Hancock Whitney Corp (HWC) 2016 Q2 法說會逐字稿

Good morning and welcome to Hancock Holding Company's second-quarter 2016 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 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 or 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 investor relations website. We will reference some of these slides in today's call. Participating in today's 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, President and CEO.

Thank you, Trisha, and good morning, everyone. We appreciate you joining us today. Let me open by saying we're very pleased with our quarterly results and we hope that investors are as well. We still have work to do, but we believe today's investor decks reflects the progress over the past several quarters by 3,800 associates who been focused on strengthening and growing both our balance sheet and our income statement.

Unfortunately, the impact of the recent energy cycle has overshadowed the progress we've been making. But with some degree of oil price stabilization, this quarter makes more clear the impact of those difficult efforts. After two consecutive quarters of significant reserve build for our energy portfolio, our provision expense decreased to an amount in line with the lower end of our guidance.

Our reserve coverage of the energy portfolio improved to 7.5%, and our energy portfolio as a percent of total loans continued its declined to single-digit level and is now just over 9%. This quarter also reflects positive progress towards achieving other goals and targets we've communicated in the past.

You can see on slide in five of the investor deck on the left chart, core pretax pre-provision income of just over $85 million increased almost $9 million linked quarter, or 12%, and we're up almost $20 million, or 30%, for the same quarter one year ago. The chart to the right shows that at the halfway mark for the year, we're exactly halfway to meeting our stated goal for core pretax pre-provision earnings, as a reminder, that number is $323 million for this year. We're doing so by following basic fundamentals: expense management coupled with revenue growth, including both margin expansion and improvement in many fee categories.

Our reported loan growth for the quarter was light at 1%; however, we had a net decrease in our energy portfolio of over $150 million. This decline mainly reflects payoffs and paydowns on lines, as we worked with our clients to manage through the cycle. Charge-offs in the second quarter for the energy book were minimal, totaling just $4 million.

As noted on slide 8, if you exclude the energy book, our linked quarter annualized loan growth would be 6%, similar to the 6% of non-energy loan growth we enjoyed in the previous quarter. We are leaving our loan growth guidance unchanged for 2016; however, given the level of energy paydowns for this quarter, we have noted our biases toward lower end of that range. Energy paydowns continue to be the wild card in projecting net loan growth for the balance of the year.

Our revenue improved through both margin expansion and growth in fees. While the margin has been relatively stable over the past year, we were pleased to report 3 basis points of expansion this quarter, as yields on both the loan and security portfolio improved.

Our fees are beginning to reflect the work we've done recently on revenue-generating initiatives. When asked about those initiatives in the past, I pointed out mortgage, card fees of various flavors in wealth management.

If you'll take a look at slide 19, you'll see that while there's always typical seasonality in fee income, this slide shows the progress we're making to improve certain categories, or returning them to historical levels after strategic decisions such as branch rationalization or subsidiary divestitures caused us to lose a portion of that fee income and we needed to rebuild it. I encourage you to match second quarter with the same quarter the previous year to see comparative improvement inside those cyclical patterns. We do still have work to do, but for this quarter, every fee-income category we were coming on to -- and expected to improve did so, and shows movement in the right direction.

Our expenses were virtually unchanged, as we're focused on meeting our goal of no more than 2% growth in 2016. Given where we are for the first half of the year, I'd expect we're on track to maybe do a little better than 2%. This is not easy to accomplish, as we continue to selectively (inaudible) impactful revenue-bearing associate. Thus far in 2016, we have successfully funded most all of our new hires from internally generated synergies.

Before I turn the call over to Mike, I'd like to point out slide 24. We want to restate that we've been busy over the past few years making and executing tough decisions designed to get us to this point. We are relentlessly focused and will remain so on following this successful track and exploring innovative revenue ideas we believe are right for our Company, our associates, our client, and most certainly our shareholders.

We're in attractive and diversified markets along the Gulf South. We're improving our franchise value created by the merger Whitney, as evidence in our quarterly [tax] pre-provision results. The impact of unexpected headwinds is subsiding, and we hope the stabilization in energy prices over the last quarter is an indication that an emergent recovery is on the horizon.

It's been just over six quarters since I stepped into the President and CEO role, and it's been eventful to say the least. I do hope investors can look past the associated noise and see the progress made, as we remain focused on improving upon our results for the future.

I'll now turn the call over to Mike Achary, our Chief Financial Officer, for a few additional comments. Mike?

Thanks, John. Good morning, everyone. I'll take just a few minutes to go over a couple of our quarterly details. So EPS for the quarter was $0.59, that was up $0.54 from last quarter and was also up $0.15 from the same quarter a year ago. As a reminder, the first quarter's results were impacted by the large energy provision of $0.41 per share.

So a few important financial metrics to note for the second quarter include ROA of 82 basis points, return on tangible common equity of just over 11%, an efficiency ratio of 62.1%, and a TCE coming in at 7.81%. All of these metrics represent significant improvement from both last quarter, as well as the same quarter a year ago.

So period-end loans for the Company were up $58 million, or about 1% annualized for the quarter; however, as John did note, we did see a $153 million net reduction in our energy portfolio, which certainly impacted the overall loan growth for the quarter. So while we can't predict how energy loans will trend for the remainder of this year, we continue to see growth across our footprint and are maintaining our 2016 loan growth guidance at 5% to 7%. We will continue to work hard to reduce our concentration of energy loans, but also to cover those reductions from energy with growth in other areas.

At this point, I'd like to point out a change in our loan reporting this quarter. Previously, our tables reflected a line item titled Commercial Real Estate. This line item included both owner-occupied as well as income-producing real estate. So while they are separate line items in the call report, we felt it was important to distinguish between these two segments in our financial tables.

The Company's reported net interest margin came in at 3.25%, that was up 2 basis points from last quarter, while our core NIM was up 3 basis points. The key drivers for the margin expansion this quarter was a 3-basis-point improvement in our core loan yield and a 2-basis-point increase in the yields on our securities portfolio. These were both slightly offset by a 1-basis-point increase in our cost of funds.

The Company's core net interest income increased $3.4 million linked quarter, and was up almost $19 million from the second quarter of last year. This improvement reflects what we've been noting as our strategy for revenue improvement: stabilize and grow the core loan yield, as well as the balance sheet, with improvements in the overall loan mix. I think it's becoming apparent that our strategy in this area is beginning to yield tangible results.

Growing noninterest income is the other component of revenue, which we've been working on but admittedly, has been more challenging and certainly taken longer to show results. But as you can see from slide 19, we believe we've turned the corner. While there is always some level of seasonality in certain fee lines or volatile items, such as gains on sales, all fee categories reflected improvement this quarter. Again, as with net interest income, our strategies in growing noninterest income are working and yielding results.

Expenses for the Company were flat linked-quarter, with many categories showing only slight changes. So as John noted just a minute ago, we are focusing on maintaining our expense discipline and hope to beat our guidance for 2016. As I noted earlier, our TCE ratio was up 12 basis points to 7.81%. The significant driver of this improvement was tangible earnings, which added 23 basis point to the TCE.

So at this point, we'll conclude our prepared comments where we usually start; that is with energy. So for the most part, there were many positives from energy this quarter.

The provision for loan losses came in at just over $17 million, compared to $110 million over the previous two quarters. This lower level reflects the recent stabilization in the price of oil. So should that stabilization remain through year end, we do expect to finish the year at the lower end of the range of our provision guidance.

Our reserve for the energy portfolio was unchanged at $111 million and now totals 7.5% of energy loans, that is up from 6.8% last quarter. The mix of the energy reserve did shift this quarter as the increase in oil prices allowed us to move reserves from the upstream or RBL portfolio to the support non-drilling segment. As a reminder, we expect a lag in the turnaround timing for the support sector and could see continued downgrades and charge-offs as a result.

On that note, as you can see on slide 12, our criticized loans were up $37 million for energy, reflecting an increase in support non-drilling of about $97 million. However, that was partly offset by a reduction in the upstream segment of about $64 million. So while our energy nonaccruals were also up, reflecting a similar shift, it's important to note that 58% of our energy nonaccruals are not past due.

We're leaving our guidance for expected energy losses during the cycle unchanged at $65 million to $95 million. To date, we've reported about $25 million in energy charge-offs, with about $4 million in the current quarter. And so finally, as reminder, slides 22 and 23 detail our 2016 guidance and targets.

At this point, I'll turn the call back over to John.

Thanks Mike. Michelle, let's go ahead and open the call for questions.

Thank you.

(Operator Instructions)

Jefferson Harralson, KBW.

Thanks.

I'll start where you ended up, which was on the energy book. Could you just talk about the mileposts, the things you're looking at? I know we had the spring redeterminations just happen. Now we have energy prices up. You mentioned that there might be some volatility. But what are the things you're looking at that are the predictors of the losses you're going to see in the migration of the book?

Good morning, Jefferson. We'll have Sam address that question.

Well, Jefferson, as Mike said, we're very encouraged by the stabilization we've seen in the most recent quarter, and we're starting to see some early signs of recovery showing itself as prices have moved up into the mid- to upper 40s. I think you've probably seen the improvement in the rig counts that have shown up as of late. So it's slow progress, but it's progress to the positive rather than the negative, so we're encouraged by that.

As we continue to see prices move up into the $50 range, I think we'll progressively see more activity. And really when the upstream segment start to deploy CapEx dollars to either add to, access, or enhance existing reserves, the momentum will become clearer, and you'll see more trickle down into the other segments.

So as we continue to approach that $50 range and beyond, I think we'll see more activity that will generate more positive. Again, some additional lag; but all in all, we're approaching the point where we expect to see more positives than negatives.

I'm sorry, Jefferson, this is Mike.

And I think also that we certainly acknowledge the risk in certain segments of our energy book, specifically, the non-drilling support. So that's the area that we expect to see the biggest or the longest lag between the recovery in that particular segment associated with any stabilization or increase in energy prices.

Alright, and the follow-up is the same question, but it's relative to commercial real estate or consumer in more energy heavier markets. Are you seeing -- what are you seeing in those evaluations of CRE properties or in consumer losses in heavier oil markets?

Jefferson, we haven't seen significant movement in values for real estate in the oil-impacted markets as yet. If you look on the slide, let's see, 7, okay thank you. On slide 7, we've provided a little bit of detail as it relates to our Houston CRE, as well as the map that details those parts of the geography that are more heavily dependent on oil-related employment. The Houston -- I'm sorry the Houston CRE book.

The Houston CRE book continues to perform very well. We've talked about the potential challenges for multi-family in that market over some interim period of time, and so we think that's going to continue to play out just as we've talked about for the last quarter or so. But the other segments continue to hold up well.

As it relates to consumer, in the oil-impacted geographies, we are starting to see some movement up in some of the consumer past-due metrics. We've been talking about they've traded largely in the range as the remainder of the bank, but they're starting to inch above that. But the losses have yet to reveal themselves.

And so we've been talking about the lag effect there that has, frankly, surprised this a little bit from a positive perspective. But we continue to assess that. Part of our qualitative adjustment for reserves is considering the potential impact and lagged effect of that. So we're considering it. But as yet, Jefferson, we've frankly been a little surprised to the positive that we haven't seen more negative drag in those geographies on the consumer side particularly.

Great, all right, thanks.

Thank you, Jefferson.

Kevin Fitzsimmons, The Hovde Group.

Hello. Good morning.

Good morning.

John, can you -- I saw the bullet on buybacks in the slide deck, but wonder if you could just give us a little color on how you're looking at that. I know you've talked about not wanting to resume those until you get greater confidence or conviction in the stabilization. So, is that more a matter of enough time passing with oil in the high 40s or even into the 50s? Or is it more a matter of building up that TCE ratio getting an eight-handle on it, or is a little bit of both? Just what your best guess is there?

Thanks, Kevin. This is John. We've stuck to the same phrase of evidence of an emerging recovery as being the benchmark at which point we would want to at least begin talking about buybacks again. So far, all the signs are pointing that that emergent recovery may very well be on the horizon. But we'd like to see a little bit more time pass to convince us that is indeed what we're seeing.

As you know, the last couple of years there've been these bumps upwards and then unfortunately, they subsided. But in this case, we're seeing supply beginning to truly roll over and there's some doubt amongst industry expertise that resumption of supply can happen as quick as perhaps it could have a year or two ago before so much equipment was parked and so many people left their jobs and went to other industries.

So there's certainly more evidence that the recovery is emerging than there was a few quarters ago. But at this point in time, we're not prepared to say that the cycle is in full-gear recovery. You mentioned the TCE number and we're proud of the progress we've made this quarter, but I'd probably, to answer your direct question, say that evidence of the recovery is probably more important to us than the precise TCE number when it comes to the buyback question.

And John, the only thing I would add on to that is certainly the notion that we're not out of the woods yet, certainly with respect to energy. And there's additional risk out there, as we mentioned a little earlier, especially with respect to the support non-drilling segment.

But also, we would like to continue to build our capital ratios, I think, a little bit more from where they stand today. Certainly, we've had two quarters with really outsized levels of provision that did a little damage to our capital ratios. And so certainly, we hold out the TCE ratio as the proxy for all of our capital ratios. But we would like a little bit more time to build those back from where they stand now before we really dip back into the buyback market.

All right, that makes sense. Thanks. Mike, just while I got you, just a quick follow-up on the subject of the margin. I see the near-term outlook is for stable and great to see that it's identical for the core and the reported margin. I'm sure you are happy to be able to say that.

But looking ahead, I'm sure what's happened recently to the tenure and to the yield curves are not really fully building in or reflected in second-quarter results. Looking out over the next three or four quarters, you all have always been perceived as being more asset-sensitive. Can you talk about some of the levers that you have at your disposal to try and keep that margin stable going out even beyond the next few quarters, if we're in this rate environment?

Thanks.

Sure, absolutely, and that absolutely is our stated goal and that's what we're working to achieve: that is, this notion of stability in our core net interest margin. So obviously, there are pretty significant headwinds out there. But really, as they are pretty much any quarter. But certainly now with the 10- year where it is.

And for us, specifically, an additional headwind is around the level of energy paydowns that we have. We're pleased to reduce our energy concentration, but in some cases, those are a little bit higher yielding loans that come off the books that we have to replace again, in these efforts to maintain our NIM. So those are probably the two biggest headwinds that we face right now.

As far as tailwinds or things that we're doing to stabilize that core NIM is we're affecting a little bit of mix change in our bond portfolio. Historically, we've carried a pretty low mix relative to muni bonds. And if you watch our numbers, you see that we've been edging that mix higher over the past couple of quarters. And certainly you can look for that to continue in the next coming quarters, so that's an absolute tailwind.

The other tailwinds really are respect -- are related to continuing to grow loans outside of energy. That's something that's very important to us and very important toward the efforts to maintain our core NIM. And then lastly, deposit costs is an area that we think we have some opportunity to potentially reduce those over the next couple of quarters, and again, work hard towards stabilizing that NIM. So hopefully all those things makes sense.

That's great, Mike. Thanks.

You bet.

Ebrahim Poonawala, Bank of America Merrill Lynch.

Good morning.

Good morning.

Just a quick question in terms of if you think through on expenses and the efficiency ratio looking out into 2017. If we don't get any relief on interest rates, could you help us think about what we should expect both in terms of the trajectory of the expense numbers, if we can still get some operating leverage and bring that efficiency ratio down?

Ebrahim, good morning. This is Mike.

Certainly that's our stated goal and that's what we're working to achieve. We're thrilled that where the efficiency ratio came in this quarter, at just over 62%; that's certainly, it's not an accident. And specifically related to expenses, we've had two quarters now where we've actually reduced expenses quarter over quarter. And so, while we can't be expected to keep expenses lower quarter over quarter, we do expect to see some modest level of growth over the next couple of quarters. And again, we talked about our stated objective of maintaining expense growth at 2% or less. And as John noted toward the beginning of this call, we believe that we can beat that guidance.

As far as into 2017 is concerned, we really haven't given a hard or fast guidance yet for next year. But I would expect to see a little bit of a modest increase in expenses, 2017 compared to 2016, so hopefully that helps.

And does that mean that even though expenses could go up in 2017, you could keep the efficiency in the low 60s at the very least, even without any rate benefit?

For us -- yes, that's our objective. And for us to achieve our objectives that we have developed with our Board, it's absolutely necessary for us to continue to show improvements in operating leverage.

That's helpful. Just a separate question, and I'm sorry if I missed it, but could you remind us in terms of we made a lot of push and investment on fee income sides. Is there anything in particular that we should watch out for where you expect growth to pick up as some of these investments pay off, both in the back half and into 2017?

Ebrahim, thanks for the question. This is John.

We're obviously counting on fee income growth to continue. That said, most fee categories are somewhat cyclical, and a few like wealth management and slots can experience of degree of headwinds during a low flat yield curve. So from a watch-out perspective, to use your term, swap income, which is somewhat transactional, can diminish somewhat when you see rates flatten like they have.

But internally, our expectation is, and I think I've said this before and there's a slide in the deck, I believe it's slide 19? Slide 19 shows some of the items that we're most focused on. One of those is mortgage, which continues to make healthy gains. It has both fresh and strong legs under it, and we're very pleased with that trajectory and expect it to continue.

Wealth management might bump around a little given the rate environment, but we would expect it to continue to be favorable in a similar quarter previous year comparisons. And then cards of all flavors I expect to continue to improve.

I've spoken about merchant in the past. We've finished hiring all those open positions just a few weeks ago. So with a fully staffed merchant sales group, I would expect to see that begin to improve. And just as a reminder, if all that expense were sunk in the last several quarters before the revenue improvement comes because you needed salespeople to get on the street and they're all now hired. So I would expect to see some benefit from merchant in the future.

About the only fee income or sales category I'm disappointed in is consumer credit cards have not moved at the clip I'd like, so we're reevaluating what we might be able to tweak to make a little more progress. That's very competitive, but it's an area that we've been underpunching for a while, and I'd like to see that improve. But overall, very pleased with the fee income growth and we'll keep on focused on it.

Very helpful. Thank you for taking my questions.

You bet. Thank you.

Jennifer Demba, SunTrust.

Morning. John, I think you said your most troublesome energy loan bucket is support non-drilling. Is that correct?

We did, and Jennifer, what I'll do, I'll let Sam speak to that. Then I'll maybe add some color when he's done. You want to start that Sam?

Sure, we've put some pretty good detail in the package here. I'm going to refer you to slide 12, where we outlined the various buckets of energy in the segments, as well as the criticized levels of those respective loans. So, we saw some early migration in 2015 for the drilling segments. And then, as we talked about the lagged impact, we have started seeing the non-drilling segment now start to move, see some movement into the criticized category.

So those are the segments that we've been talking about for several quarters now where we expect to see some migration. So despite the improvement in the price of the commodity and the encouragement we're seeing there, the improvement in the RBL -- sorry, the upstream space, we're going to continue to see some pressure in the support segments; it's going to take some time to resolve.

So a very encouraging quarter in terms of what we see here. But again, there remains some work to be done in those support segments, both drilling and non-drilling. But non-drilling is the one that lags behind the others and so it'll be the last one to really show the recovery as we work through the remainder of this year and on into 2017.

I'll add, Jennifer, if it's okay, I'll add some more color to that which may be helpful.

We've shared before I think webcasts when on the road that the best way to look at the next several quarters, maybe a year or two, would be prices in the $40s or higher, say $40s up to around $50 or so, will and already have shown improvement in everything that is land-based. The bulk of our RBL book is land-based, so we're seeing the improvement that you note in the asset quality metrics for upstream.

The cost of per barrel of oil to lift in the Gulf is a little higher than it is on land, at least amongst our RBL and service clients. So land is going to improve and recover faster at a $50 or so price than the Gulf. Another $8 or $10 and you begin to see better activity in the Gulf.

So when we're looking at -- so we're calling it drilling services and non-drilling services, but you can almost look at it as drilling services land and Gulf, and non-drilling services land and Gulf. Everything on land is making improvements. The Gulf is hanging in there, but we're seeing some of that migration Sam mentioned.

So the question will be on a net basis, will the improvement in the land side happen fast enough to offset whatever continued steady migration you see downward in the offshore. So far that's happened. So we'll begin to see, I think in the early part of next year, the remainder of that book recover as prices begin to hit some of the prices in guidance.

Did you have a follow-on that or was that what you needed?

Yes, just a quick follow-up. You've had $25 million in net charge-offs in the energy bucket. Can you break down roughly how that's been allocated between drilling and E&P and midstream?

This is Sam. I will tell you that off the top of my head, I know we haven't had any charge-offs in the upstream segment. The other segments I don't have the data here in front of me; it just escapes me for the moment.

But the vast majority of that has been in drilling services so far.

And just as a reminder, Jennifer, to date we have about $25 million of energy-related charge-offs, $17 million last quarter and then $4 million this quarter.

Thank you.

Brad Milsaps, Sandler O'Neill.

Hello. Good morning.

Hello, Brad.

Mike, just wanted to follow up on some of the discussion on the bond portfolio and the margin. Does your guidance include any mix change, overall reduction in the bond portfolio? And then secondly, how high might you take the muni piece of it and how will that affect your tax rate going forward?

Good questions. So first off, no, we've given no guidance about increasing the size or decreasing the size of the bond portfolio. It's at right around 20% or 21% of our total assets, and in all likelihood, will maintain at that rough level.

As far as the muni portfolio, last quarter we were at about 11% of our total bond portfolio was in munis. We've bumped that up this quarter to about 14%, and over the next couple of quarters, we'd like to get that mix somewhere in around 20%. That can't happen overnight, because as you probably know, muni bonds sometimes are in short supply. But that's our stated goal as far as improving that mix.

And I think you had a third question?

Yes, just how that affects the tax rate, what to expect going forward?

Yes, it absolutely affects the tax rate, and so we're pleased with where our effective tax rate sits at about 22.5%. The guidance that we've given for this year is that it should come in somewhere between about 22%, or as high as about 24%. But obviously increasing the mix of our bond portfolio toward munis, as well as adding public finance loans on our books, those things are all helpful to lowering the effective tax rate.

Great, and just a follow up.

I appreciate John, just color on some of the other income. That was up quite a bit linked quarter. Is that where some of the swap fees are embedded? Just curious what the driver was there. And secondarily, does the IA amortization, does that number go away in 2017 or is that something we'll continue to see for -- into 2017?

Sure, so the last question first. The IA amortization for the quarter came in at about $1.5 million, and that's been very relatively stable over the last four our five quarters. But we'll have that level of amortization, really for as long as we have that loss-share agreement on our books. And as you probably know, we have a couple of years to go on that.

So your other question was around the increase in other income this quarter. And as you probably know and we've described, that category really is a hodgepodge of a bunch of different kind of fee-income sources. So that's the place where we book a lot of our derivative fees related to customers, things like our loan income, loan fees, as well as different gains that we might have on different asset dispositions from time to time.

And the vast majority of that $2.3 million increase was in items that I wouldn't say were one-time, but they're certainly items that might be hard to sustain. And most of those came in the forms of different types of gains that we were able to book this quarter

Great. Thank you. That was helpful.

Michael Rose, Raymond James.

Hello. Good morning. How are you?

Good morning.

Just wanted to circle back to the energy reserves. So the way I'm thinking about it, so $111 million in energy reserves, 7.5% of the portfolio. You expect $65 million to $95 million of charge-offs through this cycle. You've realized a portion of that already. Oil have moved up (inaudible) volatile over the next couple of quarters. You have higher service exposure, totally understand all that.

But how should we think about the pace of provisioning into 2017 assuming the status quo. It seems like some those reserves, eventually as charge-offs work their way through become fungible. Should we expect into 2017 that the pace of provision could actually fall from current levels and you could actually begin to bleed the reserve down, barring any general credit negative migration?

Thanks.

Michael, this is Mike.

And certainly the scenario that you described is something that could be plausible as we move into 2017. But at this point, we're really not going to go there in terms of forecasting or predicting that we actually could begin drawing down reserves.

But we have said specifically for 2016. And again, last quarter we gave that provision guidance, that range from $105 million to as much as $145 million. And then late last quarter, we publicly gave some guidance around this notion of a bias toward the lower end of that range. And certainly the provision where it came in this quarter at $17 million was really right on top that additional guidance.

And the only add-on to that would be for the next couple of quarters, we certainly see that we have an ability to maintain that bias toward the low end of that range, should energy prices continue to be stabilized. And so that's what we're looking for over the next couple quarters.

And again, no one has a crystal ball and no one knows exactly where energy prices are going to go from here. But should they stay within the realm of being stable, then we would continue to guide folks toward the bottom end of that range. So that implies provision again somewhere in the $15-million to $17-million range for the next couple of quarters.

Okay, that's helpful.

And just stepping back and thinking about structurally, pre the Whitney acquisition, you had much more real estate. If I look at your reserves, where they stand now, and obviously energy is elevated now. But before the Whitney deal, your reserve level was about where it was prior to the deal. If you go pre-cycle, somewhere in the 2005, 2006 range.

Just structurally, it seems like the higher C&I, lower loss, given the fall of lower loss severity, you would have a structurally lower reserve ratio. So it just seems, from my point of view, that there could be some room to maybe -- assuming credit trends remain relatively stable outside of energy, that reserve ratio could actually begin to bleed down. Is that -- am I thinking about that incorrectly?

Listen, I think you're thinking about it correctly, and everything that you said just now certainly is plausible. We're just not at the point where we're ready to call something like that at this point. But assuming we go through this cycle and we come through at the lower end of our loss ranges and the lower edges of our provision ranges, then certainly what you've described is plausible.

Okay, that's helpful. Thanks for taking my questions.

You bet.

Emlen Harmon, Jefferies.

Hey, good morning.

Good morning, Emlen.

It sounds like you have just said it again that if energy prices stay where they are, you think you're biased toward the low-end of the provision range. Would your assumption in that scenario be that you continue to see some grade migration? Because we did the criticized and the nonaccruals go up a bit. So the question is, can you still stay at the low end even if those buckets are headed up?

The short answer is yes, and I think we're able to do that in the current quarter, the second quarter. There's a page in our deck that gives a fair amount of detail on our (inaudible) A-LLL. And if you dig into those details, and I think we mentioned this in the prepared comments, we did a pretty nice shift of reserves within energy, away from upstream and toward, again, the segment that we've talked a little bit about adding more risk, the support non-drilling. So you're absolutely correct. But Sam, color?

What I would say is we may see a little movement up and down in the various categories. The upstream segment continues to perform very well and is looking more favorable, but we may see more pressure in the support segment. So it may be a little bit more of wash back and forth as we continue to address the issues through, as I said the remainder of this year and on into 2017.

Okay, thanks. And then was hoping to get an update on hiring activity in both the mortgage and commercial banking. Did you add anybody this quarter?

We did. This is John. Thanks for that question.

We really never stopped adding. We run a pretty rapid clip next year adding revenue producers, and then as we begin to wrench down a little on insuring the expenses stayed correct relative to our revenue growth. We had dampened that hiring pace just a little, but we did add about half a dozen key revenue producers in the second quarter. And that mix was primarily tied to the fee- income categories right now in the first quarter. And really the previous two quarters from there it was really all around commercial-purpose bankers, but the last quarter was all around fee income. And that was mortgage and merchant.

Mortgage and merchant. Okay, thank you.

You bet, thank you for the question.

Christopher Marinac, FIG Partners.

Thanks, good morning. I want to follow back up on -- I think it was slide 7 with the map and the focus on the markets outside of energy. How do you feel about both the economies in those areas, but more importantly competitively where Hancock is? Is there a refocus necessary on these cities, or more business as usual and just trying to get your share of new business there?

Thanks for the question. This is John, and are you specifically interested in those three boxes on page 7? Is that what the question is?

Right. And the cities and really the emphasis outside of energy on growing the Company.

Okay, okay.

Well let me start with Houston. Sam mentioned earlier that the CRE pies, which you see on the bottom left of page 7, we're holding that hand steady. Right now we're not growing CRE in Houston, even though there are portions of Houston that probably still have opportunities. We just think it's prudent to sit tight on that one.

We've talked about energy ad nauseum, so I won't waste any time on that one. But the bottom line, the rest of Houston is doing good, so we're continuing to grow the other part of the Houston book. It's really a great market, just a delicate time and so it's doing well.

The pipeline for second quarter, or at the end of the quarter versus the end of the first quarter improved by somewhere around 25% to 30%. I think the actual number is 28%, if my memory is correct, and in New Orleans and the entire eastern part of the franchise and Baton Rouge, were the primary drivers of that pipeline improvement. So, as we go through the rest of the year, I'd expect to see Baton Rouge, New Orleans, and Mississippi, Alabama, Florida continue to improve.

John, is there anything specifically in New Orleans and Gulfport and some of your core cities that you can do either better or that you feel competitively you can win more business there?

Yes, I do think so. No we've got -- in Mississippi on the Gulf Coast, as I think you know, we have a very strong market share. So certainly, growing the Mississippi book is not as easy with nearly half the market as it might be in other places. But we are still continuing to have success there.

In New Orleans in the downstream commercial purpose segment, we don't have as strong a market share as we did maybe a decade or two ago. And that's primarily in business purpose spots in the $5 million to $20 million in annual revenue range. We're investing pretty heavily and will be adding staff in New Orleans to improve our penetration in those markets. It's great market for the type of business, and while we have a very fine market share in the larger end of business in New Orleans, that middle size is where we think there's a hole that we can improve.

We also believe we could make good headway, and have done so in private banking and consumer there. So we continue to believe New Orleans is -- even though we have good coverage there, there remain great opportunities.

Baton Rouge, we have new leadership, I mentioned I think last quarter on the call, a very promising looking pipeline there. Again, that's in commercial and middle market and consumer.

And then really everything in Florida is doing great. We're in good markets in Jacksonville; Tampa where we have a very modest facility but great talent. And so those folks are doing well. And in Tallahassee all the way through the panhandle has been a very resurgent economy, and we think we're taking away maybe a little more than our fair share in each of those panhandle markets. So that growth has been helping us as we see pressure in the oil patch markets like Lafayette and southwest Louisiana.

Great, John. Thanks for that color.

Just a follow-up; has to do with Tampa. Are there new hires that you can make there just or perhaps just even more emphasis on that market over time?

Yes. And that's a good question. That's -- Tampa's been an interesting market in that, that was a string of, I believe, three acquisitions made by Whitney back pre-recession that were fairly heavily laden with real estate. Whitney made a great hire in a leader for that general MSA. He turned over a fair amount of staff, actually almost all the staff, hired great C&I leadership and consumer bank leadership and really turned that whole region around. That has continued in Hancock's tenure in Tampa to the point that it's become one of our fastest growth markets

Of late, the hires we've made there were actually mortgage. We had a very anemic mortgage pipeline there years ago. That has been dramatically rejuvenated to the point that one of the fastest-growing markets we have for mortgage business is in Tampa, which is unusual, given that we have very light branch density there. But the folks that we hired, very talented, deep realtor relationships, and have done exceedingly well. We're very proud of that team.

Sounds great. Thanks again for all the feedback here.

You bet. Thank you and thanks for the call.

Thank you, and this was our last question. I'm showing no further questions. I'd like to turn the conference back over to Mr. John Hairston for any further remarks.

Thanks, Michelle, for running a flawless call.

To our team members on this call, we have a number of our associates call in. Let me give you a direct thank you for your dedicated work towards creating value. I always am and want to say at every opportunity I'm very proud to serve at your side.

Thanks to our investors and others on the call. We very much appreciate your continued interest in the Company. Everyone, please have a great day.

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