Hancock Whitney Corp (HWC) 2016 Q4 法說會逐字稿

Good morning and welcome to Hancock Holding Company's fourth-quarter 2016 earnings conference call.

As a reminder, this call is being recorded.

I will 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, including the risks and uncertainties identified therein.

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 and performance could differ materially from those set forth in our forward-looking statements.

Hancock undertakes no obligation to update or revise any forward-looking statements, and you are cautioned not to place undue reliance on such forward-looking statements.

The presentation slides included in our 8-K are also posted with the conference call webcast link on the 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.

Thanks Trisha, and good morning everyone.

Let me start today's call by saying first how extremely proud we all are of our 3,800 associates.

It is because of their efforts and dedication that we successfully exceeded the core pretax preprovision income goal we set in late 2014.

As we reported yesterday, we beat that goal of $323 million by about $11 million, or 3%, and when comparing the results for fourth quarter 2016 to fourth quarter 2015, we are up about 28% between those two periods.

The fourth quarter's results reflect continued progress in meeting our strategic objectives.

And for the full year of 2016, I am happy to say we successfully met those objectives detailed in previous presentations.

Our balance sheet grew organically year-over-year with loans up over $1 billion, or 7%.

We funded that loan growth dollar for dollar with deposit growth.

We stabilized the core margin in 2016 and increased fees more than $13 million year-over-year, leading to core revenue growth of around 9%.

The provision for loan losses totaled $111 million for the full year of 2016, which was the low end of the range we set earlier in the year.

And finally, expenses were well-managed and we reported a $7 million decrease in noninterest expense year-over-year.

I am pleased to report that we checked the box for all of those items and will continue to set goals and objectives designed to enhance shareholder value in the future.

We have not yet published goals and objectives for 2017 due to the end-of-year announcement that we will purchase certain assets and liabilities, along with nine branches, from First NBC Bank in New Orleans.

We anticipate closing this transaction later this quarter, and thereafter we'll publish additional guidance for the balance of 2017.

We have no expectation of any significant changes to published transaction numbers.

We simply believe it prudent to have a clean set of post-close numbers and firm timing from which to share going-forward expectations.

Hopefully, you agree with us that the transaction we announced on December 30 is a win for our company and a win for our shareholders.

The transaction is precisely inside the bandwidth of what we define as attractive, one that is in market, provides an immediate earnings stream, accretable on day one, meets an internal rate of return above 20%, and is of a size and nature of relatively low risk.

We hope investors are pleased to see a rapid deployment of a portion of the nearly $260 million in new capital raised on December 16.

Our Chief Financial Officer, Mike Achary, will share a few more specifics around the transaction and the fourth-quarter results, but, before I turn the call over, I would like again to congratulate our 3,800 team members for a job well done in 2016.

It has certainly been an eventful two years since I became President and CEO, and I could not be more proud to serve alongside the team making up the overall Hancock & Whitney organization.

I look forward to partnering with our team members to facilitate commerce in the communities we serve and to help our clients realize their financial goals, both of which we will do while creating value for our shareholders.

I now turn the call over to Mike, our CFO, for a few additional comments.

Thanks John.

Good morning everyone.

The fourth quarter was a very good quarter for our Company and continues our positive momentum into 2017.

Yesterday, we reported fourth-quarter earnings of almost $52 million, and EPS of $0.64 per share.

So, compared to last quarter, earnings were up 11% while EPS was up $0.05.

However, EPS was up $0.45 per share from the same quarter a year ago.

Just a reminder that the fourth quarter last year did include a $50 million provision for loan losses related to that quarter's energy ALLL build.

We did significantly beat our loan growth guidance for the quarter with [LQA] loans up $681 million, or 17% linked quarter inflows.

As energy payoff slowed, consumer sentiment post-election improved, and fourth-quarter seasonality once again resulted in strong year-end activity.

So, the Company's energy loans as a percentage of total loans did decline from 9% to 8%, even with the $12 million increase in energy credits.

The increase in stabilization in oil prices has led to signs of improvement in reserve base lending.

And given our commitment to this sector, we are beginning to look at opportunities for new relationships.

So, for example, this quarter, we did have two new E&P credit relationships to our portfolio totaling some $29 million.

But we are not ready to call an end to the recent energy cycle.

And in fact, we did report energy related net charge-offs of $12 million in the current quarter.

This was related to one credit in the drilling support sector and reflects the expected lag in recovery for non-drilling and drilling support credits.

So, for the energy cycle to date, we have reported $42 million of energy related charge-offs.

Even with the energy charge-off this quarter, our energy reserve remained strong at just over 7.5%.

Our provision for loan losses totaled $14.5 million, down $4.5 million from last quarter with our total ALLL at 137 basis points of loans at year-end.

The Company's net interest margin expanded 6 basis points for reported, 7 for core.

Increased volume, change in the mix of earnings assets and an improved securities portfolio yield all contributed to that expansion.

We do expect continued expansion in the first quarter from the recent Fed rate hike as well as increased levels of earning assets.

Fee income for the Company showed improvement in some categories, but was impacted by fourth-quarter seasonality and a few others.

We do note there was an unusual item of $3.3 million in other income related to the sale of some bank property in Florida.

Noninterest expense changed direction this quarter, and so we did report an increase of about $7 million.

Over 60% of that increase was related to higher levels of personnel expense.

That was mostly related to additional incentive pay due to the Company meeting our overall objectives for 2016.

The other unusual item was $1.2 million of insurance claims from last summer's flooding in Southeast Louisiana.

In total, there were $3.3 million of unusual items included in noninterest expense for the fourth quarter, matching off against a similar level in noninterest income, as we just noted.

Our effective tax rate was 18% for the quarter.

This low percentage related to additional tax-exempt income and the level of earnings for the full year.

We expect a return to a more normal 25% to 27% effective tax rate in 2017.

Just a reminder that this does not include any potential changes to the tax code as a result of the presidential election.

So, as John noted earlier, we did raise $259 million of (technical difficulty) capital in mid-December by issuing just over 6 million new shares of common stock.

The full impact of the transaction is in our fourth-quarter results, but not yet reflected in our average share count for the quarter.

We will quickly deploy a portion of that capital raise when we close on the first NBC transaction later this quarter.

We updated the deal announcement deck with our fourth-quarter results, and you'll see that beginning on Slide 20 in our earnings deck.

We are also noting that we will be consolidating 10 overlapping branches as a result of this transaction and have added additional detail on Slide 23 regarding the $26 million, or $0.30 per share, earnings number we provided initially.

Again, we believe this transaction is a win-win for all parties.

So, while we did pay a premium for the transaction, it was not necessarily a deposit premium or a premium on the earnings stream that we did acquire.

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

Thanks Mike, and Ms. Crystal, if you would just take us straight to questions, that will be fine.

(Operator Instructions).

Jennifer Demba, SunTrust.

It's actually Kevin Alloway on for Jennifer this morning.

Can you maybe talk a little bit about the timing of any more energy reserve releases, if that's the thing you see in the near term?

This is Sam.

At this point, we are not prepared to address any specific releases.

We think the reserve levels are appropriate for the risk that we see in the portfolio.

We do expect to see some healing in certain segments of the portfolio as we progress through 2017, but as you've seen, we have reallocated portions of the energy reserve depending on the risk profile of the particular segment.

So you may see some of that occur as we continue to monitor the health of each of the individual segments, but at this point, we don't have a contemplation of specific release of reserves.

This is Mike Achary.

Just to add a little bit of color to Sam's comments, the Company still has an extremely strong energy ALLL at over 7.5%.

And whether we have opportunities to bring that down a little bit over time will depend on a number of factors, including obviously the price of energy commodities, what happens with the drilling and non-drilling activity of our customers, and basically as we kind of go through the rest of the energy cycle.

So, it's certainly possible that we could pull that energy ALLL number down a little bit, but hard to say right now exactly how much that could be or when that could occur.

Got it.

Thank you.

And then do you have a breakout of what percentage of loans were SNC this quarter?

I think it was about 13% last quarter.

Do you know if that number has moved a lot since then?

Yes.

So, our total SNC portfolio at the end of the quarter stood at $2.2 billion with about 61% of that non-energy-related, and then the remainder energy-related.

And one last one if I can.

Are buybacks something you've given any thought to recently or are they still on hold for now?

Buybacks for now are really kind of on hold.

Obviously, we just issued some new capital and are in the process of deploying that capital.

So for right now, buybacks are really kind off the table.

But certainly, given circumstances, that is something we will consider as we go down the road.

Perfect.

Thank you.

This is John.

Just a little bit more color on the SNC question.

Seasonally, many of our operating lines that are SNC but are our core clients do a drawdown of some magnitude in the fourth quarter.

For the last four years, including the quarter we just finished, that number is typically right around $100 million, so the increase in the outstanding for SNCs really wasn't that different than it usually is.

So nothing really unusual there at all.

And just one point to clarify on the buyback question.

Our authority or at least the recent authority we had in place actually expired at end of last quarter, so we currently don't have an authority in place.

But again, if circumstances present themselves or change, that is certainly something I think our board would consider restoring at some point down the road.

Great.

Thank you so much.

Brad Milsaps, Sandler O'Neill.

Good morning.

John, I just wanted to see if you could maybe talk a little bit about the strong loan growth you had in the quarter.

I appreciate the guidance around the first quarter, but maybe a little stronger than I was expecting in the fourth, so just any additional color there you could just give kind of around the strong loan growth and kind of how you feel about that?

Sort of you get through the seasonal period of the first quarter, is that something that continued -- could continue or do you think there are just sort of stars aligned in the fourth quarter to generate that type of growth?

It was a good bit of the latter.

And thanks for the question.

Growth in the fourth quarter really was good, and there really wasn't any one thing that drove all of that.

It was more of a culmination of a number of good things that occurred.

First up, energy paydowns were a lot lighter in the fourth quarter as many of our clients who had been in retreat began to have additional projects and won contracts and got busier, so those numbers held up.

As Mike mentioned in his opening comments, for I think the first time in well over a year, we did add a couple of energy clients that were outstanding clients that seemed to make a whole lot of sense for us to add at this point in time that we are real proud to have added.

So that kept the energy number at relatively flat actually, between paydowns and new stuff.

Mortgage production was actually really good for the fourth quarter.

We are going to have a train come by, forgive the noise.

Let me just let it pass.

The sounds of commerce.

Okay.

So, mortgage production was really good, and we sold a little bit less on the secondary market than we did in prior quarters, given the nature of what was booked.

But we only closed about eight deals less in the fourth quarter than we did the third quarter, which is unusually good for a typical fourth quarter.

We were pleased to see that, especially given the rising rate environment that was occurring.

Consumer and small business demand was stronger than it had been in the past.

And then in the percentage of deals in the pipeline that we won and closed, it was just higher in the fourth quarter.

So really no one big silver bullet that drove that.

We just had a lot of good fortune in virtually every sector of the portfolio.

And in fact, the only sector that diminished was indirect lending, which we expect at some point in time in 2017 to begin to turn more positive.

This is Mike.

Just one thing to add to that.

If you recall, last quarter, we talked a little bit about some of the uncertainty related to the election and how that could have been impacting loan growth and loan (technical difficulty) last quarter.

And I think that uncertainty certainly extended into the fourth quarter and probably was to some degree in the back of our minds when we did provide the guidance we did give for the fourth quarter.

So, obviously, we exceeded that pretty dramatically.

But the other thing I would call out is -- and I think it's at the bottom of Slide 8 in our investor deck -- but if you go back and look at the loan growth that we have enjoyed typically in the fourth quarter of every year, you can see that the 17% or 18%, depending upon whether you adjust out energy loans or not, really is pretty much in line with the kind of growth we have enjoyed in the fourth quarter for really the last three or four years.

Last year was a little bit of an anomaly with 31% growth.

And a reminder there that we did find that healthcare portfolio back in that quarter about [$200 million].

Sure, that's helpful.

Maybe just in addition, just on the NIM, I think your guidance was maybe 3 to 5 basis points of expansion.

To the extent we get more help from the Fed this year, do you think that's a pretty consistent kind of number you would see with each increase from the Fed, or do you think it could accelerate from there, or actually maybe come back as you see pressure on deposit costs?

Just any thoughts around kind of your NIM and future moves from the Fed?

Sure.

And it really is, as you can guess, depends on the nature of those moves frequency and the amount that if we are looking at a series of 25 basis point increases, something in the 6 to 8 basis point range is probably appropriate for our Company.

And of course, that's before we add the impact of the First NBC transaction.

Sure.

And then final question, I appreciate the guidance around the tax rate.

Is the big jump kind of from the low 20s% maybe a function of, A, making more money?

And B, does First NBC have a big impact there as well?

Or I assume the guidance reflects First NBC as well?

No, actually the guidance that we are giving for 2017 really is before we add the impact of First NBC.

(multiple speakers) that's correct, the 25% to 27%.

But to the first part of your question, yes, the effective tax rate for the quarter of 18% was down a little bit even from last quarter, and really had two main drivers.

One is simply the levels of tax-exempt income in items that we really have kind of added to our balance sheet over the last year is absolutely having an impact.

And then the other big thing is the big provision that we took in the first quarter, and the impact that that's had on our full-year tax rate.

So, for the full year, we are looking at about a 20% effective tax rate, and that's down a little bit from last quarter when we thought it would be about 21%.

So, that adjustment had to be made in the fourth quarter, and pulled down that quarter's effective tax rate a little bit more than normal.

Just final question on the tax rate, if, say, we were to get a 25% federal rate, where would that take your 25% to 27% guidance?

Does that push that number closer to 20%?

I know you guys have a lot of Muni income and other tax credits, so I know a lot depends, but all else equal, would that make sense?

Yes, it certainly depends.

And I don't know that we want to answer that precisely right now other than certainly it would bring down our effective tax rate somewhat.

Great.

Thank you guys.

Ebrahim Poonawala, Bank of America.

Good morning guys.

Just a quick question, John and Mike, on capital.

I just want to make sure I understand this correctly.

When I look at Slide 22 on a pro forma basis, it seems like the CET1 tangible common equity goes back to where we were more or less at the end of the third quarter.

How much -- if you could give us a sense of what will be the excess capital really once this First NBC deal closes?

And what's the constraint that we should be looking at?

Is it the CET1, the leverage ratio, the TCE?

Just kind of guide in terms of how much of this capital is truly excess capital?

Thank you, and if you're looking at Slide 22 again, our actual reported TCE number was 8.64%.

I'll just focus on that metric.

And all we are saying on this slide is, had the assets for First NBC been added to the balance sheet at 12-31, all things equal, that would've pushed our TCE down to 7.84%.

The actual numbers certainly are going to be something different as we go through the first quarter and the second quarter, if for no other reason than we will have the earnings related to that transaction, as well as our organic earnings, if you will.

So while, on a pro forma basis, we are below the 8%, I think on an actual basis going forward, we should be well above, or at least above that 8% metric.

And again, for us and our company, we really do look at the TCE.

That is something that we pay attention to, or board pays attention to of course, and we've always established kind of this comfort zone of wanting to be at around 8%.

So if we are talking about excess capital, I guess you could say that anytime we are above 8%, we do look at our capital at that point as being a bit excess.

And certainly we would be looking for ways to deploy.

Does that make sense?

That makes sense, very clear.

A follow-up on the capital, following this transaction to the extent you can comment, is it safe to assume that any sort of asset acquisitions tied to First NBC is pretty much done, or could there be more possibilities as the year progress to add more assets or deposits from the bank?

From First NBC specifically?

Yes.

No.

What we are looking at is the transaction that we announced.

What we are working to obviously close is the transaction for the $1.3 billion of loans, and the $500 million in deposits and home loan advance.

As of now, there are certainly no plans to acquire anything more or anything less than that from that company.

Understood.

And just switching gears to expenses, I want to make sure I understand your guidance clearly.

We expect the fourth quarter sort of as the new run rate, so I'm looking at $156.3 million.

Should we be backing out anything off that when we think about the new run rate?

And if you can remind us, one, of any seasonality in 1Q, and second, I guess we add on the $3 million in annual expenses tied to First NBC to the $156 million number?

Yes.

So the guidance that we gave in the deck again really is under this notion of near-term guidance, which means really for the next quarter or so.

And I think we were careful to point out it did not include the impact yet of the First NBC transaction, other than we do expect to have some one-time costs related to that transaction probably in the second half of the first quarter.

So, if we look at the specifics of the guidance, in the fourth quarter, our operating expense number was $156.3 million.

We called out three what we are calling kind of one-time or unusual items that total $3.3 million.

So we don't expect those to recur in the first quarter.

So if you back those out, we are down to $153 million.

We also know that, in the first quarter of every year, we have the seasonality related to resetting all of our benefits that are tied to payroll taxes, for example, and then things like FICA.

So we expect that impact to be somewhere in the $2.5 million to maybe $3 million range.

So that brings us back to an expected number for the first quarter of 2017, really just below the reported number for the fourth quarter.

And then certainly, as we move past the first quarter and close on the First NBC transaction, we will have the additional expenses related to that that will be layered in.

Very clear.

And my last question is tied expenses in terms of any additional sort of expense initiatives going on within the Bank in terms of branch consolidation beyond what you announced tied to First NBC?

No, nothing specific other than just kind of the normal levels of consolidation we do here and there.

We may be adding a branch somewhere, and may be consolidating a branch somewhere else, but there's no whole scale program contemplated for 2017 other than just that kind of normal activity.

This is John.

I think the way you would look at expenses in terms of further consolidation is we really never stop.

There's a process of continuous evaluation of areas that can be made more efficient or remove duplication, and so that's how we've managed to add a couple of hundred bankers over the past year, year and a half, and have an FTE count that's actually below where we began.

So, as a result, we try to continue to be more efficient and reinvest a chunk of that savings back into growing revenue in the future.

So it never really ends, so to speak.

Understood.

Thanks for taking my questions.

David Feaster, Raymond James.

Good morning guys.

So, I wanted to start on energy, and kind of just get your thoughts on where we are in the energy cycle.

You're saying your guidance calls for $65 million to $95 million of charge-offs, and given that you've experienced $42 million year-to-date, it implies we are $45 million to $65 million -- or roughly in the fourth to sixth inning of the recovery, dependent upon whether you use the top end or the low end of that range.

Could you just give us your thoughts on where we are in the energy cycle, and maybe what it takes to get to the low end of guidance and get through the cycle?

Do we need $60 oil or $70 to get there, or even if we just stay here in the low to mid $50s?

This is Sam.

I'll start off the discussion.

I'm sure John will add some color behind my comments.

But as we see oil holding in the low to mid $50s, we are obviously encouraged.

And you're starting to see some production activity percolate in some of these basins.

We think we are going to see, as we go through 2017, continued healing in the upstream segment.

We are already seeing some positive indicators there.

But the recovery is going to be different for different segments of energy, as we talked about before.

We just took a charge-off in the fourth quarter for drilling support segment credit.

Some of those companies are coming back online now, contracts and interest and going back out into the field.

So we are starting to see some percolation there.

So we may very well start to see some positive signs of healing in that segment.

The non-drilling support segment is one that, for our portfolio, is going to have a longer lag because of the extent that it may be tied to some offshore activity, both shelf, deepwater, etc.

So, if the price of the commodity continue to move up into the $60 band, that would be a very positive sign for the offshore segments.

The onshore segments have some early positive indicators at this point.

As you can appreciate, it's going to be interesting to find that balance in terms of production.

So while OPEC has reached an agreement of their production levels, if you see the US domestic production start to pick up and we start to see more overlay there, then we may see a little bit of softness in the price of WTI.

So it's going to be a balancing act as we go through 2017, but all in all, we feel -- we are feeling better about the direction of energy as a whole, but it's going to be sort of choppy in terms of some of the segments.

So, that's one of the reasons we think a 7.5% reserve position is appropriate, given where we are today.

But we will continue to monitor and make adjustments as we have through 2016 as we progress through 2017.

So John, any color you want to add there?

I'll be glad to.

Thank you Sam.

And David, it's a good question.

I wish there was a 10- or 15-word answer to it.

Unfortunately, it is a little more complex than that.

But if you look at our book, and you separate between upstream, and then all services that are land-based, and then everything in the Gulf, and sort of look at it in terms of those three segments and then apply price to it, the prices we are already at right now, and certainly those prices that are I guess you would call it the consensus or the strip for the next 18, 24 months, would indicate that everything that we have in the book related to land will continue to get better.

So, the E&P book is already getting better if you look at the strength of the balance sheets.

Those have already improved and, frankly, I would be disappointed if we didn't see upgrades begin to occur in first half of this year in the E&P book and the upstream book that we have.

In the land services book, contracts are being let.

Our clients are beginning to talk about additional work and finding scale and retooling, so there's economic activity beginning to service everyone's upstream book as additional drilling happens.

And if you've noticed, the number of rigs that are working in the US today, while it is certainly not near where it was at the peak in 2014, it's a heck of a lot higher than it was in the bottom in the early part of 2016.

So the land is absolutely improving, and we should see a reflection of that in our book as we go through 2017.

The marine services sector and drilling services in the Gulf of Mexico we believe will be the last part of our book to show improvement in both criticized and classifieds.

And history tells us and our clients tell us that a $60 handle in crude that is dependable for a lengthy time is probably the price point at which we see the Gulf begin to heal on a dramatic basis.

And we have provided for that lingering effect inside our charge-off guidance as well as the reserve we've already built.

So when Mike and Sam said the reserve is strong, our basis for that is the fact that we've stayed very close to what really is a small number of credits in the Gulf.

If you look at the breakdown on one of the energy slides, it shows how much of that is marine services and whatnot, so you can sort of get a handle around the relatively modest volume we have remaining in that book.

So, I think 2017 will be a good year for everything land, and 2018 will be a good year for everything Gulf, presuming that the forward-looking consensus on prices manifest themselves into reality.

Does that help?

Yes, that's terrific.

Thanks for the color.

I'd like to stay on energy for a second and talk about what you think your energy mix might look like going forward.

Obviously, you're dedicated to the space given the fact that you've actually made some new E&P credits -- new E&P loans in the quarter, which is good to see.

Do you think, going forward, that you're going to be heavier weighted on E&P versus services?

Historically, you've had a heavier service weighting.

But how do you think your mix is going to look going forward?

And also on those new E&P credits, anecdotally we've heard that pricing structures have gotten better.

Could you just give us some insight into what you are seeing for new energy loans?

Let's take the last question first based on the deck and then circle back to the others.

And I was thinking the opposite sequence here, so refresh me on the last part of the question.

I was going back to -- the pricing deck.

The pricing deck, we've seen some strength there, some improvement, from early 2016, but the forward strip is pretty flat.

So until we start to see some pull-back in worldwide supply or improvement in demand, I don't expect we're going to see significant movement there.

But we are starting to see enough stability that we think we're going to have more hedging activity with our upstream RBL clients, etc.

So, don't expect to see significant movement in the price decks, but we are pleased to see some stability.

And in terms of the balance of the portfolio, just a couple of comments there.

We have moved to add some strategic additions in the RBL portfolio this quarter.

Those are high-quality additions that we are very excited about.

But if you recall, historically, we have been heavier in the support segments.

And just as a reminder, the long tenure of some of those relationships also comes with some meaningful deposit relationships that go along with those relationships.

So, I don't think you're going to see us pull back hard in the support segments because that's sort of a core component.

Despite the challenges that we've seen in the cycle, those are core components of our portfolio that also come with very healthy deposit relationships.

I'll also point to the fact that, on Slide 9, if we think about the overall profile and quality of the portfolio, the most significant portion of those non-accruals that are showing on that sheet continue to pay.

And so when you look at the overall profile of the portfolio, the past-due column out to the far right on Slide 9 is an indicator that, despite the risk ratings and the accrual status on some of those relationships, they continue to be current on their payments, and a number of those are good, strong depository relationships of the company that we banked for a number of years.

To specifically answer your question on concentrations, I think we started into the cycle about 60-40 on the services side.

Every quarter, we ease a little bit closer to 50-50 over time, and I think that trend is probably going to continue.

We like the support book that we have, and many of those clients we've banked a very long time, but the overall percentage in the energy book is going to reduce simply as we grow everything else.

So, I think it's going to -- it's a good book and it's a great source of deposits, and we believe in our clients, but simply because it's concentrated in one geographic part of our company and we are continuing to grow the organization elsewhere, it will become a less concentration in the overall form of our business over time.

But I do think the RBL segment will eventually overtake the services segment simply because of the activity that's going to happen in 2018.

Terrific.

(multiple speakers) total percentage will go down, and the RBL percentage will go up.

That makes sense.

The last question from me, great loan growth in the quarter.

I was little surprised to see the East region be one of the slowest growers of your three main regions.

Could you maybe just talk about what you're seeing here and maybe in Florida specifically?

Sure.

It wasn't in a bad quarter.

We do have some business divestitures that have been occurring in the East, and I think that weighed into the number.

It wasn't as many as we actually thought were going to happen as our clients took advantage of offers from folks that were interested in acquiring businesses, but that has been going on, so it's more the contra than a lack of production.

Got you.

Thank you very much.

Kevin Fitzsimmons, Hovde Group.

Hey.

Good morning guys.

Mike, I'm going to ask a question about accretable yield since you probably feel neglected, that topic hasn't come up much.

But should we -- when I look at on Slide 15, the reported margin versus the core margin, should we expect a continued very gradual merging of those two lines?

Or I'm not sure if the FNBC transaction is going to add something to that in terms of any accretion.

Thanks.

Thanks very much for the purchase accounting question.

The short answer is yes.

Over time, as we've talked about for new many years now, those lines will converge.

It will converge or the process of converging will happen a little bit slower over the next year or two compared to the last year or two simply because of some of the maturities that remain from the Whitney acquisition.

But they will eventually merge, all things equal.

As far as the First NBC transaction is concerned, we did call out that we intend to mark that book by about 4%.

And the answer to your question really just depends on how that book performs from a credit perspective.

So ,if it performs the way we are thinking it will perform and the way we've marked it, there should not be much of an accretable yield impact.

But if the book performs much better than we are thinking, then yes, we will have some impact related to that.

So, much, much too early to tell right now, but certainly, as we go over the next few quarters and get into the end of the year, I think we will have a little bit better idea.

Okay, great.

Thanks Mike.

And just one, you guys might have mentioned this.

If so, I apologize.

But the consolidation of the 10 branches, is that -- is the mix of that like all the nine FNBC branches and one of your own, or have you determined the mix of what's legacy Hancock, what's FNBC branches?

Yes, we have, and certainly that's been disclosed in the FDIC application.

And so we are looking at a total of 10 branches that will be consolidated, nine from Whitney and one from the First NBC side.

Okay.

Got it.

And one last question, if I can ask, on the topic of buybacks.

And I know this topic came up earlier.

I know it's not going to be at the forefront of your guys thinking because of maybe where the multiple on the stock sits today and where capital is going to be post-FNBC.

But from my understanding or from my recollection, John, you talked about you guys wouldn't look at putting a new authorization out there until you saw stability or a dependable price of oil, and maybe that implies like a light at the end of the tunnel.

I know you've talked about the lag in servicing improving.

But can you define a little more tightly what you're going to be looking for before going there?

And again, I'm not asking it because I think you should be buying back here or that you would, but just I see it as more of a sign of your confidence in your own mind that, all right, it's time to put this authorization back in place because we see the light at the end of the tunnel.

I'll start, and Mike can add color.

It's a good question, a fair question.

The board's perception of where we are right now is we've got a chunk of assets that we have agreed to purchase.

We just had a really great earning asset growth quarter in the fourth quarter.

So the notion of putting the authorization out there, while it would only be a housekeeping item if we did it right now, because we want to close the transaction of First NBC.

Let's see what our organic growth prospects look like in the early part of 2017, and then reevaluate what authorization level, if any, is really needed.

So there's no objection of having it out there.

It's just really more of we don't intend to do anything with it until we settle a little bit over the first two quarters.

And so that's been delayed.

So I wouldn't anticipate the authorization being on the table in the first half of 2017 but, as Mike said earlier, if something changed we would certainly evaluate that at that point in time.

Yes, Kevin.

I think the thing I would add to that is you mentioned something about having the authorization or the lack of authorization tied to the energy cycle.

And certainly that was the case a year ago as we moved into 2016.

But so much has changed I think since then.

You have the evaluation readjustment in our stock price as well as other financials.

We have the opportunities that have presented itself because of that valuation adjustment to raise capital and now deploy that capital in a manner that we talked about with the First NBC transaction.

We certainly have and continue to have pretty significant organic growth opportunities in front of us, so the lack of having a buyback kind of at top of mind is more related to those kinds of opportunities than it is to any kind of anticipated troubles related to continuation of the energy cycle, I think.

That's a good way to say it, Mike.

I think just going back in time, Kevin, the top priority or the top reason of not having a buyback in place maybe a year, year and a half ago was concern about going forward energy risk.

The top priority or the top reason not to have it today is probably there are just reasons to deploy that capital for something that's more positive for shareholders than building provision.

We've already we think been through that.

It still out there, it's (multiple speakers)

Got it, no that --

You mentioned the branch consolidation earlier.

I think I'll take that opportunity just to add some clarity to timing because it's important.

We expect to close the transaction for the remaining loans and the branches sometime in late in this quarter.

There will be an overlap in that consolidation period as we operate the branches that we acquired until we can get the conversion of all the systems and whatnot done, which would be expected in the second quarter.

So, the second quarter, we'll have -- while we wouldn't have the full cost of the combination of branches, it will begin to diminish pretty quickly, but we won't get the new run rate on expense of operating those branches until the consolidation is effective, which we expect to be sometime in mid to late second quarter.

Hopefully, that's helpful for you as you think about expenses in the first half of the year.

That's great.

Thank you guys.

Matt Olney, Stephens Incorporated.

Hey, good morning guys.

This is actually Matt Sealy on for Olney.

I want to circle back on energy credit trends.

It looks like we saw released reserves during the quarter.

While NPLs increased, criticized were flat.

So, was the $12 million energy charge-offs specifically reserved for already, or was it just a work-through?

Any color you can provide would be great.

Certainly.

If you look -- we've got a good bit of detail on Slide 10 in the deck.

And if you look at the support drilling segment, you see a decline in the fourth quarter in the impaired reserves.

So if we took a look at the profile of the credit and the incorporation of the impaired reserves, that was a big component of that.

So, it was partly around the reserves allocation specifically that created with that impairment analysis.

Okay.

Great.

That's helpful.

And on the non-energy side, it looks like charge-offs were a little bit elevated.

Was this some contagion here we saw, or something else?

Any thoughts would be helpful.

Typically, at year-end, you see a little bump in the consumer charge-offs.

We continue to monitor the south Louisiana and Houston markets specifically for our consumer and small business.

We just see a little bit of uptick in charge-offs in the quarter.

Part of that was related to some consumer finance and a little bit of indirect.

I don't know that that's going to be a new run rate on trends, but we will monitor that very closely.

But we do see an uptick.

If you recall, we also had some of the flooding that happened in Louisiana, so a bit of that sort of carry over into the fourth quarter, but we will be watching that very closely as we move through the first half of this year.

Okay.

That does it for me guys.

Thank you.

Jefferson Harralson, KBW.

I hope this question hasn't been asked, so move me on if it already has.

But in your FNBC guidance, you talk about a $44 million margin coming in from that transaction.

And if you kind of back into that, that's a $330 million or so margin, but the assets that are coming over are 510 yielding and the liabilities coming over are 90 basis point yielding.

So it seems like the margins should be much higher than that.

You're also factoring in some shrinkage in those assets, I think, maybe, and also you mentioned an opportunity cost in there as well.

Can you talk about that $44 million number and how you get there versus what would appear to be a much higher margin?

This is Mike.

You are right.

We have the loans coming over at a yield just north of 5%.

The deposits are coming over at about 88 basis points, and then the Federal Home Loan advance at about 81 basis points.

So I think the thing that maybe you're missing a little bit is the levels of deposit and loan run-off that we've kind of built into the model.

We haven't disclosed that for obvious reasons, and won't at this time.

It's fair to say that we have included some levels of run-off in both of those categories of assets and liabilities, and we will see, as we go through the next year or so, whether those assumptions have proven to be a bit conservative or well-founded.

So, I think those are the primary two missing pieces compared to what you're thinking.

And obviously that 80-some-odd basis point cost of funds is higher than what you would have at your bank.

Are you going to be relatively aggressive in repricing these deposits?

Are you going to be relatively slow about it?

Or what's the pricing strategy given these are much more expensive than your core book?

Yes, I appreciate the question, but that's not a strategy question.

It isn't something we are anxious to talk about publicly right now.

But fair to say that we are acquiring those deposits for a reason.

They are all transaction accounts.

They all represent great customers that we hope to build full relationships with, and we are not anxious to run those customers off, certainly.

So, again, as we go through the process of closing the transaction and then going through the conversion that John mentioned, we will do the right thing by our Company as well as by the new customers that we will be acquiring.

Okay.

That makes sense.

And one more on the assumptions there, the $3 million provision.

That's sort of assuming that you are growing this loan book, I think, that you're adding new loans onto here, because you're taking a pretty strong mark on it upfront.

So can you talk about that, that $3 million provision, in combination with the expectation for a shrinking book?

Yes.

So, again, I don't know if it's an expectation again, it's an assumption about some runoff related to that loan book, which I think is potentially a natural outcome of really any M&A transaction.

But just like I mentioned on the deposit side, we intend to grow relationships with our new credit customers that we are going to be acquiring.

And as we go through time, we will certainly look to expand those credit relationships.

So, the $3 million is really an estimate around what the potential provision might need to be related to how we grow that book going forward.

Okay.

Got it.

Thank you guys.

I'm showing no further questions from our phone lines.

I would now like to turn the conference back over to John Harrison for any closing remarks.

Thanks Crystal and thanks for moderating the call today.

Thanks to everyone for your interest in the Company.

We look forward to talking to you again next quarter.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude the program.

You may now disconnect.

Everyone have a wonderful day.