Hancock Whitney Corp (HWC) 2014 Q3 法說會逐字稿

Good morning and welcome to Hancock Holding Company's third-quarter 2014 earnings conference call. Participating in today's call are Carl Chaney, President and CEO; Mike Achary, CFO; Sam Kendricks, Chief Credit 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 release and presentation and in the Company's most recent 10K and 10Q. 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 or implied by any forward-looking statements are based on reasonable assumptions but our actual results and performance could differ materially from those set forth in our forward-looking statements. Hancock 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. The presentation slides included in our 8-K are also posted with the conference call webcast link on the IR website.

We will reference some of these slides in today's call. I will now turn the call over to Carl Chaney.

Good morning and thank you for joining us today.

I would like to start today's call by saying how pleased I am with our third quarter results and how proud I am of our associates. Their hard work has helped us successfully execute the updated strategic plan we announced back in April of 2013. Since then each quarter we have made progress and checked the box towards meeting the goals we set. All designed to help replace purchase accounting income while growing quality core earnings.

For the third quarter we reported core earnings of $41 million or $0.49 per share, up $0.03 or 6.5% linked quarter. Operating earnings for the third quarter were nearly $49 million or $0.49 per share, with an ROA of 1%.

Let's take a look at slide five. We introduced this slide last quarter showing the gap between our operating and core results for both EPS and ROA. The $0.22 gap in EPS from the first quarter of 2013 narrowed to only $0.10 for the third quarter. And the ROA gap narrowed from 41 basis points to 16 basis points. This is a 44% improvement in EPS and a 35% improvement in ROA over the past six quarters.

Since we announced our updated strategy in April 2013 we have met several of the goals we set. The first goal we achieved is consistent quarterly loan growth. Since the second quarter of last year, our loan portfolio has grown steadily every quarter, generating core interest income and replacing declining loan accretion income. We expect growth to continue and have updated our loan guidance for the fourth quarter to 10% to 14% linked quarter, annualized, and have set our 2015 end of period loan guidance at 8% to 12%.

The second goal we achieved was to reduce our annual total expense run rate by $50 million by the fourth quarter of 2014. We hit that goal three quarters early and have been keeping expenses below that target since then. At the same time we have been making investments in revenue generating initiatives and expect fourth-quarter operating expenses to be in line with our stated goal of $147 million.

Our next goal was to grow core revenue. Revenue generation is a significant piece of achieving our goals and growing earnings and this quarter we are able to report meaningful growth. We replaced $5 million of lower loan accretion with core revenue from net interest income and fee income. That's a big headwind we were once again able to overcome.

Take a look at the chart on slide seven. I think it clearly illustrates how we have been able to overcome, not only the third quarter's accretion decline challenge, but the historical hits to income we have been facing recently, whether purchase accounting impacts, or loss of revenue from strategic decisions related to branch rationalization and business line profitability.

I will now turn the call over to Mike Achary, our CFO, to review more of our quarterly highlights

Thinks Carl and good morning everyone.

As Carl noted, we were very pleased with our results this quarter. Especially our ability to narrow the gap between operating and core earnings, which is now less than $8 million on an quarterly basis.

So now just a few highlights from the quarter. Net loan growth for the noncovered portfolio was $488 million, or 16% linked quarter annualized. This growth came from all markets within an our footprint, as well as our vertical lines of business, such as mortgage and indirect lending. We do expect these overall trends to continue, and as Carl noted, we have updated our guidance as appropriate.

The quarter's loan growth was funded completely with deposits. As we noted last quarter growing deposits was a focus point for the Company, as our bond portfolio had reached the floor.

The deposit initiatives put in place to grow core deposits led to almost $500 million in end of period net deposit growth for the quarter, without materially increasing our funding costs. As we noted earlier, we were able to replace a $5 million decline in purchase accounting loan accretion with core revenue dollar-for-dollar.

Core net interest income was up $4 million linked quarter, as a result of loan growth and balance sheet leverage, while fee income increased $1 million from growth across several of our business lines. Our reported margin did decline 18 basis points while the core margin declined only three basis points.

And while the downward pressure on the margin continues, it's important to note that we are growing core net interest income. Both the reported and core margins continue to be under pressure in the near term, but we expect the levels of growth in core net interest income to continue.

Operating expenses remained relatively stable and below the targeted expense goal for the fourth quarter this year. Expenses increased just under $500,000, and while we are continuing to make investments in revenue generating initiatives, we remain committed to our fourth quarter expense target of $147 million.

Our asset quality metrics remain strong. Nonperforming assets declined and we continued to build the reserve for the non-covered portion of the loan portfolio, in part related to the strong loan growth we have been experiencing.

Net charge-offs were up six basis points this quarter, with the increase mainly related to just one credit. Our capital levels remained strong with a TCE ratio of 9.10%. That was down 19 basis points from last quarter. The decline reflects $10 million of capital used to repurchase stock.

During the quarter we repurchased just over 305,000 shares at an average price of $32.65. One of the items that we will evaluate when determining the level of our buyback each quarter will be the organic growth of our balance sheet.

We ended the third quarter with total assets of $20 billion. That was up over $600 million on a linked quarter basis. This increase was the other driver related to the quarter's decline in the TCE ratio.

As we stated previously our Board will evaluate opportunities such as organic growth, stock buybacks, M&A and dividends when reviewing levels of excess capital.

Also impacted by the growth in assets quarter was ROA. For the third quarter operating ROA was 1%. That was down four basis points in the second quarter. More importantly however our core ROA was up two basis points linked quarter to 0.84%.

Finally I want to call your attention to slide 19, which is our near-term outlook for certain balance sheet and income items. And also, just as a reminder, the impact of declining purchase accounting will continue for the next several quarters.

Our current projections show a $6 million decline in net purchase accounting impact for the fourth quarter. As a result we expect to see operating EPS flat to down in the near term reflecting this decline. We do, however, expect to see core EPS growth of $0.02 to $0.04 in the near term as we continue our work of replacing purchase accounting impacts with quality core results.

I will now turn the call back over to Carl.

Thanks Mike.

Before I open the call for questions I would like to make a couple of quick comments on our revenue generating initiatives. Currently we are working on three additional BFCs, Business Financial Centers, that are scheduled to open in the next few months, two in Houston and one in Sarasota, Florida. Earlier this week we hired a team of non-energy, middle market lenders to join our Houston group. This team of eight bankers is already established in the market and we are happy they made the move to join our organization.

In addition we hired a new executive for our private banking line of business and will continue making investments in wealth banking. We are making investments in the payments area through our credit cards and treasury management lines of business.

And finally part of the loan growth during the quarter was in indirect lending. Recent changes in that business line have to the growth in the portfolio I noted earlier. We look forward to updating you on more success stories that lead to continued growth in our core revenue.

We will now open the call.

(Operator Instructions)

Michael Rose, Raymond James.

Hello, good morning. Guys how are you?

Doing well. Good morning, Michael.

Mike, maybe you could just start off with the core margin and the expectations there as we go into next year. And talk about the interplay between loan growth and the shift in earning asset mix, relative to funding that growth with deposits, and I noticed the deposit costs were up a little bit this quarter. Can you speak to what to expect assuming rates stay flat next year? Thanks.

Going forward, what we accomplished in the third quarter I think is a preview of what you can expect going forward. We've given good guidance around the growth in our loan portfolio, we've talked a lot about the last couple of quarters, the various initiatives that we have put in place to fund that loan growth, dollar-for-dollar with deposits, and certainly in the third quarter we demonstrated our ability to do that. So going forward the game plan is to continue executing on the plan that we have put in place and showed results around the third quarter.

Certainly going forward we are no different, we are not unique from anyone else, and feel the same margin pressures that are out there. Again the near-term guidance is around potentially our core margin to continue to narrow just a little bit for the next couple of quarters.

At the same time using the leverage on our balance sheet to grow net interest income. At the same time continuing to improve the mix of loans that we have put on our balance sheet. Again I think the third quarter represented a pretty good demonstration of our ability to diversify that mix a little bit.

Okay. Then as a follow-up, just talk about some of the investments you made in revenue-generating initiatives. Where do you think you stand in terms of dollar investment? Are we kind of halfway through the investment, or how should we think about how the operating leverage flows through on a core basis over the next couple of quarters?

I think as we go forward you will see us again call out certain initiatives and attach a little bit of a number in terms of any future expense increases associated with those particular initiatives. We are making initiatives now, or we're making investments now on those initiatives, and so while it's not showing up in the total expense numbers -- again as we talked about many times we continue to strategically responsibly cut costs and a lot of those efforts are helping to fund some of the investments that we are making now.

I think as we move through the rest of this year and into 2015 the pace of that investment will pick up. It should be evident in our expense numbers. But then also evident in the revenue numbers as well.

Okay that's helpful. Then just one housekeeping question, the fourth quarter expense target of $147, does that include any non-core expenses?

The $147 in the guidance that we've given is our operating expenses and of course we back out of that any non-operating our one-time expenses. Again this quarter that level diminished from, what was it, about $12 million last quarter, to just under $4 million this quarter.

Great thanks for taking my question.

You bet. Thank you.

Ken Zerbe from Morgan Stanley.

Actually my question was on the expenses but I think you already answered that. I appreciate it. Thank you guys.

Sure.

Thank you, Ken.

Thank you, Ken.

Kevin Fitzsimmons from The Hovde Group.

Good morning guys.

Good morning Kevin.

Just a question on the loan growth guidance, it seemed like a little bit of a faster pace for fourth quarter in the near-term. Is that just more seasonal or are you just being conservative looking out at full year 2015 and taking a bit of a wider range? Just trying to get your thoughts there.

Well with the fourth quarter -- we are in the midst of the fourth quarter now and so we have a much better feel on that. And you're right, Kevin, our comments about 2015 are a little more conservative just because it's a little further out. Everything we see seems to be extremely positive and looking at the pipeline looks very, very strong

Also Kevin, you're correct, the fourth quarter does tend to be on a kind of normalized basis, a little bit seasonally higher than other quarters. So that certainly is factored into our guidance as well

Okay. Just as a follow-up on the subject of loan growth, I think you mentioned that you hired a team in Huston and you made a point that it was a non-energy team. With what's happening with oil prices, I'm sure you guys are looking at it carefully, how are your customers doing, how do you feel loan demand is going to react to that, how do you feel energy in general? I know it's a certain amount of exposure for you guys, how do you feel about it?

This is Sam. I'll take that one.

We obviously are attuned as everybody is to the current movement in oil prices. As we've talked to our clients, everybody that we've talked to generally expected some softening in prices, the timing of the softening was a little bit unknown, but obviously we're staying attuned to that. Obviously it's an oversupply issue today.

But at these prices the industry remains healthy. We are not in a panic situation. They are positioned to be able to ride out the current price situation.

They can't continue to make money at the current pricing levels. So we are attuned to the situation and not overly concerned.

We've got a good portfolio of performers that have weathered the storms before, the balance sheets are in good shape. We will continue to monitor but at the current price deck we are not overly concerned.

This is Carl. Let me just on to Sam that we've touched base with several of our principal customers in the energy sector, whether it's directly in the E&P or in the service sector. Every single one that I have spoken to has been extremely positive and have absolutely no concerns at current prices. We feel very, very comfortable with that.

But let me tell you how excited we are about this management lift that we did in Houston. It was really a great coup to be able to pull a team like this together.

Just the mere fact that it is non-energy is even better because we obviously all are interested in diversifying our portfolio, diversifying our risk. While energy has been wonderful for us and continues to be a great line of business, the ability to pick up a more generic C&I team in a market as robust as Houston is phenomenal. I can't tell you how excited we are about the opportunities coming in that market.

Carl, that's a great example of many of the revenue initiatives we have been talking about. While we couldn't be specific about our efforts around a lift-out such as this, certainly it is part of the plan going forward.

Part of the strategy, exactly.

If I could just ask one other thing, and I applaud you guys for the detail you're providing on the purchase accounting adjustments and the fact that you're going to the level of, not just giving an operating number, but a core number, taking that out. But it's an interesting question because a lot of banks are dealing with this headwind.

You guys probably a little more so just because of the size of the Whitney deal relative to Hancock. But that must have been, I have to imagine, a matter of debate because we talked to other banks about it using that word core and non-core. Just one bank yesterday that came up on the conference call, that they were trying to make the point that a fair amount of these loans that accretion income is coming from, they view as core loans and it's going to be sustainable and it's going to stick around.

Is it more just a case of you recognize this headwind and trying to really showcase the fact that taking purchase accounting out you guys are improving results? Because I guess the question is when you get through this and you do other acquisitions there's going to be accretion in common purchase accounting that comes from that. Do you continue to call this terminology non-core, or is this more of a one-time thing because of the size of the headwind you're dealing with? Just interested in the debate that went back-and-forth.

Yes, Kevin, this is Mike. You're correct, that is something we've been talking about for an awful long time here. You hit the nail on the head.

We're doing this because of the materiality and the size of the combination with Whitney. Again it's pretty unique, where you have a little bit of smaller banking company buying a larger one and doing so at a little bit of a premium and pretty significant mark to the acquired loan portfolio.

Then on top of that you have the outstanding performance of that acquired loan portfolio. So it generates all of these purchase accounting impacts, which have been extremely significant to our income statement and balance sheet.

The place where we've landed in that regard was really an ability for us to be very transparent and very direct with investors and analysts. And basically showing them the progress that we believe that we are making in terms of improving our core results and replacing the diminishing levels of purchase accounting.

It's no secret if you look at our headline numbers, our operating EPS and earnings, it's been pretty flat over the last year and a half or so. But we asked the market investors to really kind of measure and gauge our progress on the improvements that we've made in our core results.

Over the past year and a half, two years we slowly ratcheted up the level of transparency, disclosure, as we believed was appropriate, so that people could have that information to make those judgments about our progress. Does that make sense?

Yes it definitely does and it's very helpful. Thank you.

One other part of the question you asked, going forward for any additional M&A activity? I mean, no, we're not going to a sit here and back out the impacts of -- which are very likely to be much more -- less significant transactions going forward. So this is not something that we think we can do in any future M&A activity.

Makes sense, thank you.

Thank you.

Jennifer Demba, SunTrust Robinson Humphrey.

Thank you. Question on indirect auto lending. You noted you had some growth in that segment this quarter.

Just curious as to what your goals are in terms of growth in that portfolio? What you feel has changed that you want to grow it more now? If you could give some color there.

Jennifer, this is Sam. We view that as an avenue for continue to add quality portfolio to the overall balance sheet and it's part of the balanced approach we are looking for. While we talk about middle market lending, corporate lending, etc., consumer lending remains a core part of what we do, and indirect is a part of that.

There have been some changes in the industry, we think we are well positioned to take advantage of that. I wouldn't say we got a target of $1 billion portfolio. What were looking for is in our markets, our core markets, continue to grow those opportunities that incrementally add good quality earning assets to the balance sheet.

Nor are we looking at out going out on the risk spectrum either, on that indirect as well, Jennifer.

Can you just give us a little bit of color on what you're doing inside the footprint? Just some parameters here.

As it relates to indirect lending, you're talking about?

Yes, sorry.

Obviously that client base takes some cultivation, so we are working the dealer base, obviously. We want to stay attuned to that. There was a time that we probably weren't as close to that group as we should have been, so we sort of refocused on that.

It's about quality of service. So we are highly focused on that. Those are our clients as well, the dealer base, so we are staying close to that group and being sure that we are meeting their needs and we're getting the quality paper that we would desire to balance out the portfolio.

Jennifer, this is Carl. We are looking at A and B paper and some C, but primarily A and B paper. Also, these dealers are all in market.

These are dealers that we know well and, as Sam mentioned, many of the customers are actually customers of ours in other means. So we are not going outside of our footprint trying to expand that book by any means.

Jennifer, this is Mike. One final comment on indirect, just a reminder that this is not a super significant portion of our loan portfolio or balance sheet. So even with the volumes that we have put on the balance sheet in the last couple of quarters, the total indirect portfolio stands at about $400 million at the end of the third quarter.

Thank you that is helpful.

Thank you.

David Bishop, Drexel Hamilton.

Hello, good morning, gentlemen.

Good morning.

As you noted on the deposit funding side, we're able to sort of match fund the loan growth there. I'm curious in terms of the pricing strategy there, is that something that we should look for to see an appreciable change in deposit cost moving forward? I'm just curious it in terms of how we should think about that impacting the margin moving forward.

That's a great question, Dave. This is Mike. Really kind of allude back to one the earlier questions around the core NIM and some of the pressures that we feel going forward.

Certainly deposit cost is a factor in that consideration. While we don't expect to see a huge increase in our deposit cost going forward, you can expect to see that number tick up just a little bit from where we are, as we move forward with some of our deposit initiatives.

Having said that, certainly part of those initiatives is continuing to focus as much as we can on non-DDA deposits and increasing our mix there. As you know it is already pretty healthy in terms of the percentage of our overall deposits. So going forward that is definitely part of our initiatives and plan, is to grow DDA deposits in that same percentage.

Okay. And then, related to the Business Financial Centers, yet probably too early, but any sort of impact there in terms of the loan pipeline heading onto the fourth quarter?

I wouldn't say just yet but, having said that, we are extremely pleased with what we are seeing so far in terms of the production coming out of our BFCs, the two that are open right now. I think more importantly for us, they are achieving the objective that we set out, and that was a place for our bankers to service those corporate customers, middle-market and commercial folks.

This is Carl. The early results have been extremely positive, both from being able to generate that pipeline of commercial credits, as well as the benefit on the expense side. As we spoken before, the general cost of a BFC is about one third of the cost of a traditional retail branch. So getting both sides of that benefit are already starting to show up.

The $3.9 million in sort of those nonoperating expenses, does that reflect charges surrounding the openings of these BFC centers? Just curious behind maybe some more details on what's behind that $3.9 million.

No, there are not any cost related to the BFCs. The $3.9 million is of course related to our ongoing deficiency exercise and charges related to those efforts. There's some personnel related costs in there, as well as some write-downs and other charges that we took on some of the branches that we've been closing, some of the consumer branches. But no cost related to the BFCs.

Matt Olney from Stephens.

Thanks. Good morning, guys.

Good morning.

I appreciate the guidance on all been moving parts on that slide 19. I didn't see any mention of guidance for fee income. Any thoughts on the next few quarters on fee income? It seems like some of your recent investments could materialize and produce some better fee income but I didn't know you had any thoughts there.

No, nothing specific there, Matt. This is Mike. Other than the commentary that we continue to make around our revenue generating initiatives and many of those initiatives bearing fruit as we move into the second half of 2015.

Certainly there's a big part of those revenue initiatives relate to fee income. I think as we get a little sooner to actually being able to show that kind of growth in non-interest income, you'll see us step out with some broad guidance in that regard

Okay. And then also as far as the stock repurchase program, I'm a little surprised it wasn't more active in the quarter given what this stock price was. I am trying to understand if you fully expect to use the full authorization given your loan growth outlook and your current capital levels? Can you remind me what capital ratio you're managing to and what do you consider kind of minimum amount?

The capital ratio metric that I think is closest to our heart, and certainly our Board, is our TCE ratio. Of course that was nine 9.10% at the end of the quarter, down about 19 basis points.

While we don't have a hard and fast threshold, a trip wire if you will, I think it is well known by most folks that for us 8% I guess can be classified as kind of a very tight comfort zone that we like to adhere to. I think that probably comes as close to a threshold as we can articulate.

Related to the stock buybacks again as we kind of mentioned in our prepared comments, we have the authorization out there and it is certainly something that we will avail ourselves to from time to time. But at the same time we also are very, very mindful of the earning asset growth and leverage that we're putting on the balance sheet. And so, quarter-by-quarter, it's going to be a little bit of a juggling act between looking at the kind of leverage were putting on the balance sheet, the stock price and kind of balancing those different options out there, in terms of how we manage our capital.

Thank you.

Okay.

Kevin Reynolds from Wunderlich.

Good morning everyone. How are you all?

Doing well, Kevin.

Different question, and you may have addressed this already, so I apologize if I missed it. Looking at asset quality, I know that overall asset quality looks like it's improving in the quarter, and it's a long-term trend that's been in place and I suspect likely to continue. But when I look at provisioning levels and charge-offs, noncovered charge-offs, specifically I'm looking at slide nine.

I note the provision was up this quarter, part of that would be, I think, you tell me, in response to stronger loan growth out there organically. But on the charge-offs side it looks like we went up a couple of million dollars sequentially.

Did you give us any color on what this was, or could you give us any color and what the pace of charge-offs would be going forward? And then what that means as we look into provisioning levels with your loan growth guidance out there for the next several quarters?

Sure. This is Sam.

As it relates to charge-offs, we specifically in this quarter, we had one credit that was a big driver around that and we went in and took a charge on that account. It was really driven by one particular account.

If you look at the charge-off trends, early in the year we were running pretty low levels, 13 basis points, we were 19 basis points for this quarter. As we continue to grow the loan portfolio I would project that the lower levels that we had in the first and second quarter were probably unusually low but we do not expect to see substantial increases. A more normalized rate as we move forward is going to be probably a little higher than the first and second quarter of this year.

We obviously look at the opportunities for recoveries on previously charged-off accounts and that our success in recovering those amounts has led to some pretty good quarters earlier this year. But as we go forward I would say we are going to enter a more normalized run rate than we had earlier this year.

Okay and then I guess a separate question, if I can, on capital levels, we were just talking about buybacks and all. Thoughts about -- without putting any pressure on you or asking you to do something quickly, but thoughts on M&A, just generally as you look out across the landscape. Carl what you think about that today as a potential use of your capital knowing that you're going to be continuing to build it here at least for a little while?

Well we continue to be interested in M&A. Obviously that plays a significant part in our capital plan going forward. While we -- I'm glad you asked the question because I was going to find a way to bring it back into the conversation, as a response to the earlier question about our buyback pace.

But we continue to be very interested in M&A. It is strategic, when you look across the our footprint, the prices, the multiples being paid, and expected to be paid in Texas are certainly very steep. I'm not sure if those will make sense for us.

That's why the management lift-out in Houston, that we announced this week, is huge. I think that's how we do business in Texas until prices, if they ever do, get a little more reasonable. But outside of Texas --.

You can work on that.

Yet that's right. But we're excited about that. I think it's going to work out extremely well with the quality of these bankers that have joined up.

But outside of Texas, M&A is very viable and we continue to foster those key relationships. I would just say, obviously we can't -- we are not at liberty to say too much, but I can tell you that we have a very strong interest in looking for the right strategic opportunity.

Are we out chomping at the bits just to be able announce a deal? Absolutely not, that's not our -- we have never been that way and certainly will not start to act in those manners. It is important to our strategic plan and we have certain institutions identified that we believe make perfect strategic sense for us, that are in market, and we are pursuing that as we move forward.

Okay thanks a lot. Good quarter.

Sure, thank you.

Jon Arfstrom from RBC Capital Markets.

Thanks. Good morning.

Good morning.

Hello, Jon.

Just a couple of follow-ups. One of the comments, I think on slide looks like slide eight, you said mortgage and indirect generated about 30% of the loan growth. Is that just something that came together this quarter or when you look at Q4 and your 2015 guidance do you expect similar type contributions from those two lines of business?

Jon, this is Mike. No, that's been part of our strategy and our plan, and again, that's around bringing this notion of a fuller mix of loans onto the balance sheet. That means a little bit healthier dose of our consumer loans.

I think what you have been seeing over the past couple of quarters, is the levels of our consumer loan production and the amount we keep on the balance sheet beginning to increase a little bit. Certainly that kind of reached a little bit of a higher level this quarter which we're pleased with.

And going forward, similar type contributions, maybe a 30 year growth, or would you expected to be a little less than that?

It will vary quarter-to-quarter, just depending on the other components of our loan growth. I think something in the 20% to 30% range is appropriate for the consumer fees, if not maybe a little bit more than that from time to time.

Okay, got it. On the Houston hires, have they started yet?

Yes, absolutely. They resigned on Monday morning and then Tuesday the landed in our offices with laptops up and ready and were meeting with customers before noon on Tuesday. It is business as usual and it's exciting, let me tell you.

Okay, good. And they are in the Woodlands office or some place else?

Yes there in the Woodlands area.

Okay, got it. Another line in here that you called out that private banking had the new hire, anything going on there, anything changing in terms of how you run that business?

No, I wouldn't say anything materially changing except having a new leadership there is very refreshing. This gentleman comes with an incredible background and resume. He is bringing some renewed excitement and generation to the team. I think you'll be hearing some more exciting news coming out of that area from us in times to come.

Okay, got it. Mike, OREO expense, you're calling out that it may go back up a bit, or it won't stay at these levels, is it just more of a normalization or is there anything else to be thinking about there?

Yes, absolutely. So the last couple of quarters we've had great performance and really have had net zero ORE expenses. A lot of that certainly is related to the gains that we have been able to take in, disposing of some of our ORE.

So I think the way to think about that line item, Sam please chime in, is kind of our normal run rate of ORE expenses, probably about $600,000 per quarter or so. You either add or subtract to that certainly any other valuation adjustments, gains or losses on sales.

Okay good. Carl, I probably shouldn't as this on the call, it's probably sensitive topic internally, I'm guessing Hancock is an Ole Miss bank and Whitney is an LSU bank and I'm just wondering if you have any predictions?

I will be there in Tiger Stadium tomorrow night and fully expect Ole Miss to continue its undefeated season, so how do you time it?

And you'll be brave enough to wear red?

I will be wearing red.

I feel compelled to make a comment, but in the interest of continued employment I will hold my tongue. I'm sure somewhere we'll hear a cow bell ringing.

That's right, we're just an SEC financial institution.

Thanks guys.

Thank you.

Peyton Green from Sterne Agee.

Good morning. Maybe for Mike or Sam, I was thinking about Hancock over the long, long term, looking at loan growth like you've had, certainly it's happened before. But that marginal loan-loss reserve, just taking the provision expense, less the charge-offs. That was right around 50 basis points of the loan growth, if you think about the originated loan growth, not necessarily net of the runoff.

Is that the right rate going forward? That just seems way below the north of 1% that the bank's been run with forever. Help me about that going forward.

Peyton, this is Mike. And Sam please chime in again as appropriate.

We evaluate those levels of additional provisioning and any impacts are a triple L each and every quarter, through our model and various methodologies, looking at our loss histories, looking at the quality and the risk ratings obviously of the loans that we are putting on the balance sheet. I think while you're correct, if you go back deep into the legacy company's past you probably would have seen higher levels of provisioning, all things equal.

But again what were doing now is what we believe is appropriate, given our methodologies. And I don't mean that to be a vague answer but that's really how we look at it going forward and how we have to look at it.

Okay in thinking about indirect auto, that does have HR drop rate historically from the consumer end. What kind of charge-off rate do you think is reasonable for the indirect business over the long term?

I will ask Sam to look at that.

Our indirect charge-offs have been very modest historically. Part of the reason is we have traditionally bought almost exclusively A and B paper to the extent that you might even classify it as super-prime. As we continue to grow that book, we are looking for that proper risk return of balance there.

And so it means that we may buy more of the spectrum below A but we expect to be compensated for it. Our indirect charge-offs have been so modest, well below industry averages, so we think there's an opportunity to continue to pick up volume and yield there. It's a historically well below industry net charge-off run rate that we've seen in that portfolio.

Okay.

So were not concerned about adding an exorbitant amount of additional charge-off. We're looking for the proper risk and return balance as we continue to grow that book.

And Sam, something else that probably failed to mention earlier, what some of the indirect commentary is. But what we're after in that regard is really just not the loans and the paper on the balance sheet, but a full customer relationship and so that's part of our strategy and game plan as well.

Excellent point, we've got both the consumer client that we want to expand that relationship with, as well as the dealer that we service.

Okay and then second question would be, am I right in remembering that the Peoples First, at least the non-residential of last year, terminates this quarter?

It does, Peyton. In the middle of December.

Any noise do you expect with that?

No, no noise. We believe that we are appropriately amortized in the I8, and that certainly the expiration of maturity of that portion of the loss share agreement will be a non-event.

Great thank you for taking my questions

Sure.

Thank you.

Jennifer Demba, SunTrust Robinson Humphrey.

Someone just covered it, thank you.

Thank you, Jennifer.

I will now turn the conference back to Carl Chaney for closing comments

Thank you. As we continue to successfully focus our efforts on controlling expenses and investing in revenue generating initiatives, along with emphasizing both loan and deposit growth across the footprint, we also continue the trend of replacing declining purchase accounting income with solid core results.

The addition of the customer generating bankers in Houston will certainly be a major step in satisfying this puzzle of replacing that accretion. Our success in growing core revenue this quarter narrowed the gap between operating and core results, with core EPS growing 6.5% linked quarter.

I am very proud of what we have been able to accomplished so far and look forward to continuing our success in future quarters. Thank you for your interest and have a nice day.

Ladies and gentlemen thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone had a good day.