Hancock Whitney Corp (HWC) 2011 Q4 法說會逐字稿

Good morning, and welcome to Hancock Holding Company's fourth-quarter 2011 earnings conference call. Participating in today's call are Carl Chaney, President and CEO; Mike Achary, CFO; Sam Kendricks, Chief Credit Officer; Steve Barker, Chief Accounting Officer; and Trisha Carlson, Investor Relations Manager. As a reminder, this call is being recorded. I would now like to turn the call over to Trisha Carlson. You may begin.

Thank you, and good morning. During today's call, we may make forward-looking statements. We would like to remind everyone to review the Safe Harbor language that was published with yesterday's press release. Hancock's ability to accurately project results or predict the effects of future plans or strategies is inherently limited.

We believe that the expectations reflected in the forward-looking statements are based on reasonable assumptions, but actual results and performance could differ materially from those set forth in the forward-looking statements. Hancock does not intend, and undertakes no obligation to update or revise any forward-looking statements, and you are cautioned not to place undue reliance on such forward-looking statements. I will now turn the call over to Carl Chaney, President and CEO.

Thank you, Trisha. Welcome, and thank you for joining us this morning. Our fourth-quarter results, which were released yesterday, reflect the ongoing integration of two well-known Gulf South brands. We continue to retain the legacy business acquired from Whitney, while at the same time successfully generating new business across our Gulf South footprint.

I am pleased to be able to report net loan growth for the quarter. And while I'm not ready to say the economic uncertainty is completely behind us, I am hopeful this trend we're seeing in loan originations will continue. Opportunities for cross-selling, legacy Hancock and Whitney products are being cultivated. We have successfully added new business across the footprint since the merger was completed, and we believe we will see enhanced opportunities once all systems are converted to one platform in a few weeks.

Our trust business had a record year in terms of fee income in 2011, and during the fourth quarter, Treasury Management brought over new customers, and we saw insurance and investment referrals in our International area. We successfully converted the trust systems at year-end, and the core systems conversion is only a few weeks away, scheduled for March 16.

We have begun customer mailings and are preparing for branch signs to change to Whitney Bank in Louisiana and Texas and to Hancock Bank in Alabama and Florida. In total, we will be closing 30 branches, having already closed 2.

Merger-related expenses incurred to date, leading up to what we were calling SD1 totaled approximately $87 million. We expect the majority of the remaining expenses will be booked in the first quarter of 2012 and should be less than our previous guidance of approximately $125 million pretax.

We remain focused on expense control, as evidenced by our decline in total operating expense during the quarter. Merger-related cost synergies totaled $21 million during the fourth quarter, compared to the base period expense level, pro forma third-quarter 2010, or 63% of our projected target.

Whitney's third-quarter 2010 expenses, excluding amortization of intangibles, were used in determining the expected annual cost savings from the merger of $134 million. We remain very confident we can meet the total projected annual cost saves by the beginning of 2013, and hope to do better. As I have noted previously, once we complete the core systems conversion in March, we will be in a better position to consider other strategic M&A opportunities that may arise.

I am very proud to announce Whitney Bank has once again received excellence awards in the National and Regional Small business and Middle Market Banking categories from Greenwich Associates, a leading global financial services research and consulting firm. The awards are based on interviews with 13,500 US small businesses and 11,500 middle market companies.

Of more than 750 banks evaluated, less than 43 received Greenwich's excellence awards. In the small business bank by category, Whitney was honored with six National Excellence Awards and two Regional Awards, and in the middle market category, with five National Excellence Awards, and one Regional Award. Congratulations to our bankers.

I'm also proud of the results we reported yesterday for the fourth quarter and the year 2011. I look forward to continued improvement as we integrate and grow this premier Gulf South franchise. At this time, I'll turn the call over to our CFO, Mike Achary, to review the financial results.

Thank you, Carl and good morning, everyone. Operating income for the fourth quarter was $45 million, or $0.53 per diluted common share, basically flat compared to the previous quarter. Operating income does exclude merger-related expenses of $40 million for the fourth quarter, and $23 million for the third quarter.

Operating income for the full-year 2011 was $2.02 per diluted common share, compared to $1.46 in 2010. Operating ROA was 93 basis points for the fourth quarter, a slight improvement from the third quarter, and an increase of 10 basis points over the same quarter one year ago.

Total loans at year-end were $11.2 billion, up $75 million from September 30. Excluding a decline of about $50 million in the Peoples First covered portfolio, loans were actually up $125 million on a linked-quarter basis. The linked-quarter increase reflects growth in the CNI portfolio up 4%, the residential mortgage portfolio up 3%, and the consumer portfolio, also up 3%.

The Company's construction portfolio was down 4% link quarter, and the commercial real estate portfolio was down 2%, both reflecting continued payoffs and paydowns, some of which were related to problem credits within these two portfolios. The linked-quarter percent changes were adjusted for Peoples First.

Total deposits at December 31 were $15.7 billion, up $421 million from to September 30. The linked-quarter increase mainly reflects the year-end seasonality of both commercial and public fund customers.

In the past, both legacy Hancock and legacy Whitney have seen a build up in deposits at year-end with deposits leading the balance sheet in the first quarter, particularly DDA balances. DDA deposits totaled $5.5 billion at December 31, up $466 million from September 30.

Non-interest-bearing demand deposits comprised 35% of total period-end deposits. CDs totaled almost $3 billion at year-end, down $279 million from September 30.

During the fourth quarter, approximately $835 million of time deposits matured at a rate of 1.25%, of which 71% renewed at 31 basis points. Included in the CD decline is approximately $56 million from the anticipated runoff in the Peoples First time deposit portfolio.

The Company has approximately $1.6 billion of CDs, scheduled to reprice within the next six months at a current average rate of 1.22%, with $2.3 billion maturing at a rate of 1.06% for the full-year 2012. In light of the low-rate environment, we have noted many customers are opting to hold funds in no- or low-cost transaction accounts instead of renewing in CDs.

Hancock remains well-capitalized with total equity of $2.4 billion at year-end. Our TCE ratio did decline to 7.96% at December 31. The decline is related to a normal revaluation of the Company's pension plan liabilities during the fourth quarter, in connection with updated year-end actuarial valuations.

Also an increase in total assets and an update to the purchase accounting valuation of goodwill related to the Whitney transaction. We expect to continue to build capital over the near-term, and we'll be back over our minimum TCE target of 8% next quarter.

Net interest income for the fourth quarter was $181 million, up $1.1 million from the third quarter. The net interest margin was 4.39% for the fourth quarter, up 7 basis points from the third quarter. Net purchase accounting adjustments of approximately 37 basis points are included in the fourth quarter for the Whitney acquisition, compared to approximately 24 basis points in the third-quarter margin.

Purchase accounting numbers are preliminary, and in the fourth quarter, we refined the accretion and amortization schedules. Each quarter, we will reevaluate the performance of the loan portfolios in determining the discount rate to be used in calculating the accretion to be booked. In light of the positive performance within Whitney's credit-impaired portfolio, the discount rate was raised, increasing the amount of accretion booked during the quarter.

The net interest margin, excluding the impact of net accretion from the Whitney acquisition, was 4.02% for the fourth quarter, down 6 basis points from 4.08% in the third quarter. The margin continued to be favorably impacted by a shift in funding sources and an overall decline in funding costs of 6 basis points, offset by a less favorable shift in the mix of earning assets and a decline in the investment security portfolio yields of about 46 basis points.

During the fourth quarter, the Company's bond portfolio declined approximately $108 million. Purchases of $330 million at a rate of 2.42% replaced normal amortization maturities and calls on the existing securities portfolio of almost $438 million at a rate between 3% and 4%. Interest income was impacted by the acceleration of premium amortization on the changes in the bond portfolio.

Noninterest income for the Company totaled $61 million for the fourth quarter, compared to $65 million in the third quarter. In line with our previous guidance, approximately 60% of the decline relates to the anticipated impact from changes in interchange rates related to the Durbin amendment that were implemented in the beginning of the fourth quarter.

The lost income from the new interchange rates, which will begin impacting Hancock Bank this quarter, are expected to cost an additional $2 million per quarter. We are continuing to review opportunities to offset this loss of income.

Trust fees increased during the quarter, reflecting additional new business, while investment in annuity fees were down from the third quarter due to the market volatility in that business. There were no significant changes to other recurring sources of income during the fourth quarter.

Operating expenses, excluding merger costs, for the fourth quarter totaled $165 million. That was down $6 million from the third quarter. The linked-quarter decline mainly reflects reductions in personnel, marketing, and ORE expenses. The increase in merger-related expenses during the fourth quarter was mainly related to severance, marketing, and professional fees leading up to the core systems conversion.

Additionally, we had higher legal expenses in the quarter that included an accrual for anticipated litigation costs for a lawsuit against Whitney Bank. As you know many banks in the industry have been hit with litigation regarding NSF and OD fees. We noted in our third-quarter 10-Q that Whitney bank was a party to a similar lawsuit. The accrual for litigation expense I just noted is related to that lawsuit.

Company's efficiency ratio, excluding merger costs and amortization of intangibles, declined to 65.39% fourth quarter. On December 29, we completed the sale of Magna Insurance Company with a negligible impact on results for the fourth quarter. Magna was an insurance company that was no longer part of our overall insurance strategy.

Hancock Insurance Agency and Whitney Insurance Agency remain active in driving lines of business for the Company. We expect revenue synergies for these agencies, given the Whitney's strong book of commercial customers. I will now turn the call over to Sam Kendricks, our Chief Credit Officer.

Thank you, Mike. The balance for loan losses was $125 million at year-end, up from $118 million at September 30. The allowance-to-loan ratio was 1.12 percent, compared to 1.06% for these periods respectively.

During the fourth quarter, we recorded a total provision for loan losses of $11.5 million, compared to $9.3 million last quarter. This provision included $1.3 million net related to the Peoples First covered portfolio, which I'll remind you is covered under a 95% FDIC loss share agreement. Net charge-offs for the fourth quarter were $11.3 million, related to the noncovered portfolio, or 40 basis points of average loans on an annualized basis.

That's up from $7.8 million, or 28 basis points of average total loans for the third quarter. Net charge-offs for the fourth quarter of 2011 were $11.1 million related to previously impaired pools in the Peoples First covered portfolio. Excluding the acquired and covered portfolios, which did not carry forward a reserve (inaudible) accounting rules, the allowance for loan losses as a percentage of originated period-end loans was 1.70% at year-end. The decline in the ratio from 1.86% in the third quarter, was mainly due to growth in the originated portfolio of $355 million.

Nonperforming assets totaled $278 million at December 31, up $40 million from September 30. Nonperforming assets as a percent of total loans and foreclosed assets was 2.45% at December 31, compared to 2.12% at September 30. The overall increase in NPAs reflects movement to foreclosed assets from the covered Peoples First portfolio and the movement to nonaccrual status of several previously identified legacy Hancock commercial real-estate-related credit in Mississippi and Louisiana.

I would add that 40% of the increase in the NPAs were credit related, and as I said, includes some larger loans that have already been recognized internally as problems. 60% of the increase in NPAs were non-credit related, with a significant portion of that being a realization -- a valuation adjustment on long-held assets and some bank properties no longer in use.

But another smaller portion related to new ROE in the P1 portfolio. As loans work their way through the system on the Peoples First portfolio, I would expect to see additional loans moved to ORE. Remember these loans are part of a 95% large share agreement with the FDIC.

As Mike addressed earlier when discussing the margin, Whitney's credit-impaired portfolio is performing positively, and we have seen significant payoffs and paydowns on those credits. Overall, I am comfortable with the credit quality of our portfolio, given the continued sluggishness in the economy, and I continue to be pleased with the progress we're making on the Whitney integration. I will now turn the call back over to Carl.

Thanks, Sam. As you can see, we're extremely pleased with the quarter results, and at this time would like to open the call up for questions.

Thank you. (Operator Instructions) And our first question comes from Jennifer Demba with SunTrust Robinson.

Mike, just wondering on the goodwill adjustment for Whitney. Can you give us the primary reasons for that adjustment? And then also, can you talk about your margin -- net interest margin expectations for 2012 the next few quarters?

Sure thing, Jennifer. On the goodwill adjustment, again, quarter to quarter, we adjusted the amount of goodwill related to the Whitney transaction by about $26 million. The vast majority of that adjustment had to do with revaluating properties that came over from Whitney, mainly related to branches that will be sold soon and in other properties that are no longer in use. So that resulted in a reduction in the valuation of those properties that was offset by an increase in goodwill.

As far as the margin is concerned going forward, obviously, we had a nice little uptick in our margin of 7 basis points from 432 to 439. And where we stand right now, we do feel pretty good about our capability to maintain a level of margin or net interest margin plus or minus a couple basis points from that 439. Some of the increase quarter-to-quarter related to additional accretion related to the Whitney loan valuation. And again, as we talked about it a little bit earlier, in the early part of the call, that aspect of the transaction, along with the other aspects continued to perform extremely well. We do see that continuing going forward. We have continued CD repricing. That will enhance our ability to maintain that margin. We also talked about, earlier, some declines in our yields on our bond portfolio. We think the worst of that is behind us. Certainly there'll be some additional decline in that yield, but not at the same levels that we experienced in the fourth quarter. So I think all of that put together speaks to our ability to again maintain a margin somewhere around the 439 that we came in for the fourth quarter.

Okay. I have other questions but I'll let others jump in and I'll come back of that in they're not covered. Thanks.

Our next question comes from Jefferson Harralson with Keefe, Bruyette & Woods.

Similar question to 2012 on the direction of credit. When I look at Peoples First, it looks like at least some pools might have been getting a little worse, and look at legacy credit, maybe. Now knowing that some of it is non-credit related, maybe it's flat to slightly worse, but the Whitney credit looks like it's decently better. If you wrap all that up, what would you say for direction of credit in 2012?

This is Sam. What I would say is, as we said earlier, the overall performance of the Whitney portfolio we continue to be very pleased with. We think the mark was appropriate, and the portfolio performance supports that. As it relates to the Hancock legacy portfolio, we did have some migration of credits into the nonaccrual category. As I said, they were already recognized as problems. There were no new surprises there, but we thought it appropriate in light of current circumstances to go ahead and take a partial write-down of some of those and put them in the nonaccrual status. But I will tell you that some portion of those are actually still performing loans according to the contracts. So we took a conservative approach in terms of how we want to deal with those in terms of the accrual status. At this point, we remain cautious, and that has been our stance over the last few quarters, so I would say that is our current perspective as well. We are being encouraged by loan growth that we do see in some of the markets with quality credits that are available that we've had some success in moving onto the balance sheet.

All right. Thank you. And for my follow-up, you have $50 million remaining on the cost savings goal. What do you think -- there was great progress this quarter. What do you think the timing of achieving the other $50 million is?

Yes, Jefferson, this is Mike. I think for really for the next quarter, our capability to harvest additional cost savings is really going to flatten out. And all things equal, you could actually see a little bit of an increase in operating expenses between fourth quarter and first quarter. Then once we get the systems conversion behind us at the end of March, in the second quarter and third quarter, you'll see upticks in our ability to harvest those cost synergies. And again, we remain committed to the $134 million on an annualized basis, achieving that number no later than the end of 2012.

Our next question comes from Kevin Fitzsimmons with Sandler O'Neill.

Just a follow-up on Jefferson's, real quick, Mike, on the expense run rate. So if we look at like a core non-credit expense rate here, we're looking at a run rate of about $165 million for the fourth quarter. So what you're saying is that could be slightly up in the first quarter. But then would you think that run rate would come down measurably in second quarter, and then be flattish in the back half of the year, or how would you expect that to flow?

Again, I described that in the first quarter, we could see a little bit of an increase in expenses as our ability to harvest synergies really gets put on hold a little bit as we come together with the systems conversion. We actually have some levels of staffing that will be increasing during the first quarter. We call this bubble staffing, and that's mainly in areas like our call center and other customer contact points, as we staff up to make sure that the customer impact of the conversion is zero. And so that's the real reason why again, the synergies will flatten out during the quarter, and then some levels of staffing will increase. But you're correct, and once we get past the March 16 conversion, you'll see a pretty significant uptick in our synergies in the second quarter, and then that will also increase in the third quarter, culminating in the last quarter of the year.

Okay. Thanks. And just one follow-up. It looked like a big driver of the end-period growth in loan balances was the Whitney locations, really ramping up their contribution. Can you just give us a little color on what's driving that? Was it really that, until this point, Whitney -- their loan officers have been really constrained from being out there in the game of making loans and you're freeing them up? Or is it specific opportunities that you're seeing in those markets and what you think that's going to do over the next few quarters? Thanks.

Yes, Kevin, this is Carl. It's really a combination of what you said. There's no doubt the legacy Whitney bankers have certainly had the handcuffs taken off now and, as I say, they are now completely back on offense, which is a relief. They're very invigorated, very excited to be able to be out on the streets and taking care of their customers like they have done so well for 128 years, but short of the last couple of years, when they were extracted. So being able to free up those bankers and have them focus on actually loan origination has certainly shown up in the numbers.

Now, our legacy Hancock bankers have been doing an excellent job as well. The markets in which we saw some real significant loan growth would have to be identified as Louisiana, South Louisiana and Texas. I think some of that is because of the positive aspects of the energy industry. But it's not just limited to the energy sector, but it's across-the-board. But I cannot be more pleased with $125 million, when you exclude the Peoples First loan portfolio activity, $125 million in net loan growth, I could not be more pleased with that going forward.

Next on the line we have Michael Rose with Raymond James. Michael, your line is open.

Just a follow-up on the loan growth question. On the C&I side, is that coming more from existing customers, or is that market share takeaway? Meaning are you seeing a pickup in utilization rates that some have noted this quarter?

Michael, it's really a combination of both. We have certainly seen existing customers starting to draw down on lines. But we have also had some nice new business coming in; customers that maybe have been on the sidelines as far as Whitney and/or Hancock. But have been able to see how the combination is going very, very smooth. And as I mentioned earlier, with the legacy Whitney bankers being able to really focus on taking care of their customers and growing their portfolio, it's opened up some real opportunities to provide some takeaway business as well, as other banks are distracted for various other reasons.

Thanks for the color. If I can just follow up on the energy comment, how much of that drove the growth in C&I this quarter, and how much of it was syndicated in nature?

This is Sam. I don't have the numbers at hand here, but there was some growth in synergy. But I can't quantify that at this point. But we did see growth in energy and growth in C&I.

Yes, and I made a comment about being driven by the energy sector. The bulk of our increase actually was not in energy rate of credits. It's the mere fact that what that does to the overall economy, and the trickle-down effect of a strong industry like the energy industry and what that does to the overall economy. Even outside of south Louisiana and Texas, we saw significant growth in Florida. Markets like Tampa, has been phenomenal; Tampa, St. Pete, we had some really impressive loan growth there as well as in the Jacksonville area. Things really coming together. Again when you look at Florida, it's often because there is so many of our competitors are really distracted in the state of Florida for obvious reasons. And so we are one of the few unique banks that are strongly capitalized and fully open for business, able to really take care of customers and allow them to grow, and help them grow, as opposed to being distracted and not being up to do certain things because of regulatory constraints. So the growth really spans from both ends -- the bookends of our franchise, from Florida all the way through to [us].

Our next question come from Ebrahim Poonawala with Morgan Keegan.

Just a question, Mike, you gave some color on the NIM essentially being relatively stable the next few quarters. Do you have what the yield on the C&I book was this quarter, was last quarter on the legacy Hancock book?

No. I don't have that in front of me, Ebrahim. But that will be the information that will be in the 10-K.

All right. So I guess going back to the NIM guidance, is it -- obviously, the lower reinvestment rates on the loan and the security side are going to impact earning asset yields? Is the NIM essentially going to be stable because of the leverage you have on the funding cost to bring those down, which you think should offset the impact on the asset side?

Yes. Absolutely. We have continued opportunities for the next four quarters to reduce our funding costs. You saw the overall we were down six basis points between third quarter and fourth quarter. That should continue, mainly driven by continued improvements in our deposit mix, more no-cost deposits or low cost deposits. And then of course, the repricing of our CD book that will continue at pretty significant levels for the next four quarters. So that, in a nutshell, should help to offset the higher yielding earning assets, the rolling off, either from the loan portfolio or the securities portfolio. Again, as I noted, the bond portfolio, the average yield there is down to almost the same levels related to our ability to put new bonds on the books. So the worst of those yield declines should be behind us.

And then, again, the accretion that flows into net interest income related to the Whitney transaction, we should be able to maintain the levels that we're currently accreting that income. So again, all that speaks to pretty good capability to maintain the margin at the levels that we were able to book in the fourth quarter.

That's helpful. I guess a follow-up question for Sam on credit. Was there anything this quarter that led you to classify the substandard loans into NPLs? Is it just you wanted to get them in on your end, or is there a follow-up trend where you're seeing some additional weakness in some of these borrowers?

No. As I said earlier, those were already internally recognized problems, so I don't expect this to be new trend. As I said, some number of these were actually still performing according to contract, but as we looked at the long-term view and the current valuations that we had, we felt it appropriate to go ahead and take a write down, and as a result, put those in NPAs. There may be some lease renegotiation that's underway that may be readjusted down in terms of income stream, et cetera. So rather than waiting for those to default and become nonperforming for a 90-day period, we proactively moved those into nonaccrual status.

Got you. Okay.

Very good.

All right. Just one more question if I can, Mike, on the tax rate. You expect some tax credits to kick in next year too, to bring it down?

Yes. We're looking at an effective tax rate for 2012 of about 22% to 24%.

Our next question comes from Emlen Harmon with Jefferies.

Carl, you mentioned just some opportunities started to develop in Florida based on the stress that competitors are seeing there. Could you also give us a sense of what you're seeing in terms of the economic environment? Is the economy starting to pick up there at all? And I guess on the housing front, we've heard anecdotally a little bit about maybe some developments starting up again. Is it just the general economic landscape there improving as well?

I would say yes, but very, very gradually. It has to start some way and somehow. I can tell you, the loan growth -- I've spent considerable amount of time in Florida over the last several months, and meeting with customers and potential customers. And the general sense that I walk away with is that consumer confidence is starting to improve. And as such, commercial entities are starting to look at really investing money back into projects and expanding. So I would say that in the markets -- I think that's unique to certain markets. I would not say that overall for the state of Florida, by any means. But certainly in the Tampa, the larger Tampa MSA and St. Pete, as well as in the Jacksonville area. Orlando is a little slower; it's not quite there yet. But in those two markets, Jacksonville and the greater Tampa area, we're really starting to see some pickup. Even to your point, some conversations about even some new developments on the residential side, which is a bit surprising but encouraging to hear that people are even talking about that at this stage of the game.

Got you. Thank you. That's helpful. And then just another question maybe for Mike. On the move to OREO of the Peoples First loans, are you guys getting more aggressive in terms of pushing that stuff out in dispositions? And I just also wanted to confirm that even after that -- after those properties are moved to OREO, that they are still covered by the loss share agreement, is that right?

That is correct, they are still covered by the loss share agreement. I'll let Sam speak to how aggressive we're attempting to get on disposing of those properties.

Well, keep in mind that Florida is a judicial foreclosure state, so the timeline is longer than the other states in which we operate. So as we've now been in the loss share agreement just over two years. So we're in that cycle where those assets we are unable to rehabilitate or migrate through that process and are starting to come out the other end of the foreclosure pipeline. So we're in the very period that I would expect to see those assets rolling into the OREO portfolio as a result of our collection efforts.

Sam, of course we have the loss share agreement itself that also is a little bit of a challenge to get through.

Yes, we have to comply with provisions of the loss share agreements, so as we step through those requirements, that also impact the flow of assets into OREO and ultimate disposition.

Got you. Thanks. And then one more quick one, if I could, on the margin. Again, I guess another question on the margin. The liquidity inflow in the quarter, just from the seasonal deposit inflows, I think those are typically [immunity] deposit inflows. Could you give us a sense of what liquidity you have to hold basically against those in the quarter, and how much of a weight that was on the margin?

It wasn't too much of a weight on the margin for the fourth quarter, Emlen, because most of those deposits flowed in at the very tail end of the quarter, really within the last 30 days. So we saw about a $300 million increase in our public fund deposits in that month alone. And most of those -- I would say most of those deposits, but a good chunk of those deposits have already flowed off the balance sheet, so they tend to come in very quickly and now exit fairly quickly.

Our next question comes from Christopher Marinac with FIG Partners.

Carl, as you remember the last time that Hancock increased the dividend was way back in the summer of 2006. And I'm just wondering as this year progresses, is this the year that you revisit that, or would you rather wait until the future and conserve capital in the interim?

Well, gosh, Chris, we just increased the Whitney dividend from $0.01 up to our standard rate. But I know what you're talking about. I'll tell you, looking out, Chris, at the opportunities that we see that we feel like that are going to come our way, I think it's probably in the best interest of our shareholders that we retain that capital to see if [it is possible] to further enhance that shareholder value with other opportunities that are likely -- very likely to come our way as we start to end out of this economic cycle.

And then I do think it is a very fair point that once we see ourselves coming out of the end of this cycle and feel like we're through the most of the expansion opportunities, then I think we do have to -- and as those acquisitions, just as we've seen already with the Whitney acquisition, as those future acquisitions certainly enhance the earnings and our earnings power going forward, then we certainly will be in a better position to look at increasing dividends. But I think at this point, the opportunities are too great to -- future acquisition opportunities are too great right now to look at increasing dividends. If that makes sense.

It does, and thanks for the color. As a follow-up, as you look at other opportunities, what is your thought or Mike's thought about dilution of book? I know that the Whitney transaction is its own unique opportunity, but is there a minimum tolerance that you have to abide by to dilution, just the near-term on that?

Obviously, we don't look to dilute our book value, our tangible book value at all, especially in light of any potential future transactions. But Chris, it really boils down I think to the opportunities. And we look at those opportunities again, not necessarily on a short-term basis, but on a much more longer-term basis. So the Whitney transaction is a great example, and the impact that it has had on our Company and the combined Company. But obviously we feel very, very good about the long-range prospects of that transaction, how transformational it has been already to our Company and will continue to be so. So those are the kinds of transactions I think that we're looking for.

I would agree with that.

Next on the line, we have Peyton Green with Sterne Agee.

A couple questions. One, I was wondering what the timing of the branch consolidation is. Is it concurrent with the systems, day one?

Yes, Peyton, it's concurrent. March 16 is when we will not only to the core systems, but also do the swapping of the branches between the two banks' subsidiaries and the signs come off. The cover of the canvases come off the signs that are already up, and everything will be ready to go.

Okay, and then loan growth has been difficult over the past three or four years, to say the least, for the industry, and even for you all. And we've seen a flash before where one quarter picks up, only to give it back in the next quarter. What observations, beyond the anecdotal evidence in Florida, but what other observations suggest that it might be more sustainable into the first and second quarter?

Well, Peyton, as I mentioned earlier in my comments, while we're thrilled to have that $125 million in growth, I'm not at a point to declare victory and say that we'll have another $125 million the next quarter. It is certainly wonderful to have that type of increase. It's been many, many quarters since we've had -- been able to report net loan growth. So we're cautiously optimistic. I'm not a point to be able to say, absolutely this is set and we will certainly have that growth. Now, anecdotally, as I work through the markets, what I hear it has continued to be positive news, but again, not ready to drive a stake in the ground and make that declaration.

Okay. What about the origination pipeline? How does it look compared to a quarter ago or even a couple of quarters ago?

The pipeline looks excellent. You and I both know that just because it's through pipeline doesn't mean it makes its way finally to the books, in the books loan. But you've got to have pipeline to even have a chance of growing loans. So I have to say the pipeline looks very strong.

Would you say that the closing rate was better in the fourth quarter, I guess, for customers just getting off the fence, or were you just more actively calling it over the last couple quarters?

I'd say the closing rate certainly had an uptick, no doubt.

And were you all surprised that the residential and the consumer pieces picked up also? Or because it was really very broad-based this time. I guess --

It was. It was not in one particular loan category, nor was it in a particular sector, or even really geographic. I was pleased. I have to say if you ask me which one surprised me the most, would have been in the consumer piece. I think that just is evidence of consumer confidence continuing to grow.

Great. And then the premium amortization on the bond portfolio, how much was it in the fourth quarter versus the third quarter?

It was about $4 million or so in the fourth quarter, Peyton, I just don't recall what the number is for the third quarter. We can get that for you.

Okay, great And then with the Fed statement about short-term rates staying down low longer, certainly you all have done a great job in managing the liability cost down. How does this change your management of the bond portfolio? Or does it?

I don't think it changes it, Peyton. We're still going to invest in the same bonds that we've invested in before. It does preclude the impact that eventually we're going to re-price all of our CDs. And at some point down the road, we'll not have that as an option any longer to further reduce our deposit costs. And of course we're not going to be alone in that regard.

Okay. Any idea as to what the cash flow is from the portfolio in 2012, and what the roll-off rate and what the reinvestment opportunity would be based on that?

Well right now, it's significant because of the low-rate environment and the amount of mortgages that are prepaying. It's running on a monthly basis, in the $80 million to $90 million range. We feel like that will subside and probably has already started to subside, so it really is dependent upon where mortgage rates go, which of course, is dependent mostly on the 10-year treasury yield.

Our next question comes from the line of Dave Bishop with Stifel Nicolaus.

Most of my questions have been answered, but in terms of the use of capital and maybe in the M&A prospects, obviously with the acquisitions so far, in terms of Florida, you've got that I-4 corridor there. Given what you're seeing there just developing the economy, does your appetite change in terms of maybe penetrating a little bit farther south there, or are you happy if you do pursue additional acquisitions, do more of a bolt-on, infill type of transaction?

Dave, I would say that while we have certainly been pleased with what we're seeing here recently in the economic markets, particularly those two in Florida I identified, Jacksonville and the greater Tampa area, I would say that we think there is probably more opportunities for us just to fill out and expand in those existing footprints, as opposed to going further south. If you know much about Florida, when you get into what's truly South Florida, that's quite a bit different than the rest of the state. It's really like a unique state in and of itself. So there is ample opportunities for us to continue to grow and expand our existing footprint there in central Florida, as you say the I-4 corridor, for us before we would need to have any interest in looking further south.

And in terms of maybe intangible common equity or other hurdle rate there, as that rebuilds with profitability into this year, is there a trigger target you use to maybe use that as a jumping off point to get more aggressive in terms of looking acquisition and how -- what could you leverage that -- lever that to?

There is no magic. We've stated we have an internal TCE minimum of 8% that we like to have. And with the earnings machine that we have right now, we certainly will be retaining capital going forward. But at the same time, with the success that we've had in the past with M&A, we feel very confident that if the right deal comes by, we'll be able to take advantage of that, leverage our capital, and if it meant it was of the size that we need to go to the markets, feel very confident doing that. We've been very, very successful in going to the markets to raise necessary capital, so we think that venue is still available for us with the right deal.

So we've got to several different levers to pull. We certainly don't mind dropping that TCE below 8% as part of a strategic expansion. We've done that in the past, and certainly we'll do that in the future for the right deal. With an opportunity and a pro forma of growing that back to 2% and above our 8% over a reasonable period of time. So we're fortunate in the sense that capital is really the least of my concerns when it comes to M&A opportunities.

Next on the line, we have Steve Covington with Stieven Capital.

Just to follow-up on the accretion commentary. Mike, do you have what the accretable difference was at the end of the year?

The accretable difference, or the accretable yield?

Yes, the accretable yield. Either one. I guess I'm looking at -- so this quarter, the impact was roughly $15 million. At the end of September, I think the overall accretable difference was like $95 million from the Whitney transaction. And I'm just curious as to how does the change in the discount rate impact that overall accretable difference, and maybe what the balance of it is at the end of the year?

What I will share with you, Steve, is some numbers related to the third quarter and fourth quarter, and this is on the Whitney transaction. But in the fourth quarter, we accreted into net interest income a little bit more than $23 million. In the third quarter, that number was just under $17 million, so we were up about $6.5 million quarter- to-quarter. Now, the yield went from $581 million in the third quarter to $614 million in the fourth quarter, so that was up 33 basis points. And obviously drove that additional accretion into net interest income. And again, as Sam talked about earlier and we talked about earlier in the call, that the Whitney portfolio continues to perform really much better than expected and has really put us in a position where, by accounting rule, we are really required to accrete more of that discount into net interest income.

Okay.

Does that help answer your question?

It does. And I guess your previous commentary, I want to make sure I understand, so you think this run rate of accretion is reasonable, at least over the next several quarters?

We do believe that. Now, also keep in mind that we evaluate or reevaluate that level of accretion each and every quarter, so these numbers certainly look like they'll hold for the next couple of quarters. But it is something that we have to go through the process of running the math each and every quarter.

And in general, what is the expected life of that? Is it basically of that portfolio -- is it two years, you think by the time -- after two years it is going to be gone?

No. We had talked a couple of quarters ago about a weighted average life related to the Whitney portfolio of just under five years.

Okay.

That doesn't mean that these levels of accretion will continue that long, because obviously the portfolio is going to pay down over time. But at least some part of it will be with us for the better part of that five-year period.

Our next question comes from Justin Maurer with Lord, Abbett.

On the bond portfolio, Mike. The drop-down in securities yields, sorry if I missed it. You mentioned in response to Peyton that it was $5 million, right, with the premium amortization?

Yes. Let me correct myself. That was actually the increase quarter-to-quarter in the premium amortization.

That's where I was going. If I took -- if I essentially flat-line the size of the bond portfolio, and then took the NIM off of that, the $245 million versus the $291 million, it's about $5 million. In essence, it was the amortization pickup?

That's right. Coming back from the other paydowns on the portfolio.

That's therefore why you're confident in that run rate going forward?

That's right. In the bonds that we're putting on the portfolio, again, are -- for example in the fourth quarter, the bonds that we put on came on at a weighted average rate of about $242 million. You can see that the yield on the portfolio for the quarter was $245 million. So, we're about at the point where the yield that we're putting on is equal to the weighted average existing yield on the portfolio.

And from an NII perspective, in terms of the time -- I know last quarter you talked about some excess liquidity, and like you just said in response to an earlier question that the deposits have flowed out, so that backed down. Is there -- did you invest some of that liquidity later in the quarter, such that there is a little bit of a pick up late quarter into this quarter, or not really?

Yes, exactly. In fact, most of the new purchases were weighted toward the last six weeks of the quarter, so you'll see a little bit of a pickup related to the full impact -- the full-quarter impact of those buys.

And just, Carl, relative to the loan growth issue, you said first time in a long time. And in terms of thinking about that net versus gross, gross obviously then you to take off what Peoples is running down. And you guys mentioned the [press release]. Does that $50 million start to sunset somewhat, or would you expect that continued run rate, such that you can let the core growth shine through if you will?

I think we'll see some -- on the P1, we will continue to see some of that run off and pay down. But I think as we've seen here the last few months at least, the new loan originations are certainly beginning to outpace the problem loan paydowns. And again, we've been very fortunate that because there is such a such an appetite for loan growth in the industry, period, we've been very pleased with some actual problem credits that we had that others didn't quite, obviously, didn't feel the same as we did, and were willing to take those away from us. And so we're thrilled with that as well. That's lagniappe, we call that, as far as they give me. But I think clearly the trend of -- when you look at the pipeline and the new loan origination, that is continuing to ramp up, so that should easily continue to outpace the paydown in the Peoples First.

And, Justin, that number does move around a little bit quarter to quarter, the paydowns and resolutions related to P1. This quarter it was about $50 million. Last quarter it was about $25 million, so it can move around just depending on our ability to move that number down through charge offs, pay downs, or other means.

Keep in mind also that all of those are covered by the FDIC loss share as well, so from an earnings standpoint, or a charge-off standpoint, you have to keep in mind.

Because everybody so fixated on loan growth, that's what I was wondering, in terms of how much of that starts to -- now that you've owned if for a couple of years, it starts to -- the people that are in the book, by and large, are going to stay in the book, and therefore, any of those frictional borrowers may be on their way out, or largely out, at this point.

Yes.

And lastly, is there any way to think about the old Whitney loan book versus the old Hancock book in the sense that were they both growing, and sorry if you said that and I missed it, or was more the Whitney side or more than Hancock side?

This is Sam. As the growth that we've seen, as Carl alluded to earlier, is to the west in Texas, and also in portions of Florida, primarily centered around the Whitney legacy locations, although Hancock legacy is starting to see some stabilization as well. I'm going to add a footnote to Carl's comment in that we've talked a couple of times about the pace and runoff of problem loans. That pace is picking up, so as those resolutions work through the system, we're very pleased with the [resolution] progress, the paydowns and payoffs of problem credits, and in some cases, the bringing down the concentration of loans to a tolerance that we're comfortable with. So through all that, asset management effort to see net loan growth is very encouraging. I will tell you that the quality of the credit that we're adding to the portfolio, as we monitor those, is up-tiering the quality of the portfolio from a risk rating perspective. So I'm very encouraged by the quality of the assets that we're adding to the book at the same time as we're resolving some of the legacy problems.

Our next question comes from Jennifer Demba with SunTrust Robinson.

My follow-up was answered. Thank you.

And our next question comes from Kevin Reynolds with Wunderlich Securities

Carl, quick question for you. We've talked about opportunities to expand down the line after your conversion. I know you talked about the capital conditions and how you were comfortable with those levels. You talked about Florida. Can you maybe frame any other opportunities, other markets, maybe sizes, what makes you a little bit nervous on size? And then do you think the opportunity from this point forward will be more open bank, or are there still some failures out there that could be in some markets that you're interested in?

Okay. We've got -- I'll take in last, and move forward in your questions. On the FDIC deal, I think clearly most of the opportunities that we would have interest in are going to be open bank deals, live bank deals. Having said that, there are just one or two banks that we believe are likely to go the FDIC way, that we would have an interest in. But the lion's share of what's going to come down the pipeline with FDIC are such that -- institutions that we really would not have an interest in. So most of them will clearly be open bank.

As far as geographics opportunities, I've already spoken to central Florida. I think the bookends of our franchise are probably where the most of our opportunities are, meaning Florida and Texas, Houston, the economy is doing very, very well there. While we have just under $1 billion in assets, that's a drop in the bucket for the size of the Houston market. So we clearly have some opportunities to expand there. And if you look a little longer term, Dallas. We find a lot of our commercial customers in the Houston market are also linked with the Dallas-Fort Worth area as far as their business. And so that's something that's not out of the realm of possibilities. When you move -- as far as going further west, I would say not really interested in that. So we've pretty much defined the eastern -- certainly eastern because Jacksonville, you can't go much further east than Jacksonville. But we defined the western boundary, and so there are some pockets on each end of the franchise. I call those the bookends, that we can further expand into. And then at some point, when the right opportunity presents itself, we would certainly consider moving inland a little more.

At this time, I would like to turn it over to Carl Chaney for any closing remarks.

Okay. Well again, we're very pleased with the quarter, as well as the year 2011, and are extremely pleased with the continued integration of the Whitney transaction and feel like we are moving very, very rapidly to continuing to be able to produce strong earnings that hopefully our shareholders will be pleased with. And we appreciate your time on this call. Have a good day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.