Hancock Whitney Corp (HWC) 2012 Q1 法說會逐字稿

Good morning and welcome to Hancock Holding Company's first quarter 2012 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. I would now like to turn the conference over to Trisha Carlson.

Thank you. 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 effect 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.

Thanks Trisha. Welcome and thank you for joining us this morning. Before we begin our discussion about the first quarter's financial results, I would like to take just a minute to talk about the successful conversion of the Company's core systems in the first quarter. This essentially completes the operational integration of Whitney and Hancock banks.

Over the weekend of March 16th the systems conversion was completed, and branch signs were changed to reflect Whitney Bank in Louisiana and Texas, and Hancock Bank in Mississippi, Alabama, and Florida. As a result we transferred approximately $1.6 billion of assets from Whitney Bank to Hancock Bank. In total we consolidated 30 branches into nearby branches, and today the Company has nearly 260 branches and more that 350 ATMs spread across the Gulf south region from Houston to Tampa.

As I have mentioned previously we hired a professional consulting group from Accenture and KPMG to assist with the integration and accounting matters related to the transaction. And we had a large group of bankers from both Whitney and Hancock dedicated to this process. In fact we had over 300 associates working on the conversion who logged in over 1 million hours, almost 13,500 test scripts were executed, and more than 1,700 separate tasks were completed. Both our associates, many of whom are experienced in systems conversions, and our outside consulting partners have said that this is one of the smoothest conversions they have ever seen. Overall we are extremely satisfied with the success of the conversion.

Now while the first quarter's results are down from last quarter, they are basically in line with our expectations and our comments from last quarter's call, and reflect for the most part the typical beginning of the year seasonality of both balance sheet and operating expense. Any time a company is faced with a merger of this magnitude, there is always a certain level of distraction, even on the production side of the Company. For example, there were 15,000 hours of training during the month of January alone in the production area of the Company. But with all systems conversions behind us now, and the fundamentals of the combined company still very strong, we are completely focused on achieving the remaining merger efficiencies and growing these two well known Gulf south brands.

At this time I would like to turn the call over to our CFO, Mike Achary to review the results.

Thank Carl, and good morning everyone. Operating income for the first quarter was $40.5 million, or $0.47 per diluted common share, compared to $45.1 million, or $0.53 in the fourth quarter of 2011. Operating income is net income excluding tax affected merger cost and security transactions gains or losses. Operating ROA was 85 basis points for the first quarter, compared to 93 basis points in the fourth quarter. Total loans ended the quarter at $11.1 billion, a slight decrease of $47 million, or less than 1% from year end. Adjusting for the $38 million decline in the FDIC covered portfolio during the first quarter, total loans were virtually unchanged from year end 2011.

During the first quarter, seasonal payoffs on C&I credits were offset by growth in construction and land development loans, as well as residential mortgage and consumer loans. The growth in construction and land development loans was related to the financing of projects to expand or renovate established properties within the Louisiana market. Commercial real estate loans continued to decline reflecting ongoing payoffs and scheduled repayments within that portfolio, and the limited opportunities for new project financing available in today's environment. Over $500 million of new loans were funded in certain markets within the Company's footprint from new and existing customers, specifically in central Florida, western Louisiana, and in the greater New Orleans market. Average total loans of $11.2 billion in the first quarter were up $50 million compared to last quarter.

Total deposits at March 31st stood at $15.4 billion, down $280 million, or about 2% from year end 2011. As we noted last quarter, both Hancock and Whitney typically see a buildup in deposits at year end with some deposit runoff in the first quarter. Average deposits for the first quarter were $15.3 billion, virtually unchanged from the fourth quarter.

DDAs totaled $5.2 billion at March 31st, down $273 million compared to December 31. During the core systems conversion, approximately $240 million of noninterest bearing deposits were converted to low cost interest bearing transaction products, in order to best match the existing product benefits offered to legacy Whitney customers. Partly as a result of that move, interest bearing transaction deposits increased $385 million during the quarter. Overall DDAs continued to represent a very strong 34% of total deposits.

Interest bearing public fund deposits totaled $1.5 billion at March 31. The decrease of $76 million from year end reflected the seasonal nature of these deposits. CDs totaled $2.5 billion at March 31st, down $316 million from year end. Included in that decline was approximately $125 million from the anticipated runoff in the People's First time deposit portfolio.

As discussed previously we continue to benefit from repricing opportunities in the near term. Approximately $963 million of CDs matured at an average rate of 1.2%, of which 60% renewed at an average cost of just 32 basis points. There are approximately $1.2 billion of CDs scheduled to mature within the next two quarters, at an average rate of 92 basis points.

Net interest income for the first quarter was $179 million compared to $180 million in the fourth quarter. The decline was mainly related to the impact of having one less calendar day in the first quarter. Average earning assets were $16.2 billion in the first quarter, compared to $16.4 billion in the fourth quarter. As discussed last quarter, we were able to maintain the level of core margin during the first quarter, while slightly improving the reported net interest margin. The margin of 4.43% was up 4 basis points compared to the fourth quarter.

Net purchase accounting adjustments for the Whitney transaction added approximately 43 basis points in the first quarter, resulting in a core margin of 4%, basically flat with last quarter. The Company's margin continues to be favorably impacted by a shift in funding sources, from CDs to low cost transaction accounts, leading to a decline of 6 basis points in the Company's total cost of funds to 38 basis points. This was offset by a reduction in the level of earning assets and a decline in the loan portfolio yield of 12 basis points. We expect that the additional repricing of CDs, coupled with the continued investment of excess liquidity will help offset the impact from lower loan yields in the near term. In addition we expect to maintain the current levels of loan accretion, which will slowly diminish over time. Overall we expect the net interest margin to remain relatively stable over the next couple of quarters.

Noninterest income totaled $61.5 million for the first quarter, an increase of approximately $1 million compared to last quarter. Restrictions on debit card interchange fees mandated by the Durbin Amendment were not applied to the transactions of Hancock Bank customers during the first quarter of 2012 as previously anticipated. We currently expect these restrictions to become effective with the third quarter of 2012, resulting in a $2 million per quarter loss of fee income. We recently began offering products and services designed to offset approximately 40% of the total anticipated fee income loss.

Trust fees for the Company totaled $8.7 million for the first quarter. That was up $1.3 million from last quarter. Much of the increase was a one-time event associated with the Trust systems conversion at year end 2011. The remainder of the increase reflects the impact of new client business. Insurance fees were $3.5 million for the first quarter, down $800,000 linked quarter. As we noted last quarter the decline reflects the loss of income related to the sale of Magna Insurance Company, which took place on December 27 of last year. The sale also eliminated a similar amount of noninterest expense during the quarter. Linked quarter increases in investment and annuity fees, ATM fees, and secondary mortgage income reflect the impact of increased activity.

Operating expenses for the first quarter totaled $171.6 million. That was up $6.1 million from the fourth quarter. Operating expenses do exclude merger costs. An increase of $1.1 million in amortization of intangibles accounted for a portion of the change linked quarter. As we noted last quarter, certain purchase accounting valuation adjustments were made on some intangible assets at year end. This increased amortization reflects those adjustments.

Total personnel expense was approximately $92 million in the first quarter, an increase of $3.4 million from last quarter. The linked quarter increase is primarily due to an increase in benefits expense. Approximately $2 million is related to the normal higher level of payroll taxes at the beginning of each calendar year. This will obviously decline over the next couple of quarters. In addition, a revised health care plan for the combined Company added approximately $750,000 of benefit expense in the first quarter. And then finally, an additional $600,000 of benefit expense was related to the year end pension revaluations we noted during the fourth quarter.

Other operating expense totaled $51 million, an increase of slightly over $1 million during the first quarter. The increase primarily reflected a $2.3 million of increased ORE expense. Merger related expenses for the first quarter totaled $34 million. Merger related expenses incurred to date total approximately $121 million. Total merger expenses for the Whitney transaction are expected to approximate $125 million, and we do expect to book that remainder of expenses during that second quarter. As we noted last quarter additional cost savings were not expected during the first quarter. We expect additional merger related cost savings will be generated beginning in the second quarter as a result of completing the core systems conversion and closing branches.

We recognize that there are a lot of moving parts in the expense numbers and so decided it was probably more transparent to discuss where we expected noninterest expense to be by the end of 2012. And to that end, we expect total noninterest expense for the fourth quarter of 2012 excluding amortization of intangibles to be in the range of $149 million to $153 million. This range assumes continued realization of the Whitney merger related cost savings, a modest level of normal annual expense growth, such as merit increases, as well as costs associated with new strategic initiatives, such as front office sales support, and back office automation and efficiencies.

The effective income tax rate for the first quarter was 17%. The effective rate on an operating basis was 28%, and better reflects a normalized quarterly tax rate for the Company. We expect the full year 2012 reported tax rate to approximate 24%. The effective income tax rate continues to be less than the statutory rate of 35%, due primarily to tax exempt income and tax credits.

As Carl indicated earlier, we are glad to have the core system conversion behind us, and look forward to continuing the realization of cost synergies and other merger related efficiencies. At this point I will turn the call over to Sam Kendricks, our Chief Credit Officer.

Thank you Mike. The allowance for loan losses was $142 million at March 31, up from $125 million at year end 2011. Most of the increase in the allowance is related to the FDIC covered People's First portfolio. During the first quarter we recorded a $32.6 million increase in the allowance for loan losses related to impairment of certain pools of covered loans, mostly offset by a $31 million increase in the Company's FDIC loss share indemnification asset. The net impact on provision was only $1.6 million.

The ratio of the allowance for loan losses to period end loans was 1.28% at March 31st, compared to 1.12% at December 31. The provision for loan losses for the first quarter was $10 million, down from $11.5 million in the fourth quarter. As noted above the first quarter total provision included $1.6 million net related to the People's First portfolio. The provision for noncovered loans declined to $8.4 million in the first quarter, from $10.2 million in the fourth quarter of last year.

Net charge-offs from the noncovered loan portfolio were $7 million or 25 basis points of average total loans on an annualized basis in the first quarter. This compares to net noncovered loan charge-offs of $11.3 million or 40 basis points of average total loans for the fourth quarter. The allowance calculated on the loan portfolio that excludes covered loans and loans acquired at fair value in the Whitney merger totaled $84.6 million at March 31st, up slightly from $83.2 million at year end.

The ratio of the allowance for loan losses to period end loans excluding covered and acquired loans was 1.55% at March 31. That is down from 1.7% at December 31. This ratio will tend to decline as the proportion of this portfolio representing new business from Whitney operations grows, all else being equal. Nonperforming assets totaled $288 million at March 31, up from $277 million at year end 2011. Nonperforming assets as a percentage of total loans and foreclosed assets was 2.55% at March 31, compared to 2.44% at December 31.

Similar to last quarter the overall increase in NPAs mainly reflects the movement to nonaccrual status of a handful of legacy Hancock credits, primarily commercial real estate located in Louisiana, that were previously categorized as potential problems. Now a portion of these credits are still performing according to the terms of their contracts, however, in light of current circumstances, we decided it was appropriate to place them in the nonaccrual category. We continue to remain cautious on the economic recovery, and are being conservative in our review of credits. This view is reflected in the increases we reported both last quarter and this quarter. The credits added to nonaccrual have been a limited number of previously closely watched loan relationships.

Total foreclosed assets declined $3 million in the first quarter. During the quarter we added $18 million to foreclosed ORE of which 60% was from the People's First portfolio, and we added approximately $15 million of surplus banking property or closed branches, many of which we expect will be sold during the second quarter. We sold approximately $27 million of ORE property during the quarter. I continue to be extremely pleased with the performance of acquired Whitney portfolio, and the progress we are making to move the cover of People's First credits through the pipe to ultimate resolution.

I will now turn the call back over to Carl.

Thank you Sam. As you can see from the information that Mike and Sam just provided, the reported results are in line with the comments we made last quarter and the impact of normal beginning of the year seasonality. Now that the conversion is behind us, we have committed all resources toward achieving efficiencies and growing the organization. We continue to be focused on additional means of enhancing shareholder value. At this time, we will open the call up for questions.

(Operator Instructions). Our first question comes from Kevin Fitzsimmons from Sandler O'Neill. Your line is open.

Good morning everyone.

Good morning.

Guys, a couple of issues, if you could address. First, you spent a lot of time addressing the expenses that first quarter is not run rate, and you expect that to come down. Can you give us an update on where we stand, Mike, with what amount of cost saves remain to be realized from your original target, but then also looking out two or three quarters, are you starting to see additional saves that were not outlined in that target that could help over the course of the year come in?

And then secondly, just as a follow-up, if you guys could address the growth, and you talked about the growth in nonaccrual loans, how a few loans that were potential problems that you already knew about migrated over, what has happened to your list of potential problems linked quarter? Has it stayed flat, has it gone down, or is that something we expect to keep continuing to grow? Thanks.

Okay, Kevin. Thank you and obviously I will tackle the first question related to the cost saves. If we look at where we are in the first quarter, kind of after we back out the merger cost and the intangible amortization, we are at about just a little bit more than $163 million. So for the range of expense reductions to move from that $163 million to the range that we gave, and if you just pick the middle of that range, you are at about $151 million. Obviously the vast majority of that decline is going to come from the cost synergies that we have committed to.

And again the reminder is that the commitment was the $134 million fully in place by the time we get to 2013, so that is the track we are on. And again we are very confident in our ability to get those cost saves and again the target or range of the $149 million to $153 million, assumes full attainment of that level of synergies, with a very modest level of expense add back. So again very confident that we will get there. Now as far as kind of going beyond the $134 million, as we get into 2013 and beyond, we are always going to be extremely mindful of opportunities to harvest additional cost synergies and cost reductions. We have institutionalized very much so throughout the combined Company, a focus on attaining value for every dollar that is spent. That kind of focus on cost control and cost containment will continue going forward.

So Sam, if you want to share some information about nonaccruals?

Certainly. The increase in nonaccruals we moved certain credits into nonaccrual status during the quarter, and they are really from the legacy Hancock book. We had been watching some number of credits for a period of time. The situation in the cases we are talking about have not improved, and have continued to struggle. Some of those credits are in fact still current, but as we project their current situation, the level of liquidity that the project owner or guarantor has having been diminished, we thought it appropriate to go ahead and move those into nonaccrual status, as we project their ability to sustain in a forward-looking environment.

If you think about the circumstances along the what we call the I-12 corridor in Louisiana, there are a number of projects that came on line post-storm, post-Katrina with the expectations that there would being significant population shifts in that part of the state. Some of that has happened but quite a bit of it has not, so these projects that had projected those population shifts have continued to struggle, and that is largely what we are seeing as it relates to the CRE book that was the driver of these particular moves in the quarter, as I said particularly in the Louisiana market.

We continue to watch the portfolio very closely. We will stay tuned to the developments of our clients particularly as we get current financial statements and year end numbers in. This is the time of year that they have been providing those updates to us. So we will continue to stay in tune to the performance of the portfolio throughout the Company, but particularly in that region.

Sam, just if I can follow up, the loans that migrated over to nonaccrual that were on potential problem, were they replaced by a like or greater size of new inflow of potential problem loans?

I wouldn't characterize an additional inflow of potential problems. We have continued to watch that portfolio, so at this point I don't have a companion list of additional problems that have flowed in for inspection. But I will tell you overall, if as we look at the aggregate book, overall classifieds are down about $25 million for the overall portfolio performance is very favorable, if you look across the enterprise, but we are continuing to watch, as I said this particular segment of the geography in Louisiana, relative to what we saw this quarter in those particular projects.

Okay. Thank you.

Thank you. Our next question comes from Emlen Harmon from Jefferies, your line is open.

Good morning.

Good morning.

Was just hoping to better understand the dynamics of loan growth in the quarter. Obviously saw some run-off in the legacy portfolio. I was kind of curious what portion of the originated growth are loans that are being kind of rolled in from the acquired portfolio, and if you could give us maybe just quantitatively what you think the pipeline looks like headed out for the rest of the year, that would be helpful as well.

This is Sam, I will say that what we are seeing is in certain portions of the footprint, some meaningful activity, pipeline activity and closings, and I think Mike mentioned in his comments specifically where we were seeing that, in central Florida, the western Louisiana and greater New Orleans area. So we are very pleased with the volume of activity from some of our client base that are having some expansion opportunities. Most of these are really larger clients who are well capitalized obviously, and in a position to take advantage of growth opportunities.

The pipeline, we continue to inspect that very closely. Pipeline is a feeder. You have to ultimately get to close. So we have our bankers working very diligently, staying close to their clients. We love to grow with our clients, and so our focus for the remainder of the year obviously is staying close to our client base, to be able to assist them with any opportunities they can capitalize upon.

We saw some considerable growth in central Florida, particularly the Tampa/St. Pete area, as well as in the Houston market as the energy industry continues to do well. And we expect some additional expansion in the Houston market as we just brought on, just announced in fact this week, yesterday I guess, announced the addition of two really sharp energy lenders, Donovan Broussard, who actually is coming on board as the manager of our energy division. Both of those two lenders that are joining us are well entrenched into the Houston industry market, with a combined 32 years of experience and are bringing a tremendous amount of value and respect into that market, into our organization. So we expect to continue to see nice growth in that region with these new recent hires in that exciting industry.

And one other thing to add is just kind of a reminder when we look at the balance sheet growth that took place on an average basis we were up $50 million quarter-to-quarter. True the end of period numbers were virtually flat, but those numbers kind of reflect a point in time. As Sam and Carl kind of indicated, the environment for loan growth is certainly super competitive. And everybody out there is competing for good loan growth, and while we have a very large loan portfolio at over $11 billion, it is pretty amazing to see the level of production, that it took some $500 million to basically keep that loan portfolio on an end of period basis flat. So there is certainly a lot of activity going on, but also a very, very competitive environment to operate in.

Got you. Maybe just kind of following on to that, but understanding kind of what was happening in the acquired Whitney portfolio, we saw I think it was about $500 million in loans move out of that acquired portfolio. Is some of that being -- does some of that fall into the newly originated loans which were offsetting up $500 million, or is that runoff and where do you expect the runoff in the acquired book to go, specifically Whitney related?

Again, when you look at that acquired book and that column that is in the financial tables, that number is always going to go down, because it represents balances that were acquired on the date that the transaction was consummated. So you are always going to have amortizations, paydowns, movements of credits. So that column will always go down. And then the originated loan portfolio, again as a reminder, that represents legacy Hancock, but then it also represents the new production from the acquired book, i.e., Whitney from the date of consummation on.

So one way to look at it is certainly the acquired portfolio went down by $500 million or so, and again that was expected, but then the originated portfolio went up by about that same amount. So that just kind of shows you, in black and white the churn that happens in a large loan portfolio, the dynamics of loans paying down, moving off the balance sheet, but then new production replacing it. I think that is kind of the point we are trying to make is that there is a lot of activity going on. True we do have loans that are paying down, amortizing, maybe moving off the balance sheet, but we are working very hard to replace those loans, and certainly what occurred in the first quarter demonstrates that.

Okay thanks for taking the questions, appreciate it.

Thank you.

Thank you.

Thank you our next question comes from Matt Olney from Stephens.

Yes, good morning, and thanks for taking my question. Carl, in your prepared remarks, you talked about how the first quarter results were generally in line with the expectations, but you also mentioned the seasonality of the first quarter. Can you just kind of go over and remind us of some of the more notable seasonal impacts in the first quarter that you expect to go away in the future?

Sure, I mean many of those are employee benefit expenses that you have at the beginning of the year. The taxes of course are going to be higher because the beginning of the year, but when you look at the health expenses, health benefits, that is higher at the beginning of the year because of the changes we have made. We took two health plans, the Whitney and the legacy Hancock plan, and rolled those together, and felt like it was the right thing to do in analyzing those two plans to provide a resulting combined plan that ended up resulting in a slight increase.

Also the pension plan, you see that because of the true-up of it after year end that all pension plans have to go through. So it is those types of typical beginning of the calendar year, seasonality type of expenses, and like I mentioned, we feel like the our expense numbers actually came in basically in line with what our internal expectations were.

And still feel very confident and that is why we were, we feel so confident we were willing to come out and pronounce a range and year end for this year of our expense goal. I feel very confident in our ability to hit that, which again we believe again is in line. Last quarter if you go back and think about last quarter's call, we talked about the likelihood that expenses would go up in the first quarter because of the conversion and other items. But still felt very comfortable in our ability to hit our target. And we still feel that way. And that is why we were able to come out with the range today.

Okay. And then just as a follow-up. Moving over to the margin side, I guess this is for Mike then, security yields were basically flat in the first quarter. Is it fair to say the yield pressure that we have seen in the last few quarters is now behind us, or was there anything unusual in the first quarter for the securities yield?

No, nothing unusual, Matt, related to the bond portfolio yield. We certainly were helped out by the prepayments abating a little bit that are coming off the mortgage bonds. Going forward all things equal, the pressure that will continue on the bond portfolio will morely come from the reinvestments that we are making there at lower yields than the average yield on the portfolio. We continue to invest the Company's excess liquidity back into the bond portfolio, when we don't have opportunities to lend that money out. So just be mindful when thinking about the bond portfolio yield going forward, that the simple math of adding bonds at lower yields will begin to bring that yield down over time. Hopefully the offset to that will be the continued stabilization of prepayments from the mortgage bonds.

Great. Thank you.

Okay.

Thank you, our next question comes from Christopher Marinac from FIG Partners. Your line is open.

Good morning. Mike I was wondering if you could chat a little bit about sort of the direction of headcount? I am assuming it is going to be lower. But are we going to see that occur kind of in one fell swoop this next quarter or two, or will it be occurring over time?

Hi Chris. It will occur over the next couple of quarters. That is one of the things we really haven't talked about in explicit terms, the actual numbers of headcount decreases, but toward the end of the first quarter we closed 28 of the 30 branches that we had committed to close. So you will see a reduction in headcount, that will emanate from that immediately in the second quarter, and then also in the third quarter, and into the fourth quarter there will be additional headcount reductions, all part of our synergy focus.

Okay great. Then, I had a question on sort of the other fee income lines. As you work to offset the Durbin hits, are there other initiatives you feel good about outside of just service charges, perhaps in the trust/fiduciary angle, and will those help narrow that gap over the next few quarters?

Yes, I think wealth management certainly is one of the lines of business that we can look very much forward to in the way of revenue synergies going forward. Again we talked about completing the core systems conversion in March. One of the things that happened at the very beginning of the first quarter was the completion of the conversions related to our various wealth management platforms, as well as a focus related to private banking. So now that the two companies are completely together on the same platforms, we have all of our systems converted, wealth management as well as all the core systems we'll really begin in earnest now to work on those revenue synergies, that I think and as we have discussed, will really come from and be led by the wealth management line of business.

Let me add to that, I agree wholeheartedly, I think you will be able to see as we move forward into this calendar year, a nice increase in fee income from the wealth management side, driven especially in the insurance area, the trust area, Hancock insurance, the trust area, as well as Hancock investments, all three components of that area are doing very well, in a position now, now that the conversion is behind us, we are well down the road in working with the commercial lenders, specifically in cross-selling commercial insurance product, and then the investment team has had some real success in some of the new markets to the Hancock side of the fence, because of the Whitney transaction. So we believe that we will be able to start to see some real evidence of the revenue synergies, and as a reminder in our numbers, and in the initial announcement with the Whitney transaction, we built in zero revenue synergy, so I think we are at a point now where we will start to see the benefits of those revenue synergies going forward.

Sound good, thank you guys.

Thank you.

Thanks you Chris.

Thank you next question comes from Kevin Reynolds from Wunderlich. Your line is open.

Good morning everyone.

Good morning Kevin.

Most of my questions by now have been answered, but Carl I have got a question for you conceptually. Sound like you guys are on track along with your expectations on the merger conversion, I think most of the accounts are that things are going well as you look out there. You have talked about expenses and confidence there. The economy seems to be firming up. I don't want to imply that it is easy by any stretch, but what are you worried about from here? As you look over the rest of the year, what is it that worries you the most, with respect to the perspective performance of your franchise?

That is a good question. And I will tell you what does not concern me is the Whitney transaction. That has gone extremely well, both from a people integration, and of course now that the systems conversion is behind us, and it went extremely well, I could not be more pleased with that. So I feel very, very comfortable, and I am very satisfied with where we are with the Whitney integration going forward. The thing that concerns me, one of the items that concerns me is just the overall economic environment. We would very much like to see, as everyone I am sure on this call, would like the economy to start to turn up at a little faster pace. We are starting to see some signs of some growth which is obviously very positive.

But one of my concerns is that if something were to happen, it is a global economy, that would cause the economy to take a step or two back, that concerns me, because of what that does as far as prolonging out the overall recovery. And then the second piece that concerns me which is still unknown is just the overall regulatory environment. There is a lot of unknown questions, unanswered questions out there still in our industry particularly. And so not knowing what is going to take place with that is somewhat unnerving. But the core basics of our Company, and our ability to continue to succeed, I am extremely confident in. It is just external forces in which we have absolutely no control over are the ones that still keep me up at night.

Okay. And I guess as we head into the summer months here with elevated gas prices, I know that the casino market down there tends to be more drive up traffic, as does the Alabama, Gulf Coast, Florida panhandle. Are you worried that we could have a weaker season this year, or are you not worried much about that?

If you asked me that question, it is a good question, if you asked me that one quarter ago I would say I was probably a bit concerned. I am significantly less concerned about that now. One, because gas prices have come down significantly, and I think that we may well continue to see gas prices coming down. I was with, three nights ago I was in a meeting with some of the casino executives here on the Gulf Coast, and we were talking specifically about looking out, and they are on, they are actually pretty optimistic. Bookings, reservations are when you look at the Florida panhandle, southern Alabama, and the Mississippi coast for this summer, vacation season are running at all-time highs, and then parleying off of that, the casino executives seem to be pretty optimistic. We just opened up a brand new casino here, The Margaritaville, which of course is tied in with Jimmy Buffet. That has gotten quite a bit of publicity. I would say they are actually pretty optimistic about the upcoming summer season.

Do you think that spills over into the real estate market particularly over Alabama and Florida, do you think residential will start to make a little bit of a turn finally in Florida?

Yes, I was with, I spent some time with one of the larger agents, a larger company through the panhandle in southern Alabama. They don't have any presence in Mississippi, but the coastal Alabama and the Florida panhandle. And they indicated that they are starting to see some movement for the first time in a long time. So as they put it, they felt like we had hit the bottom and we have bounced a little bit, a small bounce.

Now they weren't projecting any significant turnaround. I don't think anyone is projecting that. But the good news is that they are starting to see some activity. And of course people at this point in the year are thinking about summer homes, obviously going into the summer season. And so the activity particularly in condos and beach homes is starting to tick up.

Okay.

So yes, I think to answer your question, yes, I think that the bookings being at such a high run rate right now will parlay into some added activity in the actual real estate sales.

Okay. Thanks a lot.

Sure. Thank you.

Thank you our next question comes from Jennifer Demba from SunTrust, your line is open.

Thank you, good morning. I hope you can hear me. I have two questions. First on expenses, just wondering, Mike, if you stripped out the cost savings from the merger you are expecting this year and into 2013, what do you think a reasonable core expense growth is for Hancock in 2012 and 2013? And then my second question is for Carl, just wondering what your interest is in future acquisitions at this point, and what size deals do you feel comfortable doing going forward? Thanks.

Yes, we can hear you fine, Jennifer. Related to the cost question, once we have all of our cost synergies fully recognized, by the time we get to the fourth quarter of this year, I think a reasonable kind of base level for expense growth would probably be something in the 2% to 3% range. And then of course adding on top of that any strategic initiatives that the Company might get into at that point. And so something in the 2% to 3% range would be a good run rate, as far as a base increase for expenses.

Jennifer, this is Carl, on the M&A outlook, now that we have the Whitney systems conversion behind us, we certainly are in a position where we could, in fact are looking at opportunities. I will tell you I have the number of books that are being delivered to me has certainly increased over the last couple of quarters, and so we are looking at opportunities. I think we are in a position now system-wise, operationally-wise where we could, if the right opportunity were to present itself, we certainly are in a position that I think we could now look at something fairly seriously.

As far as the size, I don't know see any other $10 billion opportunities coming our way any time soon. The ideal size probably would be anywhere from the $1 billion to $2 billion up to about $5 billion. That, I think, would be a sweet spot. It is hard for us to get excited about anything smaller than $600 million to $700 million. But I could easily see some opportunities in that $2 billion to $5 billion coming our way over the next 18 months.

Thank you.

Thank you.

Next question comes from Justin Maurer from Lord Abbett, your line is open.

Good morning guys.

Good morning Justin.

Carl, just going back to the original, when you guys announced the merger you outlined at the time what you thought the earnings power of the combined entity was, and a slide in there that showed kind of the target ROA by 2013 would hopefully be in the 120 to 130 range, which would imply a $3 to $3.25 or something kind of earnings. Like you said earlier that did not assume any revenue synergies. Is that still kind of the path to which you guys think you are headed and if not, it has obviously been a crazy, 15, 18 months since that time. What would be different today from what you guys maybe originally laid out, if anything?

Well, that is a good question. The regulatory environment is certainly unsettled at this point, and as we move forward we still feel very optimistic about our abilities to ramp up earnings. When you look at the 2013 timeframe, as we have already, I think we have talked about sufficiently our ability to go through this remaining calendar year in driving the expense number down, and while we are doing that, we should see the noninterest income piece start to increase, which obviously helps drive the bottom line. I feel comfortable in our abilities in the 2013 and beyond range of hitting an ROA of around that 110 to 120. I still think that is within our grasp.

The key to that, of course, is going to be the economy and loan growth. As long as interest rates stay where they are, it is extremely challenging. Mike alluded to the fact of how competitive loan pricing is right now. It is extremely competitive, and so as we see loans at higher yields paying down and paying off, and replacing that with certainly lower yielding loans, that has an impact. But you hope that the economy starts to turn, and get a little more aggressive so that we can start to make up some of that in volume. And we are positioned extremely well to do that.

And you look at other things that I think will end up being a real catalyst looking out in 2013 and beyond, such as the Panama Canal. That completion is still on target for 2014. I think we are positioned with our international banking department very well to take advantage of those opportunities of enhanced loan growth. So it all is dependent on the economy. If the economy will start to pick up, then I feel very, very comfortable in our ability to approach that 110 to 120 ROA in 2013 and beyond.

Okay. And just, Mike since the expense discussion is obviously what is weighing on the stock today, if you go back again to the slide on the merger where you guys kind of laid out the total combined expenses and the 134 offset, just simple math dividing that by 4 gets you to the range that you are prescribing for the fourth quarter, but I guess the one point of question would be the CDI, and whether or not that should have been contemplated or wasn't or what have you. Because that seems from what I could tell the biggest delta from where people might have been shaken out, relative to what you guys are talking about the run rate.

Yes and certainly we appreciate that Justin, and appreciate the uncertainty at the time. The transaction was announced around just what that CDI and other intangible amortization might be going forward, so from the fourth quarter of last year to first quarter of this year we did have a $1 million increase in the intangible amortization. It will become part of base expenses really for the next couple of years. So we certainly appreciate the challenges associated with trying to project things like that.

Just to add one other comment to Carl's earlier comments, for the first quarter we are sitting at 85 basis points of ROA, and all things equal, and we understand that you can never just assume that all things are going to be equal, but if they were, and we got to our expense targets for the fourth quarter, they will deliver to us about 16 basis points of ROA, so that immediately gets us to, just over the 1% range, and then certainly the additional things that Carl discussed, help us get to that 110 to 120 range. So we believe that those targets are within our reach.

And then just so I am clear on the tax rate target for the year, does that contemplate the first quarter reported or GAAP rate that was much lower because of the merger charges, or is that the operating rate?

No that is exactly what you just said, 24% for the year, based on a GAAP basis.

Okay so again that assumes a 17%, that assumes it is a 17% [core]?

That is correct.

So the question is the 58% that you ran on the operating basis is probably not too far off from where it runs the rest of the year to get you to the 24% for the year?

That is right. Yes.

Thank you for the clarity.

No problem. Thank you.

Thank you, our next question comes from Peyton Green from Sterne Agee, your line is open.

Good morning. Maybe a question about the production side of the house, just because I think you mentioned loan production was about $500 million in the first quarter, and I guess with the timing of the branch consolidation of the systems conversion, and if memory serves correct, the Whitney Bank has been moved to Hancock systems and procedures, and policies and processes. And I guess what do you expect to happen going forward, because with your bank being smaller than their bank and them shifting to your system, does that create a bit of a log jam so to speak, and if so when would you expect that to be kind of out of the way and everybody comfortable with the new process and policies and procedures?

Okay Peyton, this is Carl, and I apologize if you hear a train. That is just in the background, that is just the wonderful sound of commerce across the Gulf Coast. I think that as I mentioned, there is a tremendous amount of training has gone on in the production side specifically during the first quarter, and most of that was with the legacy Whitney lending force. So I think with that behind us now, the conversion behind us now, we are all on the same system, and same procedures and processes, I think you will be able to see a lift.

We certainly are expecting and see no reason why there would not be a lift in production because of what is the focus now. Our folks know how important it is on the production side, and we are now focused on taking care of our customers and growing the footprint, and the balance sheet, and as I also mentioned, a lot is dependent on what the economy does.

We are starting to see larger commercial customers come off the sidelines and start drawing down on some lines, and starting investing some capital, whereas the, at this point, the smaller commercial customers are still not quite as confident, and are staying on the sidelines. So I think if we can continue to have some positive signs in the economy coming out, I think you will see that middle section of commercial borrowers coming off the sidelines, and getting back into the game and starting to borrow, which obviously we are in a wonderful position to take advantage of that.

Okay. I mean perhaps maybe a little bit of another way, but I mean would you expect production to slow in the second quarter just because the timing of the conversion and everybody, I mean you never get used to a new system until after you really start using it?

No, no, absolutely not. I don't expect production to slow in the second quarter at all. That is what primarily took place in the first quarter, and even with the conversion, and all the things that we were throwing at our people, we still had $500 million of production. So I would expect production to actually increase in the second quarter and continuing on, based on the ability now, that distraction, the conversion distraction is now gone, it is behind us. So now being able to focus back all of our efforts and our energy on production, I certainly expect production to be up.

Peyton, I think one of the things we are trying to say is that learning curve toward these new systems, while it is pretty steep, you climb it pretty fast. The conversion happened back in the middle of March, all of the training took place leading up to that, and I think now we are in a place where we are hearing every day, that people are becoming more comfortable with the new policies, procedures, and systems. So speaking to Carl's point, we think we are beginning to get some momentum in place.

Okay. And then I guess from a balance sheet perspective, if production picks up and payoffs remain stable so to speak, would you have balance sheet growth, or would you effect mix change with cash flow from the bond portfolio as a preference?

Hopefully we would have balance sheet growth, but that would really just be dependent on how much loan growth that we have. We are very anxious to stop investing bonds, and start investing in our customers.

Ballpark what is the cash flow of the portfolio expected to be over the next 6 months, or 9 months, or 3 months?

It is kind of operating within a range of probably about $80 million to $90 million or $95 million per month.

All right, great. Thank you very much.

All right, thank you Peyton.

Thank you.

Thank you, our next question comes from Jefferson Harralson from KBW, your line is open.

Thanks guys. Good morning. I wanted to ask another question on the expense line. Could you just walk through the changes from 4Q to 1Q on that expense line? I am getting through the health care plan $800,000, possibly there is some OREO in there, you have got maybe $1 million on the intangibles, and there are some seasonal things in there. Could you just help understand the $6 million that -- of what that increase was made up of?

Sure, absolutely Jefferson. Really three categories as we have kind of talked about, the first would be the increase in the amortization of intangibles. Quarter-to-quarter that was about $1.1 million, and again tracks back to some of the changes we made at year end 2011, kind of truing up the goodwill, but then also moving some of the goodwill over to an amortizing intangible. So we will have an additional level of intangible amortization really for the next couple of years related to that particular adjustment.

Then the personnel expense. We are up a little bit right at $3.5 million quarter-to-quarter. The biggest part of that $3.5 million increase related to payroll taxes being up about $2 million quarter-to-quarter. Then in addition to that we have the additional expenses related to our new healthcare plan for the combined Company employee base. That adds $750,000, and then finally pension expense was up about $600,000 quarter-to-quarter. The last major line item that was up was ORE expense. If you look back in the fourth quarter of 2011, we had really what was considered or we are considering kind of abnormally low level of ORE expense; it was a mere $82,000.

And the reason it was so low was because we had several gains and other adjustments that pushed that more normalized level of ORE expense down to something that really approached statistically zero. And then as things evolved in the first quarter of 2012 we came in at about $2.4 million and so that level of ORE expense was really considered kind of abnormally high. We had some write-downs and then some losses we took on some properties that were sold. Those were really the three major dynamics related to the expense increase quarter-to-quarter.

Of those, which of these kind of stay with us? I would guess the personnel would have some, would come back a little bit?

Yes.

The pension?

Right, the amortization of intangibles will stay with us, although that is amortized on a declining basis so that will trail down a couple hundred thousand dollars per quarter. The payroll taxes as we go through the year, people max out on Social Security, and other payroll related taxes. That level will actually come down. The healthcare costs and the pension expense will be with us for the year, and then on the ORE expense we talked about the $2.5 million being kind of abnormally high, all things equal we would expect that to come down to a more normalized run rate, which for us is probably something in the $1.7 million, $1.8 million range per quarter. So hopefully all of that is helpful.

All right, thank you.

Thank you, I show no further questions in the queue, and would like to turn the conference back to Mr. Carl Chaney for closing remarks.

Okay thank you. I would like to thank you all for joining us this morning on the call. We are certainly extremely pleased with how the conversion, systems conversion took place, and the success of that. It was an enormous conversion as you can imagine putting two companies of this size together. I am very pleased with how that went, and now we are excited, absolutely excited about what the future quarters will provide, as we continue to focus all of our energy on continuing to achieve our efficiencies as well as growing the organization. And that all of course results in enhancing, further enhancing shareholder value.

Thank you for your continued support, and thank you for being on the call today.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect at this time.