James Tippit - IR David Brooks - CEO Michelle Hickox - CFO.

Michael Young - SunTrust Brady Gailey - KBW Brett Rabatin - Piper Jaffray Brad Milsaps - Sandler O’Neil Matt Olney - Stephens Michael Rose - Raymond James.

Good day, ladies and gentlemen and welcome to the Independent Bank First Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time.

[Operator Instructions] I would now like to introduce your host for today’s conference call, Mr. James Tippit. You may begin, sir..

Good morning, everyone. Welcome to the Independent Bank Group first quarter earnings call. We appreciate you joining us this morning. The related earnings press release and a slide presentation can be accessed on our website at ibtx.com. Before we get started, I would like to remind you that remarks made today may include forward-looking statements.

Those statements are subject to risks and uncertainties that could cause actual and expected results could differ. We intend such statements to be covered by Safe Harbor provisions for forward-looking statements. Please see page four of the text in the release or page two of the slide presentation for our safe harbor statement.

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

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

I am joined this morning by David Brooks, CEO; and Michelle Hickox, CFO. At the end of their remarks, we will be happy to address questions. With that, I will turn it over to David..

Thanks James. Good morning everyone and thank you for joining us. As usual, I will briefly touch on some highlights and then turn over Michelle to cover the operating results. We are off to a good start in 2017; first quarter earnings remains strong and continue to improve.

Net income was $15.7 million and represents a 26% increase in net income from the first quarter of 2016. ROI was 1.08% and return on tangible equity was 15.5%, which represent another quarter of increases in these ratios. A quarterly earnings and annual trend chart on page six of the slide deck.

Loan growth continues to be solid at 11.5% annualized for the first quarter, which historically is a seasonally low quarter for us. We continue to see growth in all markets across our footprint. Asset quality remains strong with credit metrics improving during the quarter from an already historical low.

While not included in our first quarter results, we focus significant effort on completion of the Carlile acquisition, which closed on April 1st. Now, we can get to work on integration and efficiencies we expect from this merger, with the operational conversion planned for early fourth quarter of this year.

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

Michelle?.

Thank you, David. Good morning, everyone. Please note that slide five of the presentation includes selected financial data for the quarter.

Our first quarter core net income was $16 million or $0.84 per diluted share compared to $12.4 million or $0.67 per diluted share for the first quarter of last year, and the $15.5 million or $0.83 per diluted share for the linked quarter.

As you can see on slide seven, net interest income increased to $47.9 million for the first quarter from $46.5 million in the fourth quarter and the net interest margin increased 8 basis points from the fourth quarter and decreased 41 basis points from the same quarter last year.

While we did see an increase in deposit cost over last quarter of 5 basis points, our earning asset yield increased by 12 basis points from the fourth quarter. This was [audio gap] investment yields and interest paid on cash balances, but we did see our loan yield increase by 3 basis points as well.

Total non-interest income increased to $113,000 compared to the first quarter last year, and decreased $641,000 compared to the previous quarter. The increase here is primarily due to increased service charge income, increased earnings on BOLI policies acquired in July 2016 offset by decrease in mortgage fee income.

For the linked quarter, the decrease is primarily due to a drop in mortgage fee income that also related to non-recurring income we recognized in the fourth quarter for a change in bank card vendors. First quarter mortgage income is normally seasonally lower but has also been impacted by increases in interest rates.

Total non-interest expense decreased $491,000 from the first quarter last year and increase $667,000 from the prior quarter. The decrease from prior year is primarily related to lower acquisition expenses.

Salary and benefit expense increased from fourth quarter due to increased healthcare benefit cost, annual pay adjustments and seasonal payroll tax increases for restricted stock vesting and bonuses. This increase was partially offset by a decrease in acquisition and FDIC insurance expense.

The provision for loan loss expense was $2 million for the quarter which decreased slightly compared to the linked quarter at $2.2 million and a decrease of $974,000 from the prior year. Prior year provision expense was higher due to reserves taken for the energy portfolio.

Generally, provision expense correlates with net loan growth and level of charge-off or specific provisions. Slide 12 in the slide deck illustrates our provision expense and charge-offs in each reported periods. Our effective tax rate for the quarter was 30% compared to 33.1% and 33.4% in the prior year and linked quarter, respectively.

The decrease in our tax rate was related to tax benefits recognized on vesting and restricted stock during the quarter. This is due to adoption of new accounting guidance which is effective in 2017. In previous periods, this benefit was recorded directly to additional paid-in capital.

Loan growth during the quarter was good with loans held for investment growing 2.8% from December 31, 2016 or a 0.5% on an annualized basis. We continue to experience growth in all of our markets. See slide nine for annual growth comparisons. All of our credit quality metrics remain strong.

Total non-performing assets represented 0.27% of total assets at March 31st 2017 compared to 0.3% of total assets at December 31, 2016 and 0.62% at March 31, 2016. Charge-offs remain low at 0.02% annualized for the quarter.

As illustrated on slide 13, the energy portfolio decreased to a $106 million at March 31, 2017 versus a $125.3 million as of December 31, 2016 and now represents only 2.3% of total loans. The energy related allowance is 5% of the energy portfolio at quarter-end. Deposit composition and costs are illustrated on slide 14.

We experienced good deposit growth in the quarter with total deposits of $4.72 billion at quarter-end compared to $4.58 billion at year-end 2016. Our specialty treasury group has been successful attracting deposits.

The average cost of interest bearing deposit to 58 basis points was up 5 basis points from the fourth quarter, up 53 basis points and up 10 basis points compared to the first quarter prior of year at 48 basis points.

While we have not increased our stated rates on deposit products, we do have certain variable rate deposits that were impacted by the Fed’s December and March rate increases. Borrowings used for liquidity and interest rate risk purposes as needed remains stable during the quarter. Note on slide 15, our capital position as of March 31, 2017.

Our TCE ratio increased to 7.24% and our total capital risk-weighted assets was 11.44%. All regulatory ratios improved from year-end and remain in excess of well-capitalized levels. That concludes my comments this morning. So, I will turn it back over to David..

Thanks, Michelle. 2017 has started off on a really positive note for us. Loan growth continues to be solid and we experienced continued improvement in earnings and profitability metrics. I am especially proud of our teams for executing Carlile acquisition so efficiently and timely.

Our ability to get this transaction from announcement to close in only 4.5 months demonstrates how we continue to execute our acquisition strategy as well as the strength and experience of our entire team. Carlile team was also a big part in helping us make this happen.

We are very excited to have them onboard with Independent Bank now and look forward to growing in our new markets including Colorado. We remain focused on consistent, strong earnings performance, enhancing our shareholder value, and we believe our first quarter results continue to demonstrate our commitment to those goals.

Thank you for joining us today. And we will now open the call to questions.

Operator?.

[Operator Instructions] Our first comes from Michael Young with SunTrust..

Hey, good morning..

Good morning, Michael..

I wanted to start maybe on the loan growth side, obviously very strong in the first quarter.

Could you maybe give us a feel for maybe geographically where that was driven? And in particular, David, I’m just curious I know Houston was growing a little slower last year and with the energy down, has that picked back up now?.

It has, actually, not ironically, Michael, to your question, but we grew, had our strongest growth in Huston, slightly stronger than North Texas, and then Austin was off a little bit in terms of growth pace in the first quarter.

Again that’s just nothing but they closed a number of deals late in the fourth quarter, and they’ve got a good pipeline here for the second and third quarter. But actually in terms of deals closed in the first quarter on a percentage basis, we closed more in Huston than any of our other markets, but again robust growth across all of our markets..

Okay, great.

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

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

Okay, perfect.

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

Yes. And so, we did get our deal closed April 1st.

But even prior to that in the first quarter, once the deal was announced late in the fourth quarter, in the first quarter, we spent some time, our senior team up there and have really worked hard to get to know that market, worked hard to get to know some of the bank leadership up there that other banks that we’ll be competing with.

And we really like everything we felt about the Denver and that Front Range North of Denver and South of Denver those markets very positive. We think their growth, their demographics of growth, current growth prospects are -- everybody’s as good as the three markets we’re in Texas. So, we like them a lot.

I would say we’re still early in the process, Michael, I told our Board to expect it to take three or four quarters here for us to really get a feel for the market. We’re in the market right now hiring some talent and just looking at our footprint to see where we want to be a year from now.

But we’re encouraged by the market, and we’re working hard to figure out a way to make that work for us..

Our next question comes from Brady Gailey with KBW..

So, just one more follow-up on Colorado.

It feels like there could be a couple of banks for sale in Denver, is that something that you all would potentially be interested in?.

We would, we’re looking at all possibilities, Brady, and there have been couple of announced deals up there recently. And I think there will be more here over the next few quarters. It appears there’re a lot of people are trying to grow their market share in Colorado.

So, that’s a factor as we think about how we’re going to grow there that there are a lot of banks that they are looking around for opportunities to grow. So, that all factors in. I don’t think we’ll be looking for a major acquisition there in the short-term, Brady.

So, we could add on a small piece here and there but I don’t think we would be a player -- I don’t think we would be a player for a bank like the size of Carlile or bigger up there..

Okay.

And then, another is onetime benefit to the tax rate in the first quarter but maybe some color on where do you think the forward tax rate should be for the rest of the year?.

I think our -- if you look at our normal tax rate, it’s probably going to be closer to around 33% which has been over the last few years. And we do have some more stock grants vesting this quarter that will benefit it. I don’t think the number’s going to be quite as big, but it should be close.

But then, we will also have some expense this quarter related to the acquisition that won’t be deductable. So, it will offset that a little bit. But, I would generally think about our tax rate at 33%. With this new accounting guidance, it will be more volatile when we have stock divest..

Okay. And then, finally for me, I mean David, maybe just your updated thoughts on your capital base. I know TCE is a little thin, but it will bit a little go higher with Carlile, you’re also still over the 300% CRE-to-capital. We’re just seeing more and more banks that are over 300% to raise capital to get back under 300%.

May be just updated thoughts on kind of what you guys stand on the capital front and how you’re looking at the rest of the year?.

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

Right. On a pro forma basis with the Carlile deal, it’s over 7.50; I think it’s less than 7.52. .

Yes. So, it’s going -- the capital level will go up a little bit when we consolidate them at the end of this quarter in terms of financial statements and Carlile portion being ready, so 7.5 plus on the TCE ratio. We’re still projecting our CRE ratio with the merger to be 3.80 or so.

And so, let’s start with the back; it’s not our objective to be below 300%. That has not been our history or our policy or our strategy. So, again, we’re paying close attention to it and we also don’t intend to be at 500%.

So, in answer to your question or I think the implication, Brady, is we do not intend to raise capital to try to push that ratio down further. Capital we raise at this point would be in connection with a merger acquisition type transaction.

And other than that we do not expect if we were not able to do any M&A for the next 18 months, for instance stay the balance of this year and all of 2018, I would not expect that we would raise any capitals with the organic growth, with our profitability level we can support the organic growth that we expect over the next 18 months..

Our next question comes from Brett Rabatin with Piper Jaffray..

I wanted to ask, you guys have about 9% of your portfolio in healthcare and credit quality quarter but I’m just curious as you guys have kind of taken a look at that portfolio, given we’ve had a few banks that have managed to have a charge-off or two or one-off kind of situations if you guys spun up [ph] that portfolio and do you see anything that maybe has any similar ways to what the market spins in?.

Yes. Thanks, Brett. I know there has been some attention around the healthcare lending this quarter. Our portfolio is quite granular; it’s the same type of healthcare lending we’ve been doing for the last 25-30 years, which is doctor practices, medical office buildings, equipment loans, two doctors and specialists.

We don’t have any shared national credits in the healthcare space. So, we have not participated in any of the kind of a big roll-up strategies or hospital consolidation strategies or any of those things that maybe have gotten a little more attention lately. So, we continue -- we’ve been a strong healthcare lender now for 30 years suburban growth.

As new hospitals build, for instance in our home -- headquarters community here in North of Dallas, McKinney has gotten a new large regional hospital in the last couple of years to go with another large regional hospital that’s been here for the last 30 to 40 years.

And so, we now have two major regional hospitals that growth related to that second hospital coming in and all the new doctors and all the new practices and the fact our community over the last -- this is just indicative of the North Dallas space we’ve talked about lately with all the new headquarters coming in here to the North Plano-Frisco- McKinney area.

Community has grown from 40,000 people to 170,000 people that creates new opportunities in healthcare space. And we have all of our loans originated by us. We don’t buy participations in healthcare loans; we don’t have hospital -- we don’t make loans for hospitals specifically.

Almost all of our loans have been guarantors, doctors, individually guarantee and a practice loan or a new building loan.

And our exposure is spread across all of our markets, North Texas, Austin, Houston where we have strong healthcare lenders in all of those markets and our portfolio is very granular, very small pieces, average loans in that space are going to be under $1 million if you look at our whole portfolio. So, no concerns at all.

We have obviously with the attention that has gotten here lately, we’ve been paying close attention but we feel good about where we are and we’re going to continue that. We like that business a lot..

Okay, that’s great color around that. And then, I guess the other thing I was curious about was just going back to Carlile, thinking about the expense saves. I know you said fourth quarter integration, just thinking about the 17 million or so that you’re going to pull out the first year.

Is the pace kind of more backend loaded the next few quarters or can you give us any color around the expense base from Carlile?.

Yes. Let me handle that from a high level first and then Michelle may have some more specific comments I miss here, Brett.

But that’s a great question and a great pickup on your part that we got the acquisition closed really on the shorter stand of our window when we thought we would be able to get it done and little over four months from announce to close.

And so that’s a good news, because I think that always be risk in these things and there is always world geopolitical risk and all those things. And so, we do like to get our deals closed as quick as we can, things that don’t tend to change as much and quickly you get it done.

But that said, in this case, we’ve got the longest or furthest out data conversion and operational conversion of the bank that we’ve had on any of our transaction. So, typically, we’re looking at around 3-4 months after we close on a deal to do the operational and data conversion. In this case, we’re not doing that until early October.

So, it’s a six-month window where we’ll run with 2 separate systems and so almost all of your personnel saves and data saves and all that doesn’t happen until after you do that operating conversion. So that will be -- we really won’t see all those saves until during the fourth quarter.

So, they won’t show up on our run-rate until first quarter of 2018. And so, when we get our modeling last year around this acquisition, the thought was that we thought we get it closed in early mid-second quarter, get the data converted in the third quarter, and then have pretty good chance at some earnings accretion in the fourth quarter.

I think our thinking on that has pushed back a bit, Brett, to your point.

And also there is another factor that I wanted to mention in connection with that and it is that, while we have had a very robust retail mortgage operation inside of the historic Independent Bank footprint, mortgage is a bigger piece of Northstar’s bottom line, Carlile’s bottom line than it is of ours.

And so, as an example, it would be maybe around 1% of our net profit at Independent; it’s closer in that 12%-13% of what Northstar is bringing over. So that business was slow in the first quarter. Now, we didn’t know it in the first quarter, so it didn’t affect our numbers in the first quarter.

But, there could be some headwind as we’re looking out for the balance of this year second, third and fourth quarters around that retail mortgage piece coming in from Carlile and also they have a very small mortgage warehouse operation that was also off a bit in the first quarter. So we’re just looking at that.

And I think we had projected and when we announced this Carlile acquisition in November of last year, Brett, we said that our models were showing 3.5% or so accretion in earnings in 2017 from the deal which would have been $0.12 I believe, Michelle said.

I think -- we think now given the two factors we’re talking about, one the delayed operating conversion into the fourth quarter and then secondly some headwind on that all banks are facing on mortgage right now for the balance this year would cause us to think that we’re not going to get quite that much accretion in 2017 from this transaction.

But, we feel really good. Michelle has done a lot of analysis last couple of weeks in preparation for the call here around the cost saves and looking at the mortgage operation and all that.

And we feel really good about what we -- at the announcement of acquisition, what we said we thought the 2018 accretion, we feel really good about that number at this point. But again, we think probably it’s going to be little less in 2017 because of those two factors..

Our next question comes from Brad Milsaps with Sandler O’Neil..

Michelle, David, just to follow up on the expense question. You guys have done a great job of controlling standalone, Independent Bank expenses. Maybe you touch on it and I was looking for this quarter but you did a good job of explaining that.

Sort of excluding Carlile, would you suspect that this -- the first quarter run rate would be pretty close to where you would be or do you already think some of the seasonal factors reverse out, and this will kind be a high point for the year, excluding Carlile..

If we’re looking at Independent Bank only, I think this was a high expense quarter for us. There is a significant amount of expense and comp related to our restricted stock grant.

It’s great when our stock trades at the highest level ever but that also creates additional expense because when we note this, the bank covers not just the bank’s part of the payroll tax expense, but it covers the employees as well and then bonuses.

So, I think there was about $600,000 of that type of expense in the first quarter that you won’t see in our run rate going forward..

Okay. That’s helpful.

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

Yes. I think that’s a good way to think about it that we really….

Okay. Sorry..

I was just going to say like David said, we really aren’t going to see any significant cost saves on their non-interest expense until fourth quarter..

Okay. So, they’ll run closer to their run rate for the next couple and then the fourth quarter you start to see come out..

Right..

The next question comes from Matt Olney with Stephens..

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

I don’t. So, I would say, I would moderate a little bit what I said I think at the January call about year-end, Matt, in that -- it was again a bit of a headwind in the first quarter, which was a little surprising to us. And some of it were pay downs on the couple of classified credits which we’re continuing to work on.

But we also -- some of our good customers who had a lot of room available under their line and we were expecting them to draw up in order to start drilling, they did start drilling in the first quarter but they won’t raise equity to do it rather than drawing upon their line. So, in some cases they paid down the line with the equity raise.

So, we got some pay downs we weren’t expecting and then we approved two new energy deals in the first quarter, one of them funded one didn’t. So, as we look out and spoke with our credit guys yesterday about this, Matt, and as we look out for the balance for the year, we do expect there to be some net growth in our energy portfolio.

But I would say, it’s not right now just what we see today in April of 2017, it doesn’t look like the opportunity is going to be as robust as I thought they would be going into the year. Now, I think part of that is again the price volatility, the market getting spooked when prices drop back in the 40s for a while.

So, I think this maybe the environment we’re kind of living in for a while the way we’re thinking about it today. And this idea that prices are going to settle in, in the mid-50s and so we creep to 60 and 65.

I mean, we’d love to see that than a lot of people would but we just aren’t counting on that at this point and just continue to think the volatility hurts activity in the market and hurts the opportunity. And again, we’re not -- haven’t historically been out looking for big participations and big snicks.

So, when we’re trying to grow it organically, relationship-wise, it’s just a -- it’s a long schlog to do that but we think it’s the right way for us to do it. And so, we approved a couple of deals and we expect to approve a couple of more in second quarter. And we think that we are close to the bottom here on pay downs.

And so, I don’t think it will be a big tailwind like I kind of hoped it might be for this year, Matt, but I do think we’ll have net growth in the portfolio. So, no, it won’t be headwind for us..

Okay. That’s helpful, David. And then, on the deposit costs, I think you mentioned in prepared remarks that deposit costs were up 5 basis points.

Can you make some more commentary about just the overall cost of deposits, re-pricing, as you see the next few quarters? And then, as you layer in Carlile, just talk about their overall deposit base and what that means for deposit cost in the future? Thanks..

We haven’t really raised any of our stated rates on deposits to this point, Matt. We do see pressure on public funds, the bidding on those has become a bit more aggressive, exception requests from customers that have a significant amount of funds. And what I mean that it’s like over $5 million.

We made some exception pricing on in addition to this, we e do have some variable rate deposits now I think where most of the pressure on -- where the increases have come from. I don’t think they’re going to see a similar increase in our deposit base in the second quarter without a rate increase.

And with Carlile, their deposit costs are actually little bit lower than ours. In fact, I think on a combined basis, deposit cost is down about three basis points. So, I don’t expect to see the same increase this quarter and then, we’d expect this same sort of increase we got last year unless we get more rate increases.

I guess that’s the way to look at it..

The next question comes from Michael Rose with Raymond James..

Hey. Good morning, guys. Most of my questions have been answered, but just wanted to get some color on Carlile results this quarter, if I -- I don’t think call reports are out. I think if I look last quarter, they had some loans and balance sheet shrinkage. I just wanted to get any sort of updates on the first quarter and their performance. Thanks..

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

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

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

The loans and deposits were fairly flat for the quarter. .

Right. And so, I think, yes, that’s an interesting kind of question leading into -- we’re actually quite encouraged as we’ve -- our senior loan team has been around -- their foot across the Northstar footprint. And we actually really like the lending team that we’re getting in this group, in this acquisition.

And we really like the opportunity we think to weigh our lending strategy across that and our balance sheet across that footprint. And we mentioned in the call when we announced the deal that they’ve got a nice SBA platform that we think we can roll out across all of our historic Independent Bank footprint.

And so, there are some real opportunities to grow. Now, history tells us that there is always a little bit of loan refinancing and payoffs and things transaction like this. So, we’re really studying right now and coming up with our combined budget and expectations for the balance of this year and revising our longer term model for 2018 and 2019.

So, we’re still working on that. I think we can give you more color on that in the next quarter’s call; we’ll have a quarter under our belt with the Carlile team and then we’ll I think have a better feel for what we think the growth expectations are for that Northstar footprint.

But early on, we’re encouraged and think we’re getting some really talented folks who understand relationship banking. And we’re going to continue to add to our team. So, we got a renewed focus maybe on hiring lenders and lending teams across not only the Northstar footprint but including our historic Independent Bank footprint.

And there seems to be some nice activity on that front in terms of the possibility of adding some C&I lenders and some experienced bankers across our entire footprint..

That’s great color. And maybe as a follow-up. David, you’d mentioned, even on a combined basis kind of a low double-digit loan growth outlook with energy lending that obviously helps and the hires that you’re talking about.

I think there has been some dislocations with some announced deals in some of the markets, specifically another deal in Fort Worth.

Maybe if you can just kind of address that from I guess 2017 outlook, is that still a good expectation?.

Well, I certainly think in 2018 it is, Michael that we’re going to be able -- by 2018, we’ll have everything consolidated and with some hires we’re looking and making, we still think of 2018 being a good low double-digit growth type model. For 2017, I’m hedging a bit here just because it’s we’ve only closed the three weeks ago.

So, we’re really assessing that still as we’re doing our modeling and budgeting for 2017. We’re certainly -- we certainly feel good about the Independent side of it and being able to grow our Dallas, Austin and Houston markets in that low 12%, 13% kind of range for the balance of this year.

The Northstar piece of it I would think it would be slightly less than that would be our sense now but we’ll have more color on that by the end of this quarter..

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

Well, I think if we’re looking at going over $10 billion organically, the earliest that would happen to be end of 2018 and possibly not even until after that depending on our growth rate. But we have started looking at that, engaging consultants. To this point, we really don’t have any expense related to that today.

Most likely in 2017 we could spend $500,000 at the most on consulting type expenses. I think you’re going to see most of that expense come in 2018 related to us going over $10 billion.

And then, if we do do an acquisition that’s going to put us over $10 billion quicker than that, we would certainly assume those costs quicker and plan to get ready related to the acquisition..

Yes. And only I would add to that, Michael that, because we continue to look for acquisition possibilities, M&A type things, I think it’s much more likely that we go through $10 billion with an acquisition or a series of acquisitions.

And we will certainly put those costs associated with going through $10 billion into our modeling as we look at our next acquisition deal. So, you’re kind looking at on two path ways, if you will.

Michelle said organically we for reason don’t make any more acquisitions in the next two to three years, when would we go over it and how do we expense in that model as we expend about 0.5 million in this year and then would spend some amount obviously much greater than that in 2018 as we prepare for it.

The much more likely pathway in my mind is that we make an acquisition or two. And as a part of that when we look at the earnings accretion, we’ll back out of that earnings accretion from those acquisitions, the amount and costs us to go through $10 billion.

So that’s the more likely when we announce an acquisition in some point here that will have very detailed number for you, regarding how much we put in that model for $10 billion plus expense..

And I’m showing no further questions at this time. I’d like to turn the conference back over to our hosts..

Well great, if there are no further questions that will conclude our first quarter 2017 earnings call. We really appreciate your attendance and your interest in Independent Bank. Hope everyone has a great day. Thanks..

Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect and have a wonderful day..