay. Thanks guys. Appreciate it.

George A. Makris -- Chairman and Chief Executive Officer

You bet.

Operator

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

Stephen Scouten -- Sandler O'Neill & Partners LP -- Analyst

Hi guys, good morning.

George A. Makris -- Chairman and Chief Executive Officer

Good morning.

David W. Garner -- Executive Vice President and Investor Relations Officer

Good morning.

Stephen Scouten -- Sandler O'Neill & Partners LP -- Analyst

Curious going back to the core NIM, I think last quarter, maybe the number was about 3.66% guidance for the rest of the year. Obviously, we're down at 3.58% here today with the prospect of more cuts. are you guys willing to give an actual number there on the guidance or you think that core NIM will shake out, is it more of a below 3.50%s kind of number?

Robert A. Fehlman -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Steve, this is Bob. I would say, right now, given the volatility and -- we're not willing to give a rate out there. What I'd tell you is, we look at the futures just like everybody else. A couple of weeks ago, we looked at the rate increase they expected for this next meeting, it was down at 20%. Well, right now it's up to almost 90%. It just changes in just a couple of weeks. So trying to project where that's going to be, we can -- banks in general, can manage the NIM when you have moderate increases or decreases in pricing. But when it moves on a regular basis like it has, and as projected, it's hard to give -- take the volatility out of those numbers. So, as George said earlier, our goal is to manage the net interest income [Technical Issue] and the income under -- the net income on the income statement, not necessarily to the NIM rate.

Stephen Scouten -- Sandler O'Neill & Partners LP -- Analyst

Okay, fair enough. And I think you said on that pipeline, that average projected loan yield was like 5.43% on that $600 million plus versus, I think if I'm calculating it correctly, your current core loan yield is around 5.19%. So can you talk about how you're getting a higher average yield on new production today, or kind of what the composition of that, that's driving the higher yields?

Matthew Reddin -- President of Banking Enterprise

Steve, a great question. We're -- we remain different to our pricing standards, while still -- I mean, to Bob's comment, to the market and what rate environment looks like. But we're holding our bankers accountable to our pricing standards. And so far, now [Indecipherable] now, what you don't see in our comments is month-over-month, we track that number and it is coming down. It's coming down 6 basis points to 8 basis points month-over-month. So we're still above -- we're pleased with where we're at, but it is coming down with the overall prime yield to the market.

Stephen Scouten -- Sandler O'Neill & Partners LP -- Analyst

Okay. And is there any mix shift change from what you guys have done in the past, or is it still about the same from a variable rate fixed rate perspective?

Matthew Reddin -- President of Banking Enterprise

We have -- we are trying to be very -- George is probably -- talking very neutral, probably balanced with fixed and variable in a volatile environment right now with interest rates. As Bob said, [Indecipherable], so we're trying to say 50-50 on fixed and variable.

Stephen Scouten -- Sandler O'Neill & Partners LP -- Analyst

Okay, great. And one last one for me. On the theory concentration, you guys talked about continuing to manage that down, maybe with your -- with future sales. Is there, I mean does that need to go below 300% or is there a target where you're working toward, and if so, why specifically?

George A. Makris -- Chairman and Chief Executive Officer

Well, obviously for us, 300% level is regulatory guidelines. So we would prefer to be within regulatory guidelines. Now, I'll remind you that we roll Landmark Bank into our loan portfolio, because of their significantly lower CRE concentration. That's going to help it quite a bit. We are also continuing to pursue selling or letting non-relationship CRE loans run off the books. So we think it's going to be a natural process over the next six months to eight months. You know what -- what we really going to focus on here is, not necessarily are CRE overall concentration, but our construction concentration.

As we get into -- where certain times, we want to make sure that the construction projects that we were planning are good, solid, regardless of economic conditions. And I would tell you that we're much more focused on making sure that construction lending is appropriate as opposed supposed to our more adverse CRE portfolio.

Stephen Scouten -- Sandler O'Neill & Partners LP -- Analyst

Okay. That's really helpful. Thanks, George. Thank you, guys.

George A. Makris -- Chairman and Chief Executive Officer

You bet.

Operator

Thank you. And our next question comes from Matt Olney of Stephens. Your line is now open.

Matt Olney -- Stephens Inc. -- Analyst

Hey, thanks. Good morning, guys.

George A. Makris -- Chairman and Chief Executive Officer

Hi, Matt.

Matt Olney -- Stephens Inc. -- Analyst

George, I think you mentioned the amount of the energy loans outstanding at this point. Can you just go ahead and repeat what that number is? And is there any kind of specific allowance on the energy book or since some of those loans were acquired, do you have the remaining amount of the discount on those loans? I'm just trying to appreciate what the losses could look like as you exit the $120 million of loans that you're -- that you will not be agent? Thanks.

George A. Makris -- Chairman and Chief Executive Officer

So to go this one more time, we have $187 million in syndicated energy loans in which we are not the lead bank. So situation, hopefully not like White Star, but we don't control our own destiny. That's not typical of Simmons and it's something we're uncomfortable with. So we have already given notice to lead banks that we went out of those scripts. So as the next redetermination day comes up or as we are able to plan someone to take our place, we expect to get out. We don't expect any loss to get out of those rulings.

We have $17.3 million of non-accrual energy credits that only is two credits. Both of those were acquired from the Bank SNB portfolio. We think that we have appropriately reserved for any potential loss in those loans, so we don't expect any more. The rest of our energy portfolio is performing, but I will mention again that this year. Every energy loan that we put on the books is controlled by Simmons Bank and it has a pretty deep deposit relationship with the bank.

We put no new energy loans on the books since the second quarter. So in the third quarter, no new energy loans. So we're really taking a good hard look at our energy portfolio. How it fits into the rest of our lending appetite, we've stepped out a little too far with regard to syndicated credits where we have no further banking relationship and really don't have control over that credit. We've been bitten pretty hard about White Star loss and we certainly don't want to go through that again. So we're fairly comfortable with where we are today, Matt. We've got total energy credits of $426 million, which is only 3% of our total portfolio. That number is going to work down as we exit some of these syndicated credits.

Matt Olney -- Stephens Inc. -- Analyst

Okay, thanks for that color, George. And I guess, of those two specific loans that are on non-accrual, the $17 million, what's the reserve allocated to those two credits?

George A. Makris -- Chairman and Chief Executive Officer

Matt, we're going to have to get back with you on that, because we don't that information right out of our head.

Matt Olney -- Stephens Inc. -- Analyst

Okay, that's fine.

George A. Makris -- Chairman and Chief Executive Officer

Okay.

Matt Olney -- Stephens Inc. -- Analyst

And then, going back to the discussion around the core margin, I guess, the core margin was down, call it 9 bips in the third quarter and it looks like the Fed wants to cut again next week. So can you just kind of talk around that 9 bips compression in the third quarter as we think about the fourth quarter? Is that a good place to start, assuming that Fed does cut next week and that's before we assume any impact from the Landrum bill that is going to close here in a few days?

George A. Makris -- Chairman and Chief Executive Officer

I wish my crystal ball gave me that answer. Just backing up a little bit, this time last year, we were in the mode of raising some traditionally low deposit pricing to be fair to our customers, because we have lagged behind rate increases and we took the benefit of higher loan rates but we didn't pass loan [Phonetic], anything to our customers. So we got into the mode of moving it up to all our deposit pricing, and then all of a sudden, the Fed turned and all of a sudden we're going back down.

So we're in that period of time of trying to make that shift ourselves. Our loans repriced mean [Phonetic], I mean, they are on some index that changes, and there we go. We just have to make sure that we're fair to our deposit customers, as we adjust deposit pricing. If [Indecipherable] 25 basis points, our loans are going to go down, we're going to continue to move deposit pricing down, but at a fair rate. If they do it again, it just exacerbates the problem. So, they need to make up their mind, which way the economy is going and give us some indication, so we can manage that in the field. And I'll tell you, the real end result of that is, our customers are scratching their head going, we don't really see these problems that are justifying rate cuts in the economy today, but I must be out there otherwise, we wouldn't have rate cuts.

So that's the cautious optimism that I was talking about. Our customers don't necessarily see it, but I believe it must exist, because of actions related to interest rates. So it's a very frustrating situation, not only for us, but for the entire banking industry.

Matt Olney -- Stephens Inc. -- Analyst

Sure. Yeah and you're showing no loan fee in the margin pressure, so definitely appreciate that. George, something else that you mentioned that was interesting. You said the Simmons was currently in, I think you called it an adjustment period. And I don't think you've characterized it like that in recent years, but you have acquired several banks. So I just want to understand this adjustment period. What's on the table? Would you consider additional exit for the asset classes or geographies or divestitures? I just want to fully appreciate kind of what this adjustment period means for Simmons First?

George A. Makris -- Chairman and Chief Executive Officer

Well, I think everything's on the table. And I'll start by saying that because of the Landmark acquisition, we are restructuring our geographic management. So we're able now to look at stating our state geographies. That's one real benefit of adding a bank like Landmark our footprint. It gives us scale and able to manage in certain geographies better than we could before.

Our budget process is changing completely. We used to budget by our business unit, now we're budgeting revenue by geography. So every business unit is going to be required to have revenue goals in every geography. And that's consistent with what we've said all along, and that is that in our community banking structure, we will have all of our products and services available to all of our customers in every geography where we do business. That has not been the case entirely. So a lot of it's mainly because we don't have or didn't have at the time, scale to support some of those revenue-generating business units. We do today.

So those are the kind of adjustments that we're really take a look at today. We have to make sure that we integrate the Landmark locations, because you know Missouri is going to be a stand-alone unit, part of Landmark's locations are in reserve. Oklahoma and Kansas is going to be a stand-alone unit. Part of Landmark's locations here in Oklahoma. Texas is going to be a stand-alone unit. Part of the Landmark locations are in Texas. So we've got an adjustment period for all of those geographies to make sure that we're all on the same page and understand our long-term goals. So while we always take a look at branch rightsizing, that includes exit markets. What's more important for us is to make sure that we focus on revenue-generating opportunities in our new geographic structure.

Matt Olney -- Stephens Inc. -- Analyst

Okay. Okay, great. And I guess, the last question for me. I appreciate on the Visa shares, I appreciate the commentary about reallocating capital elsewhere. So it is safe to assume you don't have any additional Visa B shares remaining at this point?

George A. Makris -- Chairman and Chief Executive Officer

That is correct.

Robert A. Fehlman -- Senior Executive Vice President, Chief Financial Officer and Treasurer

That's correct.

Matt Olney -- Stephens Inc. -- Analyst

Okay. Thank you guys.

George A. Makris -- Chairman and Chief Executive Officer

Thank you, Matt.

Operator

Thank you. And our next question comes from Brady Gailey of KBW. Your line is now open.

Brady Gailey -- Keefe Bruyette & Woods Inc. -- Analyst

Thanks, good morning guys.

George A. Makris -- Chairman and Chief Executive Officer

Hi, Brady.

Robert A. Fehlman -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Good morning.

Brady Gailey -- Keefe Bruyette & Woods Inc. -- Analyst

So looking at the expense base, I know we talked about having expenses around that $100 million mark per quarter. It was a little higher than that even if you exclude the merger charges, a little higher than that in the third quarter. That maybe just your outlook -- absent the Landmark deal, that maybe just your outlook for how expenses will trend at Simmons going forward?

Robert A. Fehlman -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Yeah. First -- Brady, this is Bob, I'd say we're -- the core earnings when you back out the merger-related like you said, was about $104 million. $4 million of that was specifically related to the foundation. So that would put us right at the $100 million range and that's about the guidance we've been given as close to that $100 million. We are below in the second quarter and a lot of things kind of hit just right third quarter, was more on a normalized basis.

You take that $100 million and as we've been saying, there is probably a couple of million dollars in NGB expense that will be going on the books each quarter. So there is -- that baseline goes up from $100 million to $102 million, $104 million per quarter. And then just giving you a little color on Landrum, if you just take their numbers today, they are about $23 million -- $22.5 million -- $23 million a quarter, fully in our non-interest expense.

They will operate on a -- as a stand-alone bank through President's Day is what our expectation is for conversion right now.

So we won't have much in cost saves until after that point. Then there will be a measured period over a couple of months. So you can take that $23 million and we announced before, 35% cost saves. If that's our number, that would put us on a normalized basis, say, by Q3 to Q4 an additional of about $15 million. So you'd add -- you'd be adding between $23 million per quarter going down to about $15 million by the end of the year.

Brady Gailey -- Keefe Bruyette & Woods Inc. -- Analyst

Okay, that's helpful. And then the FDIC assessment credit, it looks like that was -- that positively impacted expenses by about $2.5 million. Is there any of that left or was that fully realized in the third quarter?

Robert A. Fehlman -- Senior Executive Vice President, Chief Financial Officer and Treasurer

We may have another $1.5 million or so in the fourth quarter. It's all dependent on their final numbers we get from the assessment, but obviously for all the banks, that's a nice little positive after all these quarters.

Brady Gailey -- Keefe Bruyette & Woods Inc. -- Analyst

Okay, great. Thanks for the color, guys.

George A. Makris -- Chairman and Chief Executive Officer

You bet.

Operator

[Operator Instructions] And our next question comes from Gary Tenner of D.A. Davidson. Your line is now open.

Gary Tenner -- D.A. Davidson -- Analyst

Hey guys, good morning. I [Speech Overlap] if you went through the spread. In terms of credit, I'm looking at NPAs, excluding TDRs, NPAs were relatively flat this quarter even with the resolution of the White Star credit. So can you talk about kind of inflows into NPA status during the quarter and then also comment on migration of special mention and classified credits during the quarter?

George A. Makris -- Chairman and Chief Executive Officer

Sure. During the quarter -- and I will tell you, the one thing that I am looking forward to with broad CECL is that at all our credit coverage is going to be in one place. Currently, we have the loan mark against the acquired portfolio, we have the allowance against the legacy portfolio. During the quarter, we have loan that moved from the acquired bucket to the legacy bucket that we restructured. It's all non-accrual, we don't expect any loss. It has about three parts to the total loan balance and that total loan balance is well under $20 million. So that one relationship is primarily responsible for the flat-to-up a little bit of non-performing loans even with White Star charge-off. So we continue to manage from acquired in the legacy and that was primarily the result of the numbers for this quarter. One loan improved over from acquired banks.

Gary Tenner -- D.A. Davidson -- Analyst

And what type of credit is that one?

George A. Makris -- Chairman and Chief Executive Officer

It's...

Robert A. Fehlman -- Senior Executive Vice President, Chief Financial Officer and Treasurer

CRE.

George A. Makris -- Chairman and Chief Executive Officer

It's a CRE loan out of the Denver market.

Gary Tenner -- D.A. Davidson -- Analyst

I'm sorry, out of which market?

George A. Makris -- Chairman and Chief Executive Officer

Denver.

Gary Tenner -- D.A. Davidson -- Analyst

Denver. Thank you. And then just in terms of kind of loan, loan rating, migration or otherwise?

Matthew Reddin -- President of Banking Enterprise

We saw no migrations one way the other, as far as we were -- as I [Indecipherable] George's comment, we were neutral to that point. We saw no trend, we have not seen any trends on our risk rating metrics that are moving toward a negative trend or on the conversion. And we were proactively looking at our portfolio on a quarterly basis and there are downgrades and upgrades, but no trend that shows a migration one way.

George A. Makris -- Chairman and Chief Executive Officer

Gary. Of course, the history of Simmons goes back a long time. I'm not sure that we have -- that we had loss as significant as what we experienced with White Star. And when that happens, you don't hit the panic button, but everybody starts to take a look at what's next. And I'll say that I'm pretty confident that our credit team took a good hard look at our portfolio over the last quarter to identify any other surprises that might be out there now. Not going [Technical Issues], as we said before, things can change, but we're fairly comfortable with where we are today.

Gary Tenner -- D.A. Davidson -- Analyst

All right, thank you.

George A. Makris -- Chairman and Chief Executive Officer

You bet.

Operator

Thank you. And this does conclude our question-and-answer session. I would now like to turn the call back over to George Makris for any closing remarks.

George A. Makris -- Chairman and Chief Executive Officer

Well, thank you very much. Bob and I came to tell that this quarter is going to have more noise in it than ever before. We have no acquisition that we announced during that period of time. So we appreciate your patience with us this morning. We're also pleased with our results in the third quarter. We're not looking forward to additional rate declines, but it looks like they're coming, and we'll just make adjustments there. So if there no other questions, have a great day. We appreciate your attendance this morning.

Operator

[Operator Closing Comments]

Duration: 53 minutes

Call participants:

David W. Garner -- Executive Vice President and Investor Relations Officer

George A. Makris -- Chairman and Chief Executive Officer

Robert A. Fehlman -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Matthew Reddin -- President of Banking Enterprise

David Feaster -- Raymond James Financial Inc. -- Analyst

Stephen Scouten -- Sandler O'Neill & Partners LP -- Analyst

Matt Olney -- Stephens Inc. -- Analyst

Brady Gailey -- Keefe Bruyette & Woods Inc. -- Analyst

Gary Tenner -- D.A. Davidson -- Analyst

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