Hancock Whitney Corp (HWC) 2017 Q1 法說會逐字稿

Good morning, and welcome to Hancock Holding Company's First Quarter 2017 Earnings Conference Call.

As a reminder, this call is being recorded.

I would now like to 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, including the risk 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 development 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, President and CEO.

Thank you, Trisha, and good morning, everyone.

We're pleased to report another quarter of results reflective of on an ongoing focus to enhance long-term shareholder value.

Last year, we discussed the goal of growing PPNR income by controlling expenses and focusing on revenue-generating initiatives.

This year, we maintained the same focus and have added carefully selected M&A activity.

All acquisition activity is focused on moderate-risk, synergy-driven transactions that improve revenue and, ultimately, the bottom line.

In mid-December last year, we raised approximately $260 million of new capital by issuing 6.235 million in common shares.

A couple of weeks later on December 30, we announced the purchase of selected assets and liabilities from First NBC Bank in New Orleans.

This quarter's results reflect the full quarter impact of the shares we issued and 3 weeks' impact from the closing of the FNBC transaction on March 10.

I hope you noticed in our deck and release that this transaction has already provided a financially compelling return on investment and has thus far exceeded expectations in our model.

A quick reminder of what we acquired: We purchased $1.2 billion of loans, mainly CRE and C&I, and applied a 4% loan mark.

We acquired approximately $400 million in deposits.

It was lower than what we initially expected, but not an indication of client dissatisfaction with the transaction.

We purchased about $600 million in FHLB advances and acquired 9 locations.

These branches will be operationally converted in mid-May, and we will simultaneously consolidate 9 Whitney and 1 FNBC overlapping facilities.

In the first quarter, this acquisition added almost $3 million or $0.03 per share to our earnings and that was for a partial quarter.

We expect the transaction will add $9 million to $11 million or $0.10 to $0.12 per share in the second quarter of 2017.

Please note that these numbers all exclude acquisition costs.

I'll let Mike walk through detailed numbers in just a moment.

However, whether it's based on the initial modeling we did at announcement or a partial impact this quarter or a full quarter's impact going forward, the transaction is providing an attractive ROI and the type of deal we will be pleased with in the future.

As an added benefit, reception from clients has been excellent, with retention and new production in acquired locations outperforming initial expectations.

Our company is in a good position today.

Earnings and capital are solid.

Our board, management and team continue to be synchronized and very much engaged.

We are better positioned in the energy cycle with approximately half the concentration as compared to the beginning of the downturn.

We've set both short- and long-term goals that are designed with all stakeholders in mind, and we detailed a few of those goals on Slides 20 and 21 of the investor deck.

Needless to say, we're motivated and excited about 2017 and beyond for our company.

The team has accomplished a good body of work, and I look forward to building on the momentum we have carried forward not only for 2016, but also the momentum gained with the recent transaction.

I also want to make very clear that while pleased with our progress, we aren’t quite yet where we want to be, and we'll maintain relentless focus on achieving our corporate strategic objectives.

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

Thanks, John.

Good morning, everyone.

Reported net income for the company was $49 million or $0.57 per share for the first quarter of 2017.

Included in those numbers is a full quarter impact of the 6.3 million shares issued in last quarter's common stock offering, so about $0.04 per share impact.

We also had about $6.5 million of acquisition costs related to the First NBC transaction, so about $0.05 per share.

That was partially offset by a $4.4 million or $0.03 per share gain from the sale of selected Hancock Horizon funds.

So if we exclude those 2 items, operating income for the quarter was $50.4 million or $0.58 per share.

We expect to report an additional $4 million to $5 million of acquisition costs in the second quarter.

That should be it for the First NBC-related acquisition costs, so nothing else in the second half of 2017.

As we noted on Slide 5 in the earnings deck, core PPNR for the first quarter was $93.3 million.

So that was up about $6 million or 7% from the fourth quarter, but up almost $17 million or 22% from the same quarter a year ago.

So while we did not set a new core PPNR goal, we will continue to report that metric as a way of showing the progress we're making in enhancing our company's earnings.

We're also planning to continue to report core result as we once again have accretion in our numbers.

So the accretion this quarter from the First NBC transaction was just under $1.3 million and is detailed in a separate line item on Slide 26.

When we provided guidance last quarter on the earnings potential from the transaction, we purposely did not include any accretion estimates.

So as a reminder, accounting rules do require us to accrete the loan mark into income that is not used for charge-offs.

So in light of this, we included an updated accretion schedule that you'll find on Slide 2 in the earnings deck.

This information is, of course, a projection and subject to change.

Also, as called out previously, we were conservative on certain other assumptions in modeling the potential earnings from the transaction.

We included a provision for loan losses on new business in our modeling, which we did not have this quarter, and we're also very conservative in our projected level of loan to deposit runoff.

A summary of the First NBC transaction with updated earnings guidance is included on Slide 19.

So switching gears a bit, total loans for the company were up $1.5 billion or 9% linked quarter, with about $1.2 billion acquired in the First NBC transaction.

Adjusting for the impact of that transaction, loans were up $267 million or about 2% linked quarter.

This includes an outsized net reduction of $123 million in energy credits during the quarter.

So our energy concentration is now just over 7%, and we will continue to work hard to reduce that level of concentration.

Elsewhere, we reported growth throughout the markets across our footprint and in the mortgage and equipment finance lines of business.

So besides energy, the only other line of business where we reported a decline in outstandings was in direct.

We did have a higher level of charge-offs in the first quarter, mainly related to energy.

Of the $30 million in charge-offs, about $23 million were energy-related.

We also proactively addressed the resolution of a nondrilling credit, which, when combined with other charge-offs, brought us to the bottom of our range of guidance or through the cycle charge-offs.

Even though we're now at the bottom of that range, we still believe the range is appropriate, and our reserve of 6.5%, we believe, is more than adequate to cover future charge-offs.

So going forward, given the expected lag in the recovery of service credits, our charge-offs will continue to be lumpy.

We did see a $150 million reduction in the level of criticized energy credits this quarter.

This reduction reflects charge-offs, payoffs and paydowns as well as a few upgrades from the recent SNC exam.

Our nonenergy criticized credits did increase a little this quarter.

However, it's nothing systematic and not a reflection of any issue within a different segment of our loan portfolio.

Deposits for the company were up about $0.5 billion, with almost $400 million assumed in the First NBC transaction.

The company's net interest margin expanded 11 basis points in the first quarter to 3.37% and reflected an increase in the core loan yield of 16 basis points and increase in the yield in our bond portfolio of 14 basis points, both of which were partially offset by a 3 basis point increase in our cost of funds.

So the main driver of the higher loan yield was the addition of the First NBC portfolio, which carried a yield of over 5%.

The increase in the bond portfolio's yield was mainly related to a slowdown of prepayments in our mortgage-backed securities book, which resulted in lower overall premium amortization.

And, finally, the increase in our cost of funds was mainly due to the addition of the First NBC deposits at a rate of just under 1% on average.

So in the interest of time so we can get to Q&A, I'll refer you to the details on Slides 15 and 16 in the earnings deck for information on fee income and noninterest expense.

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

Thank you, Mike.

With that, Ayela, let's go ahead and open the call for questions.

(Operator Instructions) Our first question is from Michael Rose with Raymond James.

Outside of energy, just wanted to dig into this quarter's loan growth a little bit.

It looks like the eastern region was the driver of it.

Can you just give some context on maybe where, outside of energy, growth maybe exceeded your expectations?

And obviously appreciate the guidance nearer term.

But maybe just structurally speaking, should we think about your growth near these current levels as we move forward?

Michael, first, I guess, maybe a geographical point would be helpful.

You'll note from the slide showing where loan growth came from that the western part of the franchise, which we define as Baton Rouge, Southwestern Louisiana, Texas, and that includes Lafayette, which is one of our larger markets, is relatively flat.

The activity there is abnormally low right now and that's -- some of which is just demand is a little light, given the energy cycle, and we expect that will come back and be productive here in a year or so.

New Orleans has been very healthy and the east really carries the show in terms of net loan growth to offset the energy paydowns that we had this quarter, which were somewhat larger than the previous several quarters.

In terms of what in the east is growing, it's really a smattering of everything.

Consumer and branch banking is enjoying better production in the same quarter a year ago.

The pipeline in that business continues to outperform each previous year same quarter, so we're getting better at that.

The commercial banking segment continues to improve.

CRE has a little action over in the eastern part of the franchise, but nothing that I would consider to be terribly outsized.

And the bulk of the increase in overall CRE from the company was really the residual of the components inside the First NBC book.

So overall, it's very diverse, nothing really is a single player leading the show, and that's pretty much exactly the way that we wanted it.

Michael, this is Mike.

One other thing that I would add just as a reminder is, as we indicated a little while ago, if we back out the impact of the acquired loans from First NBC, the loan growth was pretty strong for our first quarter for us at $267 million of inter-period growth.

And again, as a reminder, the first quarter for us tends to be, seasonally, the quarter where we tend to have the lowest level of loan growth.

So to have almost $300 million of inter-period loan growth in the first quarter is actually pretty good performance.

And as John indicated, as we commented on, it was pretty widespread throughout the company.

So we believe, as we go into the second quarter, we absolutely have a good head of steam or a pretty good level of momentum.

Okay.

That's very helpful.

And then, maybe just switching over to fee income, it looks like you guys are guiding to a kind of flattish to potentially lower levels.

I guess, my question is what's driving that?

It seems like this quarter, ex purchase accounting and some of the nonoperating items, it's a little bit less than I would have thought.

Why, given the investments that you made, aren't some of those businesses perhaps growing a little bit faster?

That's fair question.

And the -- to be clear, several of the business lines that we invested in are the ones that we're enjoying the most growth from.

If you see -- I don't recall the slide number offhand, it's in the appendix, that refers to individual categories of fee income, our all card-related income continues to do exactly what we expected.

27.

That's Slide 27.

Thanks, Trisha.

It's growing and I think it will continue to grow throughout the year.

Mortgage income was off just a little, but production actually was very strong for our first quarter.

In fact, the applications we received in the first quarter were a larger number than we received in the fourth quarter despite the rate increases that I think dampened the mortgage industry somewhat overall.

The driver for that was the mix change.

We portfolio-ed more percentage or a higher percentage of mortgage loans in the first quarter than we did the previous quarter, and the driver for that was really the nature of the production.

We have a little bit of a decline in available existing inventory for sale in our marketplace.

Construction loans for new housing are up, and that's creating a surge in onetime closing of products, which we have a very good and successful product offering versus the competition.

So we're seeing an outsized growth in onetime close, which is up in the portfolio for a period of time, and a little bit less secondary income simply because it's not being sold yet.

So we're very happy with mortgage.

And if you look at the first quarter '17 versus '16 income levels, you'll see an appreciable increase.

And I think that will probably bounce back and improve through the rest of the year.

I'll give a caveat that the rate environment has an impact on that, but our position relative to the competition, I think, will continue to grow and our share of the overall pie market by market.

Wealth management income was primarily off because the income levels from the Hancock Horizon funds that we sold, that was earlier in the quarter, so that dampened the overall wealth numbers.

I think those will ease up through the rest of the year.

I don't think that will light up the scoreboard until we get a year or 2 down the road as the market's building, but some components of trust are doing very, very well and overall wealth very well.

So the investments we made are absolutely paying off.

I think the offset to previous quarter was related more to the noisiness and the difference between the 2 quarters in other income from the sale of a piece of property that we had and lighter derivative income, which was both the market influences on short-term rates and long-term rates last year -- last quarter as well as just less swaps sold to customers in the first quarter versus the fourth.

So we're pleased with the investments and we look forward to fee income improving throughout the rest of the year.

But looking at next quarter, given the sale of the funds, we think it will be somewhat flattish simply because of the lack of income in that book.

Okay.

Maybe if you can just talk about the outlook for derivative income and maybe just remind us what the drivers there as we move forward because it seemed like a bigger drop than I was expecting.

That's fair.

Mike, you want to address?

Yes, Michael.

This is Mike again.

And again, just to add on a little bit to John's comments, so I think if you look at the guidance we gave for fee income for the next quarter, so I think some of the reason for some of the conservatism on our part probably has to do with rates more than anything else, the potential rate impact on our mortgage banking business and then also the derivative side of the business.

So for derivative fees, we are down about $3 million quarter-over-quarter.

About 2/3 of that is the valuation adjustment that we make on that book when we do have changes in rates.

The other 1/3 was just a little bit of a slowdown in the level of derivatives that we were selling to our customers.

So those are the things that I think, going forward, we'll probably have a little bit more uncertainty around and, hence, the reason for our level of conservatism.

That make sense?

That's great -- yes, that's great color.

I appreciate that.

Our next question is from Jennifer Demba with SunTrust.

It sounds like you guys are fully back in the M&A game now.

Can you remind us of where your interest lies and what your parameters are around tangible book value dilution or potential accretion, et cetera?

Sure.

I'd be happy to, Jennifer.

I don't know that you can say we're fully back in the game.

Certainly, with the First NBC transaction, we were able to take advantage of an opportunity in the market that we think and believe, of course, will be pretty beneficial to our company.

But going forward, our first priority for any potential M&A opportunities is really along the lines of we kind of describe as smaller and more in-market-type transactions, so banking companies that probably have a size between around $1 billion and maybe as much as $3 billion or so in assets.

And the parameters that we pay especially close attention to besides EPS accretion is internal rate of return as well as tangible book dilution.

In terms of internal rate of return, we'd like those opportunities to produce a return of at least 15% or better.

And related to tangible book dilution, especially in a transaction that fits the description that I just kind of articulated, we would look for really minimum tangible book dilution with a pretty quick payback.

So those are the metrics that, again, we pay the closest attention to.

And, again, the first priority really is kind of smaller to more medium-sized in-market transactions.

How many targets are there within your footprint that kind of fall into this category?

Yes.

There's not a big, big number of those kinds of opportunities, but there are a fair amount.

And obviously we pay very close attention to those potential opportunities.

Jennifer, this is John.

I'll add to Mike's comments.

I would agree with his assessment.

We're not, I wouldn’t say, we're fully back in.

This is the first acquisition we've done in several years and it's really not a whole bank acquisition.

So we'll be very mindful and attentive towards the results of the transaction in terms of our conversion protocol, how well that gets executed, what our client satisfaction is with the changes that occur part and parcel with the conversion.

We'll be mindful to how well we judge the income levels and the account retention and the loan discounts.

So this is a good opportunity to see how well we can execute a deal once we are able to consummate it.

And then -- that's the first point.

So we'll make modifications and perhaps get back in a little later on when we tune it up some.

So far, we're really happy with the one we just did.

The second point would be we continue to trade at somewhat of a discount relative to peer, I guess, tangible book value.

And the overhang of our energy services book in our price still looms and we'd like to get that right-sized to make sure that, from a shareholder perspective, our currency is valuable before we did anything or did several of them.

So we think we still have work to do before we get to quite that level of fully backing it.

So we've been very mindful of ensuring that we address those points before we get too aggressive.

Our next question is from Catherine Mealor with KBW.

I just want to ask a couple of questions on FNBC.

First is just on the expense side.

Can you update us on -- I know we had a partial quarter and then we'll have a full quarter next quarter before you have the branch consolidation.

Can you kind of think -- help us think about how much of an expense headwind we'll have next quarter with FNBC fully in?

And then, what are the cost savings after you consolidate those 10 branches?

Catherine, this is Mike.

So again, we have our conversion scheduled for mid-May.

And at that point in time, we'll effect the consolidation of the 10 branches that we've kind of talked about already.

So in the second quarter, we will have kind of a doubling up of expense for those 2 sets of branches.

And again, that will go away by mid-May.

So by the time we get to the end of the second quarter into the third quarter, we'll have kind of a full cost savings in our numbers.

So the cost savings in this transaction really result from our ability to add those loans and deposits to our balance sheet.

Really add very little in the way of incremental costs.

Got it.

Okay.

Is there a way to quantify the level of expenses coming on from the transaction post-savings?

Yes.

We talked about as much as maybe a couple of million on kind of a go-forward basis once everything is kind of completely consolidated.

Some of that comes from the fact that the -- some of the acquired branches are a little bit newer and carry a little bit higher occupancy cost.

And then, some of the other expense just comes from some other positions that we'd added or will add to help us kind of service the acquired book.

Okay.

Got it.

And then, on the credit side, I noticed a little bit of an increase in the criticized nonenergy bucket.

Was that related to any of these FNBC loans?

Or is that core legacy migration?

No.

None of that was really related to any of the acquired loans.

And Sam, I'll ask you for a little bit of color.

Sure.

As it relates to the increase in nonenergy, we had really 2 segments in terms of industry.

In fact, we had specifically a manufacturing enterprise that had a slowdown in receivables.

So they're in contract negotiations with the client.

So based on that, we thought it's appropriate to make a downgrade.

And then, secondly, a retail distribution company that had a miss some projections.

And so until they get their -- those issues resolved and give us a re-forecast on cash flows, we think it's appropriate to downgrade there as well.

So it's just a mix there, nothing systemic, just a typical cycle -- economic cycle implications where you'll have some ebb and flow outside of energy, so nothing systemic that we see there.

And geographically, where are those coming from?

No particular geographic concentration.

We had one situation in the East and one in the West, so not tied to indirect energy implications or anything like that.

Our next question is from Emlen Harmon with JMP Securities.

On the strategic corporate objectives that you kind of laid out in your third set of guidance there, what does that include for rates in either year?

And just how are you thinking about the timing on that, when those kind of numbers are achieved?

Sure.

I'd be glad to, Emlen.

This is Mike.

So in terms of the things that are included in those 2017 and 2018 CSOs as we call them, as far as rate hikes, we're not assuming any additional rate hikes.

So it only includes the rate hikes that have happened to date.

Certainly, the objectives included the impact of the First NBC transaction.

And then, really, as far as timing in terms of hitting these objectives, we're really looking at hitting them really toward, I guess, the end of the time frame that we've kind of described there, although certainly we have some upside, we believe, to get there potentially a little bit sooner than that.

Okay.

And then, I just wanted to dig into the expense and efficiency guide a little bit.

Just kind of what are you using as the starting point for the expense guide?

Does that include any of the nonoperating items?

And just on your efficiency target, are you using that as kind of the same you have historically, excluding the amortization of intangibles?

Yes.

So on Slide 20, we give what we kind of call our near-term outlook, and that really is for the next quarter or so.

Then, on 21 in the earnings deck, at the top is kind of the 2017 guidance and at the bottom is our CSOs.

So any time that we give our guidance around noninterest expense, it's always going to be with the thought that we're excluding any of our nonoperating items, so things like acquisition costs that we might have as well as some other kind of onetime expenses.

So the 4% to 5% that we're giving guidance around on Slide 21 for 2017, that's kind of an annual number comparing 2016 to 2017, again, after backing out any nonoperating expense.

That make sense?

Got it.

Yes, that does.

Our next question is from Christopher Marinac with FIG Partners.

Yes.

I just wanted to go back to the credit question from earlier.

What are your businesses doing in terms of expansion?

And, I guess, I was curious on comparing Texas versus Louisiana versus other parts of the footprint.

Are you seeing any expansion on your home market in Louisiana?

Or is it still nascent?

Did you say expansion in the home market in Louisiana?

Is that what you said?

Yes, just the businesses' attitudes and sort of where they are perhaps compared to 6 months ago.

That's a great question.

And I think the answer has to be broken down into where in Louisiana.

In the markets that are much more energy-centric, Chris, the -- I'll use Houma, Thibodaux, Morgan City, Lafayette, growth is very modest, if any.

And I think probably the last 2 quarters, balance sheet has been edging downward, and that is all related to just a little bit more of a conservative attitude toward businesses.

Even if they're not energy, they're just not expanding a lot right now.

Lake Charles, Baton Rouge and New Orleans are on a very good trajectory and continue to expand.

Business attitudes are very, very solid.

Houston.

Once you get outside the energy corridor portions of Houston, Houston is still doing very well.

So we've had some paydowns there in CRE.

I think, Sam, that was all in multifamily.

That's right.

This quarter, but have essentially eclipsed that with growth in other sectors that are not energy- or CRE-related.

So Houston still continues to be a pretty good market.

It's not on the fiery path it was 3 or 4 years ago, but I expect that'll get back in that position just simply because it's a great market as the energy cycle begins to wane.

And then, the Mississippi and eastward continues to do very well.

That answer your question?

It did, John.

And, Sam, just a follow-up on the 2 credits you mentioned up in manufacturing and retail.

Would both of those criticized credits kind of stay and linger longer?

Or would those kind of go pretty quickly on your list?

Just curious kind of what time frame is and how this work through the pipeline.

I would expect based on what we know today that we're not in a long-term situation with those.

We want to monitor and assess the progress in getting the issues resolved, but I think those are fairly short term, maybe a few number of quarters, not years, in terms of that category.

So again, we'll stay close to those.

In fact, one of them has already articulated a plan that we think is very reasonable.

So we may see that return sooner than the others, but I think a fairly short-term circumstance in those.

Our next question is from Matt Olney with Stephens Inc.

On the core loan yield, it looks like there's some really nice expansion in the first quarter.

Any more details you can provide as far as what was behind core loan yield expansion?

I’m trying to figure out how much was from the higher rates on the legacy portfolio versus the impact of First NBC.

Yes, Matt.

This is Mike.

And yes, those were both pretty big factors in the expansion in that core loan yield we had during the quarter.

If you look at the variable loans in our loan book, the vast majority will reprice in the -- on the first of the month following a rate increase.

So for the rate increase that happened back in December, the vast majority of those loans repriced kind of January 1. And certainly, that was an impact in yield for the quarter as well as First NBC.

We also benefited to a small degree by some interest recoveries related to some of our credits that were upgraded during the quarter, so that was also a contributor to the overall increase in the loan yield.

And, Mike, can you quantify the amount of the interest recoveries?

And looking towards 2Q, should we expect a similar level of core loan yield expansion, given full quarter impact of First NBC?

And then...

Yes.

I'll give it in terms of impact on the core NIM.

It was a couple of basis points.

And so the guidance that we were giving for the second quarter is to expect the core kind of NIM expansion of between 5 and 7 basis points.

And, again, that's a combination of a full quarter's impact of the First NBC account loans as well as the impact on the second quarter of the rate hike that happened in March.

Okay.

That's helpful.

And then, just digging into the projections of the purchase accounting accretion on Slide 32.

I believe that number you're giving us, the net accretion number on that slide, which I think includes both the NII and the fee income.

First off, is that correct?

And can you help us understand how much of it is from NII versus fee income?

Yes.

On Slide 32, where we talk about our revenue impact, that does combine those 2 items.

And then, we have on -- which slide is it, Trisha?

We have on another slide the -- a little bit more of a detailed analysis of the impact of all items or all factors that do impact accretion from the various acquisitions that we've made.

Yes.

On Slide 26, there's the detail on accretion from the -- on the margin.

Right.

And so on Slide 26, you can see for the first quarter the various impacts that we've had, really going back to the Whitney as well as the Peoples First acquisition, and then we list First NBC here as well.

And as we kind of indicated earlier, going forward, we'll continue to produce this slide and update the numbers accordingly going forward.

Our next question is from Brad Milsaps with Sandler O'Neill.

I just wanted to follow up on the energy charge-offs that you did have in the quarter.

It looked like it kind of came from the maybe the nondrilling service segment.

Is that correct?

I'm just kind of curious if it was from one particular type of service loan or just was maybe from a lot of different types.

Just curious if you could provide any more color there.

Certainly.

The big driver was in the nondrilling support segment, and so that was the most significant portion of that energy charge-off.

We did have another credit that was mixed in there that was direct drilling support.

So it's a combination of those 2. But as we said, we're continuing to watch the nondrilling segment.

This was an opportunity for us to get our credit resolved very quickly and so we felt it was appropriate to go ahead and take advantage of that.

And as a result, you can see the overall reduction in our concentration in nondrilling services as a result of that and also a pretty large reduction in NPLs and accruals.

That's right.

Right.

So all that said, the right direction?

Was any of that maybe specifically marine-driven or any further color there?

Yes.

It was marine-driven.

Okay.

Got it.

And maybe just a follow-up question on Mike just on the balance sheet.

Just curious, your thoughts around kind of any further repositioning, maybe some of the different categories kind of once you really get your hands around the acquisition.

Maybe specifically, I was kind of curious about the borrowings.

It looked like the average borrowings were sort of equal to the period-end.

I know you're bringing over about $600 million with the deal.

Just kind of curious if you were kind of prefunding some of that, but just any other color around any other moves you may make with the balance sheet as you kind of get a full quarter's impact of the acquisition.

Sure.

Glad to, Brad.

Nothing specific related to borrowings right now.

I think probably the biggest thing is really on the deposit side.

So obviously we brought over the $1.3 billion of loans with only about $400 million of deposits.

And certainly, that's had the impact of elevating our loan to deposit ratio above the levels that I think our board feels comfortable with.

So it's certainly not a problem at all, but we would like to grow deposits and move that loan to deposit ratio down just a little bit from where it is right now.

So that's really, I think, probably the most significant balance sheet focus we have right now and that is to grow our deposit book.

Do you guys anticipate having to price up or run specials to kind of drive those numbers up?

Or do you think you've got kind of some low-hanging fruit out there that can kind of help you without adding to the incremental cost significantly?

I mean, certainly, we're very mindful of what it might take to raise deposits in a significant way, but I think one of the things that's helpful right now is that, certainly, the rising rate environment, I think, puts us in a position where we're able to position some of our specials in a manner that would be attractive for our current deposit holders as well as future.

And I am showing no further questions.

I would now like to turn the call back over to John Hairston for any further remarks.

Okay.

Thanks, Ayela.

Thanks for moderating the call today.

And thanks, everyone, for your interest.

We look forward to speaking with you soon.

Have a great day.

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

You may all disconnect.

Everyone, have a great day.