Hancock Whitney Corp (HWC) 2015 Q1 法說會逐字稿

Good morning and welcome to Hancock Holding Company's first-quarter 2015 earnings conference call. As a reminder, this call is being recorded. I would now turn the call over to Trisha Carlson, Investor Relations manager. 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 10-K and 10-Q.

Hancock's ability to accurately project results or predict the effects of the future plans or strategies or predict market or economic developments 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 our IR website. We will reference some of the slides in today's call.

Participating in the call are John Hairston, President and CEO; Mike Achary, CFO; and Sam Kendricks, Chief Credit Risk Officer. I will now turn the call over to John Hairston.

Okay. Thank you, Trisha, and good morning, everyone. Thank you for joining us. As noted in the earnings release, our first quarter's results were stable. We are feeling the impact of both typical first-quarter seasonality and a bit of impact from the energy cycle.

We also positioned for future opportunities via a number of capital management activities. One of those you might know during the quarter was we completed our common stock buyback, and we also issued $150 million of holding Company subordinated debt. While not exactly a highlight, we believe this will be the last quarter for any significant impact of net purchase accounting items on our results, and Mike will talk a little bit more about that later.

Our efforts to grow revenue continued, and while the current economic impact of the energy cycle and impact in the energy-related markets may delay a bit the timing of achieving a few of our consolidated goals, we have not lost sight of those targets and remain keenly focused on growing the Company and its bottom-line results. Loan balances were the moral equivalent of flat as the trends we normally experience in our loan portfolio once again impacted the year's first quarter.

As you know, historically we see buildup toward the end of every year with the line of credit paydowns occurring in the early months of the first quarter. This coupled with the current energy cycle and net pay downs in the energy-related portfolio led us to lower period-end year-over-year loan guidance to 5% to 8%.

That said, we're very pleased with the progress we've made on various loan initiatives. We're adding loan balances and are close to stabilizing the core loan yield. However, energy-related reductions are creating somewhat of a contra affect that somewhat offsets positive results.

Regarding capital management activity, we believe we strengthened what was already a very solid capital position by issuing the aforementioned $150 million of holding company sub debt. It was issued on March 9. The debt qualifies as tier 2 capital. It also allows us to diversify our capital stack away from what was fully common equity before.

It was 30-year debt at 5.95%, which we were pleased with. While most of that will be used for general corporate purposes, specifically growth, about a third was used to complete the common stock buyback. We believe that was a good use of our capital.

With our stock price impacted by oil prices, we took advantage of the low price and completed the 5% buyback authorization that the board authorized in July of last year. That was roughly 2.5 million shares in the first quarter at an average price of $29.36.

In total, we bought back about 4.1 million shares at just over $30 per share, and then combined with the ASR we initiated in 2013, that makes 7.5 million shares repurchased at an average price of $31.71 since the Whitney transaction was completed. If you roll that together, that works out to be about 20% of the total shares issued for Whitney.

Our focus is on the future. We have fully integrated Whitney. The streamlining of management that we talked about last quarter has as expected simplified and sped decision-making and is allowing revenue efforts to progress more rapidly.

Having been in the proverbial saddle for a little over quarter, I feel strongly we're on a march to remove any complexity or any hindrance to improving leverage, adding net clients, and growing revenue. That focus extends to the complexity of the P&L as well, and we expect the noise from purchase accounting adjustments will be gone from any of our metrics next quarter.

We do expect to see one more quarter of nonoperating expenses, and then those too should disappear. I guess you would say we're streamlining the organization from top to bottom, including simplifying the quarterly results.

We do continue and have continued to invest in our future. We are positioning ourselves to take advantage of opportunities given the capital management changes and the people that we are hiring.

Total headcount from 12/31 is down 14, but we added a cool dozen revenue producers or bankers while doing that. So you would translate from that that we continue to harvest smart expense reductions and put that money right back into our future for the purpose of growing revenue.

Interest rates will eventually go up. We've been saying that for a number of years. Sooner or later it's got to happen.

We maintain an attractive variable loan portfolio at 54% that is mostly tied to short-term rates. And we believe we would see an immediate meaningful move in net interest income at the point interest rate do rise. We won't wait for it. Until then, we continue to grow loans, and we will improve pricing.

This report marks six straight quarters of new loan production where most of it, over half of it, was variable, where four of those six quarters were more than 60% variable. So in the face of challenging margin competition, we continue to push our mix as variable and short as we possibly can while trying to stabilize margin.

Regarding oil, certainly the last few weeks have shown promise and stabilization, and crude will also eventually go up. We've been in the energy business for several decades, we've mentioned that the last couple of conversations we've had in this call. And we have successfully managed through previous down cycles, some of which were very, very challenging.

Our clients have through-the-cycle experience, many have already taken appropriate steps to manage through today's cycle. And in fact, on a comparative basis, we're seeing a more rapid response where energy service clients are taking action very proactively and even maybe faster than in the 2008 cycle.

They're using cash faster to reduce liabilities, they're reducing expenses faster. They're more proactive in addressing revenue pressure, and that's certainly good for their organizational health and we're glad for them.

And it certainly bodes well for our asset quality productions, but it does present some revenue pressure on us. And as you can see from the charts on slide 11 and 13, we did experience reductions in loan outstandings back in the 2008 energy cycle, and that reduction was pronounced.

If you take the first quarter of this year and this cycle, and you saw a $50 million or so reduction in the energy book and one quarter, then it was suggest we could see a $200 million net reduction in energy in 2015 for this particular cycle. So based on what we know today, which is both the trajectory from the fourth quarter to the first quarter and the actual reductions in the first quarter, we think the $200 million net reduction would be a reasonable and prudent expectation.

When looking at energy-specific markets, particularly in southwestern Louisiana along the coastline, where energy dependence is a little more pronounced, Houma, Thibadaux, Morgan City and those areas, energy services really do dominate the local economies. They are better diversified than they were in the 1980s and the 1990s but it still a lot of energy dependence there.

We are not experiencing asset quality issues, really just a handful even of consumer loans where customers have said they've been laid off and they are a struggling. So it's very, very light, lighter than expected so far. But we are seeing lending slow down a bit in the consumer and small business segments in those markets.

So by rolling all of that together, that's what's behind the updated loan guidance to reflect that potential trend. Should that trend change, we will of course update our loan growth guidance in this or another opportunity forum.

You can be assured I would very much enjoy beating that guidance, and if we start feeling a little better about it, we will certainly reflect that. But we are going to be transparent about those headwinds and give straight talk as best we can throughout the cycle, and that's what led to the 5% to 8%.

In related lending matters, interestingly and positively, the non-energy loan book in the greater New Orleans area is actually doing quite well, reflective of what really is a much improved economic diversity versus the challenging days of the 1980s. So the GNO area, the Greater New Orleans area is actually doing very well, sans the direct energy book. Houston and parts of Louisiana that I did mention earlier are also doing very well in non-energy segments, and the eastern half of our franchise is growing very attractively.

We typically don't share in-quarter information on this call. But given the dampening of the loan outlook, I thought it may be helpful so you see a little bit of our thinking and why we're doing what we are doing. And I mentioned we're disclosing that trajectory of $200 million decrease this year in energy outstandings and slowing volume in some of the highly energy-sensitive coastal markets.

That said, while January and February were anemic months due to both seasonal and energy pay downs, March was actually a very, very good lending month. And April as of this morning is showing about $150 million in net loan growth. And that's net loan growth inclusive of any other reductions in energy.

So it's certainly difficult and seems counter that trend to the reduction to 5% to 8%. But as I said, we want to give straight talk, and the facts were a $50 million reduction in first quarter, and we just don't think it's prudent to be anything other than realistic.

If we start feeling a little better about it, we will certainly communicate that to our investors and those interested in following our stock. We hope that that additional intel gives you a peek at both the progress made in other loan initiatives and how that's showing in the second quarter and that the energy contra is what we are concerned about, and that's what's behind the difference.

So when we get to provision, like we said before, I'm sure you will have plenty of questions for Sam when we get to Q&A about energy. But we continue to see or could see provisions go up in the near-term, directly related to risk-rating pressure, but we continue to expect no significant losses as a result. We continue to see the cycle as a potential earnings event due to provision but not a capital event.

Revenue. Revenue is going to come. I realize we've been talking about it for several quarters now, but we had some good success in the back half of last year.

However, given the energy contra, I think it maybe a little longer before the initiatives can offset entirely the energy contra and show a meaningful impact to net numbers at the bottom. The initiatives we have in place will begin to impact our results we believe in the second half of 2015 with more significant impacts showing in 2016 as we see the full measure and hopefully a little relief in the energy contra in 2016.

Therefore, our strategies really haven't changed. Organic growth is still our top priority. We're working relentlessly to create it. Now that the buyback is complete, we would say M&A is number two as a better use of capital as long as the price and the strategic fit makes sense. We will be very prudent in doing it, but I would very much like to use our ability to acquire to augment earnings.

While our short-term outlook may be down in the near term, due to significant declines in purchase accounting income, we're focused on core quality growth and completing the initiatives that we started last year for long-term success. Not one single initiative has been deferred or delayed due to energy. So the Company is well-positioned and quite capable of managing several of these large issues at the same time, being the initiatives that we've got going now, the desire for acquisition, and handling the energy headwinds that we are facing.

And looking a little forward to 2016, we believe it will be a much better year. Our internal forecast shows 2016 to be roughly 25% better than our core 2014 results. That's core. And that's without an increase in rates without any M&A transactions and with a moderate recovery in oil prices. Certainly, the better oil prices recover, the more optimistic we get.

So with all that commentary, and I know I will have questions later, let me go ahead and turn the call over to Mike Achary, who is Chief Financial Officer and will review quarterly highlights. Mike?

Thank you, John. Good morning, everyone. Just a few highlights from the quarter.

So the Company's operating EPS for the quarter came in at $0.55 a share, and of course, that met expectations. Those results did exclude a backout about $7 million of what we refer to as nonoperating expense items. So our core EPS was $0.49 for the quarter, and that was down just a bit from last quarter, mostly reflecting the facts related to our Company related to the normal first-quarter seasonality we have and of course the impact from the current energy cycle that John just covered.

So as we talked about just a little bit earlier, the Company's loan portfolio was virtually unchanged from year-end. So on and end-of-period basis, loans were up about $29 million, but that did include about $50 million of energy-related net paydowns.

So if we back out those paydowns as well as a reductions in our FDIC acquired portfolio, we actually did grow the loan book about $92 million or about 3% link quarter annualized. So that level of growth is about on par with the first-quarter seasonal trend we've seen over the past couple of years. And you see that noted and emphasized on slide 6 in the Company's presentation deck.

So the loan growth that we did show in half of the quarter was mainly reflected in our Alabama and Florida markets as well as in some of our vertical business lines such as indirect auto and mortgage lending. So as John talked about, we do expect the Company's loan growth to continue.

We did lower our end of the period year-over-year loan growth guidance to the range of between 5% and 8%. And of course, that reflects the first quarter's actual results, our go-forward pipeline, and again, assumes no growth in energy lending for the Company.

So our reported net interest margin did decline 8 basis points over the course of the quarter, and our core margin was down 6 basis points. So the drop in the core and reported margins reflected the decline in our core loan yield of about 3 basis points, a single basis point drop in the yield on the Company's bond portfolio, and then also a 1 basis point increase in our total cost of funds.

The margin also reflects the issuance of $150 million in subordinated debt that was consummated in early March. That sub debt had a rate of 5.95% did compress the margin for the quarter 1 basis point. So a go forward basis, a full quarter's impact on our core NIM from the sub debt will be about 5 basis points.

So as I just mentioned, the core loan yield did decline 3 basis points and does exclude the impact of both Whitney and P1's purchase accounting accretion. So if we make a further adjustment for other items such as fees and interest on the P1 portfolio, and again, that can be volatile quarter to quarter, the Company's originated portfolio's core loan yield was actually unchanged from last quarter and so has in fact stabilized. That's a very important milestone for the Company and really marks the first time we've been able to keep our quarter-over-quarter loan yield flat.

So we talked a little bit earlier about seasonality. And that certainly played a part in the decline in our levels of net interest income quarter to quarter. So between payoffs and pay downs, with two less accrual days in the quarter, our net interest income declined $2.5 million on a reported basis and was down $1.8 million on a core basis.

And so as we noted on slide 20, we are expecting a significant decline in our net purchase accounting income next quarter. Our re-projected levels of purchase accounting now show about an $8 million or about a $0.06 per share drop in accretion that will begin in the second quarter of 2015.

And again, that will impact our operating EPS. So what that means is going forward, beginning with the second quarter, our operating and core EPS will be the same. So about $0.49 per share all else equal.

Also, we expect next quarter will be the last quarter of significant nonoperating expenses. So we are very pleased, and let me repeat, we are very pleased to have a more simple and easily understood income statement and hope you do as well.

The Company's asset quality metrics remain strong. Charge-offs remain low at 11 basis points, nonperforming assets continue to drop, and our provision expense was down $3.6 million from last quarter. Our ALLL remained solid as we built the reserve on the originated portfolio about $2.5 million.

We also noted in our release as well as on slide 14 in the presentation deck, the amount of the general C&I reserve allocated to energy loans at the end of the quarter. So using loss factors for the general C&I portfolio, but not specifically energy, the reserve for the energy portfolio was 117 basis points at the end of the quarter. That was up from about 70 basis points at year-end.

So the reserve allocated for energy saw about an $8 million increase and reflects risk rating downgrades with the net portfolio. So as John talk about earlier, further risk rating downgrades could impact the future provision levels, but we do not expect significant losses related to the current energy cycle.

We talked about earlier, again, we maintained solid capital levels this quarter with our tangible common equity ratio coming in at 8.4%. That TCE ratio did decline 19 basis points from last quarter, mainly reflecting about $75 million of common stock buybacks.

So as we noted earlier, we repurchased of about -- I'm sorry, 2.5 million shares at an average price of $29.36 during the quarter. And that negatively impacted the TCE ratio by about 38 basis points. So we've now completed the 5% authorization and will most likely look at different opportunities to deploy capital in the future as well as capitalize on opportunities to grow our company.

And lastly, I will remind you to review slide 27 of our presentation deck, which is our near-term outlook for certain balance sheet and income statement items. So at this point, I will turn the call back over to John.

Okay. Thank you, Mike. Let's just go on straight to questions.

Thank you.

(Operator Instructions)

Our first question comes from Kevin Fitzsimmons with Hovde Group. Your line is open.

Hey, good morning, everyone.

Hey, Kevin.

Mike, I guess this is for you. Why when I look at that chart on -- I guess it's slide 20 where you guys lay out the anticipated impact from the PAAs, previously in the last few quarters, it had been pretty consistently that it was going to be -- the next big drop off was going to be first quarter 2016. And now it looks like that shifted to second quarter, and then it's more of a smooth handoff after that. So what led to that, and if you can just give us a little color on that. Thanks.

Sure, be glad to, Kevin. You probably recall that in the past, one of the things that drove changes in the levels of accretion and recognition was the infamous interest collections or cash collections on loans that had been written down to basically zero pools. So that drove some of the volatility a couple years ago.

And more recently and especially in the first quarter, the thing more than anything else that drove the volatility or the acceleration of some of that accretion was the ability that we had to move some of our acquired loans from that acquired category to the originated category. When that happens, you're able to recognize or accelerate some of that accretion.

So that really drove the most recent change, and where we're projecting going forward is very little of that change to occur. And so what that does is give us a little bit more in the way of a predicted level of accretion going forward. That make sense?

Yes, it does. So I guess I mean the bad news is you got down to a lower level of having that cover from accretion income sooner, but the good news is you got to a cleaner income statement sooner?

Yes, absolutely. And that's exactly how we look at the trade of. And again, let me stress the level of accretion and the level of discount is still the same. That hasn't changed. All that's changed, again, is the timing around the recognition.

Mike, would it be fair to say it's a zero-sum game?

It is absolutely a zero-sum game.

And simple is good, therefore now it's simple.

We're not creating the additional levels of discount or accretion, and we're not reducing those levels either.

Got it. Okay. One quick follow-up on energy. You guys put out a lot of good disclosure here on the exposure and how you're looking at the different scenarios.

Can you give us a glimpse of how you've looked at or attacked the indirect exposure? So for example, commercial real estate or anything like that in or around Houston, what you're getting a sense for that. But something that isn't directly tied to energy but maybe impacted by it? Thanks.

Sure, Kevin. This is Sam. We have been actively looking at our Texas and Houston-based CRE obviously.

The Texas domicile projects are dispersed among several markets in Texas, Houston obviously being part of that. But it's dispersed in several segments. And so we're very comfortable, and we've seen no risk rating migration, we don't have any past-due issues in the CRE portfolio.

And so we are very confident in the projects that we have financed. We do not have any as it relates to multifamily and midrise a high-rise projects. As you look at office, obviously you expect to be sitting the first impact in that segment.

We don't have any -- probably just two office projects, but they are not tied to any energy companies in terms of leases, et cetera. So good distribution in terms of the segments we finance there. We're seeing no past dues, no risk rating migration, and we're talking to our CRE lenders on the ground very regularly to stay abreast of those dynamics.

Okay. All right. Thanks, guys.

Thank you.

Our next question comes from Emlen Harmon with Jefferies. Your line is open.

Hey, good morning, everyone.

Good morning.

Just staying on the theme of Texas and Louisiana, actually. You mentioned just the loan growth had slowed this quarter. John, you talk specifically about some of the coastal communities. I guess just as far as the broader economies are concerned, did you see just a outside of a normal seasonality, did you see a slowing in commercial growth away from those specific communities that you mentioned.

We did. In general, and I will try to answer your question a couple different ways, to give you color. If you look at all of the business-related clientele -- I will separate it into business banking, which is $1 million to $5 million in annual revenues; commercial banking, $5 million to $25 million; middle-market, $25 million to $100 million; and corporate, $100 million and up just to give you some segmentation there.

Consumer -- below that. Consumer business banking, commercial banking, all are growing and growing in Louisiana. And I would consider that quite positive.

So I mentioned the improvement in economic diversification in Louisiana since the evil days of the 1980s. That value and the results of those efforts have shown so far during this cycle. So the segments continue to grow.

So the pressure that we are seeing on loan balances are coming into the middle-market -- primarily the middle-market segment and the energy portion of corporate. So the good news is the portion of the portfolio that generates fee income as well as better-yielding loans are doing quite well. And that's really throughout Louisiana with the exception of those coastal communities.

And they're not doing poorly. They just aren't growing like they were the last couple of years. When you get into the middle-market corporate book, it's absolutely tied to energy or industrial credits that are really going to follow energy.

So the health of the markets remains really good, and so -- and generally Baton Rouge has always weathered those types of economic storms well. But it looks as if New Orleans is going to do quite well this time as well. Is that what you are looking for?

That is, that was very helpful. Thank you. And then, Mike, just a quick question. On the loan yield compression, I heard you just a couple minutes ago say that the originated yield actually held flat quarter over quarter.

It did seem like the yield in the consumer book was down quite a bit. Presumably a portion of that is related to purchase accounting. Could you give us a sense there of what the driver was there and what gives you confidence you going to see stability in the loan yields going forward?

And just to be clear, the numbers that I was mentioning a little bit earlier attempt to really boil down to our most basic loan yield after we strip away all the impacts of purchase accounting, the impacts related to amortized fees. We even strip away the impact of the entire People's First acquired book because that does tend to be volatile quarter to quarter.

And then when we do that, the remaining portfolio which is what we look at as the most basic way to look at our loan yields, that super core loan yield, if you will, was really flat quarter over quarter. And that includes the mix changes that we've had related to a little bit more in the way of consumer loan growth as well as all of the other initiatives that we've been working on to try to stabilize that basic core loan yield.

And so that's the thing we are excited about. Again, going forward, our ability to keep that basic loan yield stabilized and eventually move it higher is really going to be the key to our success of being able to show meaningful levels of core revenue growth in the second half of this year.

Got you. Okay. Then just specifically the decline in the consumer yield. I'm guessing maybe some of that was related to P1 and just any sense of what else was the driver there?

Yes, some of that is P1. Some of that again is some of the mix differences. We had a little bit of an emphasis lately on indirect auto lending which has a little bit overall lower yield.

Got it. Thank you.

Our next question comes from Matt Olney with Stephens. Your line is open.

Hey. Thanks. Good morning, guys.

Good morning, Matt.

I want to ask about capital. I think you mentioned the stock buyback's now complete. I think the commentary was suggesting that you're looking to pull your capital elsewhere. Does this mean it's pretty unlikely that we're going to see another buyback program?

I don't know that it's unlikely, Matt. We don't have another buyback program or authorization to announce today. That doesn't mean at some point as we go through the year that we wouldn't put another authorization in place. We're not here to do that today.

What it does mean is that through the issuance of the sub debt, again, we use about a third of the proceeds there to complete the buyback. The other two thirds of those proceeds were used to really sure up our capital ratios. And we plan to use those higher levels of capital to grow the Company or to continue to grow the Company organically as well as put us in a position to consider M&A opportunities a little bit further down the road.

So look for that to come potentially in the second half of this year. So again, right now, where we are, the top of our priority stack related to how we deploy capital right now doesn't include another buyback.

And as you think about M&A in the back half of the year, any additional commentary in terms of what you're looking for or where? Has anything changed in the last few quarters?

No, nothing has changed in terms of the conversations or the commentary we've given around our priorities. Our priorities remain to be and probably acquisitions or candidates that would be a little bit on the smaller side, so something maybe between $1 billion and maybe $2 billion, $2 billion or $3 billion. But again, the priority beside size is in markets where we already have a presence, so the opportunity to take out a lot of cost very quickly and add good earning assets is a priority.

The second priority after that would be in markets that give us an opportunity to increase our market share. So the latter priority, certainly you can look at our geographic footprint and conclude that the markets that we would be interested in would be the ones that are on the bookends of our geographic footprint. So again, that something we've talked about quite a bit in the past.

Okay. That's helpful. And then lastly, John, I believe you had some commentary about a 25% improvement in 2016 versus 2015 for core. Any more details on this? Was this a core EPS or a core pretax pre-provision?

It's a -- yes. What I said was a expected 2016 which by definition is core, because PAA is going to be so limited, we consider operating will be operating then because it will be simple.

That 2016 performance relative to core to 2014 -- I think you said 2015. What I said was 2014 core EPS would be approximately 25%.

Okay. Great. Thank you.

You bet.

Our next question comes from Jennifer Demba with SunTrust Robinson. Your line is open.

Thank you, good morning.

Good morning, Jennifer.

Wonder if you could give us some more color on the revenue producers that you added during the quarter. You said you added a dozen.

We did. I will be glad to give you color. If you break it by function, that was about -- it was eight commercial bankers, two private bankers and two middle-market bankers for a total of one dozen.

And if you break them out, maybe a different way, four of those were in Tampa where we are seeing some really seeing some great progress in central Florida. It's one of the healthiest markets for growth right now. We have four bankers in Tampa.

The leasing team that we mentioned we hired the leader for the leasing team on last quarter's call, we hired another four people to flesh out that sales staff which as you might expect would be levered across the franchise. And then their four miscellaneous by function, so just to give you an idea of the 12 cut two different ways. Is that helpful?

Yes. If you look at your hiring pipeline, what are you seeing there?

It's pretty good. We really haven't had a lot of trouble finding the type of talent that we want. There's a lot of good bankers out there.

We've made no secret that it is our desire to grow the loan book and bankers want to go where banks want to grow. So as a result, we've had a pretty good success.

In terms of how many more bankers we would add, we haven't disclosed that number. I tell you what, Jennifer, I will do a little noodling here and then if we want to go out with that number, I will share it a little later on in the call for you. Is that okay?

Yes, that's fine. One more question. Follow-up on your reduced loan growth guidance. And I'm sorry if I missed this in your monologue, but when you think about what your expectations were three months ago versus today, were the energy paydowns higher than you expected them to be?

What we shared -- it's a good question. What we shared, I don't remember if it was last quarter or one of the webcast roadshows, but we shared the table that showed the 2008 experience. And that was some in the neighborhood of a 25%, 30% paydown, but it was over a longer period of time. It took about 10 quarters.

And I'm referring to 2008 cycle, and there towards the end of that reduction, Jennifer, we ran into the DeepWater horizon timeframe. So it's a little difficult and now nearly 10 years later to know when did the reductions in outstandings leave being tied to the energy cycle and begin being tied just to the DeepWater Horizon incident. So I'm giving you a sum of those two, but it would be fair to say probably 80% of that drop, I think it would be fair to attribute to the energy cycle.

So what we expected to happen and it still may happen is that type of production over a much longer period of time. What was somewhat of a surprise and I need to characterize it, while it's a negative to revenue, it's really a net positive for those clients and therefore us in the long run is they have been extremely proactive and have found access, both to equity markets for reductions in principle and senior loans, as well as their ability to collect revenue from accounts receivable and pay down credits outstanding to improve their overall earnings performance.

So our clients are being more proactive than 2008, which was a little longer. And the -- they're using that to actually pay down debt. So I hate to say it's a bad thing. I think it would be characterized more as a revenue headwind but not necessarily a bad thing for the clients and our book.

Jennifer, this is Mike. One thing I would add to John's comments is again, he mentioned earlier in his prepared remarks that he would love and the Company would love to beat that guidance. And so that's what we are aiming to do.

And he also shared where we are in terms of loan growth already into the second quarter. And I would say that what we're seeing so far this quarter, partly so far in the month of April, is very encouraging and I think puts us in a position to hopefully beat that guidance.

That was helpful color. Thank you very much.

Our next question comes from Michael Rose with Raymond James. Your line is open.

Hey, good morning, guys. How are you?

Hey, Michael.

Just wanted to get a little more color on slide 14. Thank you for providing all of the color that you do on energy -- it's very helpful. I'm sorry if I missed this, but those scenarios, can you describe maybe what level of oil price or gas price those scenarios assume?

Yes, I will make a couple comments, and then Sam, please, provide any color. The way we set up these scenarios were really with the objective of pretty simple and pretty straightforward.

Again, each of the three are really mutually exclusive. They really don't assume any level of oil prices. They don't make an assumption around the duration of the cycle.

They also don't make an assumption around the time period that these risk rating migration might occur. So it really is a shock scenario that again, we sensitized by component of our energy book.

So again, when we look at scenario one, all we're doing is just reducing the risk ratings in all of the categories of our energy book or all the sectors of our energy book by one numerical risk rating. So something that was a 3 goes to a 4, something that was a 6 goes to a 7.

And we're simply showing what the impact if that were to occur, what the impact would be on our energy-related ALLL. And of course that would imply additional provisioning levels to get to those higher ALLL levels.

And then it maybe I can ask a follow-up to that. The energy reserve is 1.17. What would you expect in those scenarios to happen to loan balances? And then concurrently, what would you expect the reserve level build in the energy piece to go to?

We haven't really provided that level of detail on this slide, but it's a good question. And if we go back to the guidance we gave around the energy-related paydowns that we think might occur over the course of the year as well as no growth. And obviously, and we haven't done the math, but obviously those levels of energy-related ALLL in the three scenarios would go up pretty substantially.

Okay. I'm just trying to figure out what the downside case could be to your loan growth guidance, should even scenario 1 play out. Appreciate the sensitivity here, but I'm trying to get a sense for what that potentially would do to your loan growth guidance because I assume it doesn't factor in -- loan growth guidance doesn't currently factor in.

It really doesn't factor in.

Michael, this is Hairston. I really don't -- if that were the scenario, I don't think it would have little or no impact to growth. I think that would just be -- almost look at it as a qualitative impact even though you feel it in risk ratings.

Okay. Then one final question if I could. There's been a fair amount of capital markets activity in the energy space maybe more than we would have expected.

If you can you maybe comment on -- because I know you deal with some bigger companies, maybe how much or what percentage of your companies that you deal with on the energy side have actually raised additional capital through the debt and equity markets. Thanks?

Michael. This is Sam. I've been focused specifically on the RBL space because we are in the middle of our base redetermination season.

And so just as an FYI, we've gone through, and the redetermination here for about 40% of our RBL clients. And of those clients, just under half of those somewhere between 45% and 48% have been in the equity or secondary debt markets and have raised either equity or secondary debt, subordinated debt, et cetera. And they've used those for multiple purposes, paying down revolvers. We've seen some activity there.

Some have been in the market of acquiring additional reserves, and some have just been enhancing their overall capital structure and suring up liquidity. So to date, between 45%, 48% of the RBL clients have been in the markets.

Okay. That's very helpful. Thanks for taking my question.

Michael, this is Hairston. Thanks for the question. Do you mind if I piggyback your question to answer Jennifer's earlier one?

Sure.

This is for Jennifer. On the question of a spot for bankers, looks like three points. One of them is the commercial banking segment we have has a good bit of capacity in a given the hires we've already made the last several quarters.

Even with that said, should an opportunity arise to hire team in markets we're seeking to grow, we would absolutely take it, and we continue to look for those opportunities. The team hire we did in Houston last year actually is doing quite well. We're very pleased with performance of that group.

They have great leadership and the bankers have been very, very successful so far. So we'd like to do those everywhere we can.

And probably somewhere in the neighborhood of six to eight openings are out there now for additional bankers. But if we will take as many as we can get in markets that are doing well. That would be the best answer I can give you at this point. Thanks, Michael for letting me piggyback.

The next question comes from Ebrahim Poonawala with Bank of America Merrill Lynch.

Good morning, guys.

Thanks for dialing in.

Just wanted to go back to the capital deployment. There seems to be clear emphasis on keeping dry powder for M&A or buybacks today. Feels a little different than what you heard in the last six to nine months.

Is that driven by the combinations you are having and you are seeing increasingly more exactive targets within your markets? Or is it more to do with your desire to start playing offense and be viewed as a bank which is looking to grow both from an organic and M&A standpoint?

Ebrahim, this is Mike. I think it's both of the comments that you just made. We are interested very much in growing our company and going on the offensive. As we've talked about many times, we believe we have a very scalable balance sheet and really need to grow into it.

We have a regulatory infrastructure for example that was built when the two companies were put together in 2011 and 2012. And that's something that we believe, again, is very scalable and affords us an opportunity to be a little bit bigger company without having to make some of those significant investments because we've already done that. So really, the question is, yes related to both of your points as well as what I provided.

And just, I'm sorry if I missed this in your prepared remarks. In terms of where the tangible common equity ratio is today, do you consider that being closer to the low-end of where you'd like to be and probably add some capital over the next few quarters? Or can -- in a scenario where there's a pull back in the stock, can you see the TCE go down if you want to be opportunistic and buyback more stock?

Those are all things that we have considered and actually acted on as you know over the past couple of years. And those are things that we will continue to be opportunistic about.

As I mentioned earlier, we do not have another buyback authority in place as we stand today. That's something that could change as we go through the year. But as of today, we do not have another buyback authority.

As far as the TCE, the end of the quarter we were down to 8.40%. As you probably know, we've talked many, many times in the past about the Company having a comfort zone, if you will, of really not wanting that TCE ratio to go much below 8%. However, I think we've been very careful in the past also to talk about when there's an opportunity for us to grow our balance sheet, and it does result in a little bit lower TCE or TCE lower than 8%, that's something that we are prepared to do again for the right kinds of opportunities.

Ebrahim, this is Hairston. The board's position on that 8% is they would prefer to stay at 8% or above, but they will go below as long as there is a credible plan for how long it will take to get back above it.

So as Mike said, I think we've been down that road probably three times in the past 12 years, got below it. Each time quickly earned our way back into having a TCE above 8%, so we think that's pretty healthy posture.

Understood. And if I may ask one more question. Thanks for providing the year-to-date loan growth guidance, that was very helpful. Can you give a little more color on that in terms of what a loan category is that growth comes from quarter to date and what markets?

Most of the growth that we've seen as we moved into April really has been on the commercial side. And I would say is pretty well diversified through our geography, probably a little bit more on the Eastern side in some of our Eastern markets. Also, I think a fair amount in the central part of our company, so Southeast Louisiana.

Helpful. Thank you very much for taking my questions.

Okay.

Our next question comes from Dave Bishop with Drexel Hamilton. Your line is open.

Good morning, gentlemen.

Hey, Dave.

Like Mike said, appreciate the color in terms of the energy portfolio. Drilling down to slide 13, you gave us some good information in terms of the support services portfolio.

Could you -- we heard you say slide 13, but we couldn't quite make out the question. Could you try one more time?

-- Portion the [$671 million], I think you show about 42% deposit supporting that. Has that trended just nearly down as of late, or are you seeing customers within that portfolio fall that liquidity? Is that in line with historic norms in terms of that 42% ratio?

This is Sam. I will answer that. We've been tracking that, and we are very interested in that metric, obviously. And the trending is holding up very well.

So we have not seen meaningful falloff there in terms of that segment of the portfolio in terms of deposits for it. So it's not a new phenomenon. It's stable, I would call it.

And another follow-up. In terms of the loan loss reserve related to the energy portfolio, last cycle when it did down turn relative to the 1.17% right now, how high did that get to as a percent of loans?

We honestly don't know. We didn't have that data at that point in time. I would tell you that the risk rating migration that we experienced back in the 2008 cycle did -- again, this is history and this is different cycle, but the overall risk rating migration we experienced in 2008 didn't average to more than one general tier down for the whole energy portfolio. So that's why we started with that in a slide 14 for the reserve tape. Does that make sense?

It does. Thank you. And then one final question. As it pertains to the consumer book, the indirect book, with the stress you're seeing within the market, any plans to maybe back off on the growth in that consumer portfolio?

There's a couple of answers to that. We still have our foot on the gas in indirect because we want to make sure we are deploying credit.

We've got a lot of deposits to loan. And at the last reported cycle, I think we were down around 83% deposit ratio, and our target is 85% or maybe a tad higher. So we will keep on with indirect.

That said, that is a notoriously skinny margin business. Our collections or our credit issues with indirect, those seem to have gotten better and better as the years progress. So in that last recessive cycle, we were braced for problems in the indirect book, and they never materialized. We had virtually no charge-offs or low charge-offs in auto loans.

So that means the risk in that book inherently is a little less than it's been in a previous cycles, which makes it more attractive to us, so we will keep on deploying it. But we would like to see better performance of the indirect car loans resulting in a deposit relationship with those clients. And so our ability to gain deposits and therefore liquidity and fee opportunities from that book will probably drive our appetite for growing that book in the future.

I think we will probably -- and we are learning quickly and seeing good progress there, probably by the end of the year, I think we will be able to make an assessment of whether we want to keep doing it. But I can tell you that we are putting money -- one of the revenue bearing initiatives is a fair amount of direct mail and active cross-selling of those clients to ensure that we do get deposit numbers, and by the end of the year, we think will be running it long enough to make an assessment. Is that helpful to you? Is that what you needed? I think we lost Dave.

We can go to the next question.

Our next question comes from Kevin Reynolds with Wunderlich Securities. Your line is open.

Hey, how are you doing, John? Most of my questions have been asked and answered, but I do want to revisit one that I think is pretty important at least conceptually, actually two questions. The first one is, we've talked about the buyback and I've heard you say repeatedly what you think about that and how the board views it.

But conceptually, the question I have is if you completed the buyback in the last quarter at a price that is higher than where you are currently trading and you still have excess capital and you don't have the currency, it appears right now, to be a -- I guess a reasonable competitor with where prices are out there in the market place perhaps in the markets you were looking at. Why wouldn't we just go ahead and do another buyback because it seems like a great investment from your perspective if you truly have a favorable outlook going forward from here. I will let you answer that one, and I will come back and can ask a different question.

I will start up -- this is John -- and then Mike can jump in and add color. It really is a good question. It's a fair question, Kevin. But we-- what we have is a leadership structure and the markets we're the most interested in for acquisition.

We have a leadership structure that we feel very, very good about that is quite scalable. And we could add a good bit more of a book of business with that leadership team in place so that incremental profitability of adding that book is more powerful than the benefit of just simply burning that capital for a buyback.

Now set said, if we can't make that happen, your thought begins to get a little bit more attractive. The second reason that we have M&A at this point prioritized higher than the buyback is what Mike said before. And I will take what he mentioned about the expense base and add to it.

We spend a lot of money building out the infrastructure of the Company for both -- and we continue to spend money both in technology and sales systems and in prospecting systems and risk management systems. A lot of information you have in the slide deck, if you compare that to what we had five years ago, we couldn't produce that information and certainly not in the space of three or four business days after the quarter is over and even intra-quarter like we did today.

So we've spent our shareholders' money to build out that infrastructure for the purpose of supporting a larger organization. So we feel as if we owe it to our shareholders is to make sure we deploy that spent money and that intellectual horsepower we've acquired by growing the book of business to pay it back and to grow and to make the Company more profitable.

So the reason we got M&A prioritized higher than a buyback is because that plus organic is the way we achieve that. So I would not want to -- I wouldn't want to presume that we would not be successful with acquisitive activity and organic growth at this moment and burn that excess 40 basis points of tangible, at least not yet.

Again, like Mike said, if energy headwinds are just as pervasive or worse than we have shared today, and we can't grow organically and we don't find partners who are the right fit at the right price, then certainly the buyback option begins to make more sense. And if you go back in time, we said the same thing after the ASR was complete that if we couldn't grow as much as we wanted or we couldn't acquire as we wanted, then a buyback would become more opportune.

And that's exactly what we did. And we didn't have to do ASR to achieve it, so it was a little bit more beneficial. So it's not off the table. It's just not at the priority level that we would place the first two. Is that fair? Mike, you want to add any color?

The only thing I would add, John, that was very well said. I think the point to stress really is that we look at these priorities, it's something that we're going to juggle over time.

And I think you described the way that we would maybe move one of our options ahead of another as we go through time. Just because we don't have a buyback authority in place right now, doesn't mean that we're not going to in a month or quarter or two quarters down the road.

It would be fair to say that question we ask ourselves and our board every quarter based on the facts as we know them.

Right.

So we will ask it again in a few weeks.

Okay. So let me -- I appreciate that. Let me ask a follow-up question.

John, you said if we look at the data that's in the slide deck, that's very different than the data we would've had -- that we would've been given five years ago. I will be quite honest with you, the EPS ring is very different than what we would've seen five years ago too.

So the question really have is not just would you buy back the stock tomorrow. It's why, given the track record that we've had and we're just getting to the point where we're going to see cleaner numbers conceptually in the next quarter or so, better or worse, but that's what you're telling us.

Why would we be eager to go out and do this process all over again when I suspect that investors still feel a lot of heartburn from what happened back when the Whitney deal was done? Not saying it wasn't a good deal, just saying we've had a lot of bumps in the road and a lot of turbulence, why be so eager to go out and do something like that right now it sounds like just because everyone else is, is what we're thinking about here.

It's a very fair question, and I appreciate the candor and the spirit of the question. Two big differences. Number one, we're not interested in either a strategic or a transformative acquisition that would cause us to take three or four years of digestion like we did putting Hancock and Whitney together.

What we will be interested in is one that is very clean and there are no process changes, we simply absorb the customer book and the bankers folded into the process. And we've already spent a lot of time and money to build and to make it accretive in fact as rapidly as is humanly possible. And with a benign or none tangible book value or dilution.

So I think the -- that's a profound difference from what we did with Whitney. And the reason a lot of people don't do MOEs is because of just what we've gone through. It takes a lot of time, and there's a lot of risk in it.

So we're not interested in taking that risk. Our desire to do it really has nothing to do with anybody else's doing. It's the fact that we have the capacity to do it and we think it's going to be beneficial.

So I would expect that if we announced a deal, when we announced the deal, we will enjoy having quite a good conversation about why we think if fits and what we think the risks are. And hopefully I'd ask you to and invite you to render an opinion of what the deal looks like when we actually announce it.

Okay.

But it's a fair question. It's a very fair question.

All right. Thank you very much for your answer.

You bet.

Our next question comes from Christopher Marinac with FIG Partners. Your line is open.

Thanks, good morning John. I guess I had a similar question to what Kevin did, so let me ask you from a separate angle, which is that it seems to me that if you buy back today that it would be a lot smaller and it would not have the noise or at least the credit issues from the external environment that were exhibited back in 2011. So any marks you would be seeing would not be that substantial. Is that fair to --?

Absolutely. As -- we have been decomplicating this organization rigorously for the last couple quarters. I have no desire to introduce more complexity into it until we have an EPS run rate that our investors are pride of and happy with.

So any acquisition that we do is purely and totally for the benefit of generating earnings per share. So I would want to have a big mark. If we have to put a big mark in there and go back to recording core and operating separately and deal with a big purchase accounting number, we would have -- I think missed what we intended to do.

We are not interested in replenishing our purchase accounting.

That is not the business we want to be in. Purchase accounting line of business has been a long journey, and I'm frankly, pleased to have it behind us so we can just look at core and have maybe more robust and simple conversations with investors and you guys going forward.

As we all are.

Sounds great. Appreciate that. I guess my follow-up really just a question that doesn't get asked enough on this call, which is really local economy in the Mississippi Gulf Coast. So what's happening, what's new and different that you see in the next couple quarters here?

Specifically to the coast or the Gulf South in general?

I would say to the coast, Mississippi and just within the a couple hour drive of headquarters.

Well, if you -- I'm starting to redirect. I just want to make sure I'm answering your question. You mean specifically the Mississippi coast, or you mean like New Orleans through the Panhandle when you say --

I would start with Gulfport and Biloxi that close to home.

Okay. The Mississippi coast has been an interesting journey for the past -- really since Katrina. And just about the time the rebuilding was beginning to add, there was a big economic boom just driven by rebuilding.

Unemployment was virtually zero. Everyone was working, we had of huge amount of construction labor that was in town, spending money, filling hotels. And then as the recession began to make itself known, we suffered and had a lot of residential development that was expected to occur off the coastline.

Just like it -- there was a time when people thought no one would ever live in New Orleans again after Katrina. Everybody would be up on the North Shore and up in the more rural areas. Well that didn't happen; New Orleans came roaring back.

The same thing with thought around the close end of the beachfront areas of Mississippi that after the storm, no one would ever live near to the beach again or the bays again. They would live north of Interstate 10 and up in the rural areas.

Lots of residential construction was begun, but then everybody wanted to get close to the water. So as insurance rates began to ebb, the economics around the coastline began to get better and better. And this last several quarters has been some of the best economic performance that we've had.

Hotel occupancy has been improving. The amount of tourism that occurs has been improving, certainly gasoline prices in the summertime should be beneficial to the hospitality industries.

There are -- at the corporate headquarters building in downtown Gulfport and I'm looking back at the time of the storm, if I'm right, I think that there were four, maybe five restaurants in the downtown area within walking distance at that time. There are five restaurants on our block now.

So the overall development of the coast has been a very successful and with the port expansion really with good legs under it. And that's really both in New Orleans and Gulfport we're seeing good port activity. And it bodes well for the overall economy.

So our challenge in Mississippi has been that we had a very dominant market share in that market. But I have been somewhat disappointed that I don't think we got our fair share of economic growth that's occurred over the last couple of years primarily because we're so focused on the issues we've been talking about today. Those days are over, and so our engagement up there in the Mississippi coast has become much more vigorous.

Our outlook is a little bit more positive. And I would like to see growth, not just on Mississippi coast but also in other areas of the state where we're beginning to deploy bankers because of our commercial industrial expertise.

That was a lot of color, but you asked a subject I happen to know a little bit about. I've lived there for a long time.

Thanks John, very much.

You bet, enjoy the chat. And this will be the last question.

Our final question comes from Jon Arfstrom with RBC Capital Markets. Your line is open.

Good morning thanks guys. Thanks for hanging on to the bitter end here. Just a few questions. Have you seen any downgrades thus far in the energy portfolio?

This is Sam. We have. We started to see some early migration. But we haven't seen significant movement into the criticized classified categories as yet.

We've seen some movement within the past bands. But that's what we talked about here for a couple quarters. And so, as we go through earnings release season, getting quarterly financials, covenant compliance updates, et cetera at the end of this quarter and on into the second quarter, we will have a much better feel as to the appropriateness of any additional migration that we've been talking about.

John, this is Hairston. Trisha may scold me for saying this a little later on, but I will take a chance given the spirit of your question.

Of the $8 million in additional provision that we made specifically in the energy portfolio, about half of that was qualitative derived and about half of that was risk rating downgrades. If that's helpful.

Yes, that is helpful. All right. A couple more here. Sam, just on the maybe in the slide deck, but we have a lot of material. Just refresh us on the syndicated exposure, the shared national credit type exposure in energy.

Yes, I've got those numbers here. Syndicated exposure is about $1.7 billion. That's the total. That's all energy.

That's everything.

I'm sorry, hang on. I've got the number here if I can just put my hands on it.

Okay.

Okay. About 55% of our synd portfolio is energy-related, so that's just under $1 billion, call it $980 million.

Okay. Good. And then maybe this is appropriate for the last question. Just clarification on Olney's earlier question and John, your comment on the 25% up. Help us understand that.

Is that 2015 against 2014 core? What are you saying there? What's the message coming out of that comment?

It's 2016 forecast against 2014 core.

Okay. Okay. And I have a core -- sorry.

I'm trying to -- 2015 is going to be noisy with whatever the provision numbers work out to be and whatever the revenue headwinds from energy work out to be. So I'm trying to give you a little bit longer term outlook with that noise removed. So about 25% was 2016 versus 2014 core.

And again, John, this is Mike. 2016, remember operating core and reported should be the same number.

Yes, so the one -- if I look at slide 5, you have an operating -- will call it a core number of [190] for 2014, so that's the base that you're talking about?

That's right.

And the 2016 projection is fully loaded with provisions, I understand there are nuances and differences that can happen based on the outlook.

That's correct.

Okay.

It does, and it bounces around a little bit as we reproject. And our forecasting tools that we generated post Whitney are obviously a lot better than what we've had before. And our revenue leadership team individually now build our own forecast.

So we're getting a little bit better about forecasting that. Whether or not there's sandbagging or exuberance in that, there's always a little bit of both, but as time goes by, I think we will be able to refine that number to something a little more precise.

Yes. And are there any rate assumptions or big provision increase assumptions when you talk -- I know you don't want to put a fine point on it, but I think it all helps us understand given the drop off in accretion this quarter.

No, no change in interest rates and no significant additional levels of provisioning.

For the 2016 number we're talking about.

Yes, for 2016.

Okay great. Thank you help I appreciate it.

You bet. Thank you kindly.

And that concludes the Q&A session. I will now turn the call back over to John Hairston for closing remarks.

Okay. Thank you. And thank you, ma'am, for steering us through the call. To everyone I would thank you for your attendance on the call. Thank you for your interest in the Company.

We are going to continue relentless focus towards improving core revenue. We're going to operate very diligently through the energy cycle.

And we're going to share as much information as we can with the market to ensure that you are not surprised, and we will do our best to do that. We look forward to seeing you in meetings in the future. You all have a great weekend.

Thank you, ladies and gentlemen. That does conclude today's conference. You may all disconnect and everyone have a great day.