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IBERIABANK Corp. (NASDAQ:IBKC)

Q4 2013 Results Earnings Call

January 29, 2014 9:30 AM ET

Executives

John Davis - Senior Executive Vice President, Investor Relations

Daryl Byrd - President and CEO

Anthony Restel - Chief Financial Officer

Jeff Parker - Vice Chairman and Managing Director, Brokerage, Trust and Wealth Management

Michael Brown - Vice Chairman, Chief Operating Officer

Analysts

Ebrahim Poonawala - Bank of America

Emlen Harmon - Jefferies

Catherine Mealor - KBW

Michael Rose - Raymond James

Matt Olney - Stephens

Kevin Reynolds - Wunderlich

Andy Stapp - Merion Capital Group

Jennifer Demba - SunTrust

Christopher Marinac - FIG Partners

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the IBERIABANK Corporation Fourth Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. Later, there will be an opportunity for questions. (Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. John Davis. Please go ahead.

John Davis

Good morning, and thanks for joining us today for this conference call based on feedback we received we changed the format of the call. We shortened our prepared remarks and focus those remarks on what we perceive to be the most relevant to you the attendees on the call.

Daryl Byrd, our President and CEO will cover the majority of the prepared remarks. Anthony Restel, our Chief Financial Officer and I will have some additional brief commentary. The rest of our team is available for the Q&A session of the call.

In the event any items have not been addressed on this session please call or send me an email, my contact information is provided on the press release. If you have not already obtained a copy of the press release and supplemental PowerPoint presentation, you may access those documents from our website at www.iberiabank.com under Investor Relations. A replay of this call will be available until midnight on February 5th, information regarding that replay is provided in the press release as well.

Excuse me, our discussion deals with both historical and forward-looking information and as a result, I’ll recite our Safe Harbor disclaimer. To the extent that statements in this report relate to the plans, objectives, or future performance of IBERIABANK Corporation, these statements are deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such statements are based on management’s current expectations and the current economic environment. IBERIABANK Corporation’s actual strategies and results in future periods may differ materially from those currently expected due to various risks and uncertainties. A discussion of factors affecting IBERIABANK Corporation's business and prospects contained in the company's periodic filings with the SEC.

In fairness to everyone listening to the call, we ask that you push the mute button on your telephone to limit any background noise that may occur during the call.

And I’ll now turn it over to Daryl for his comments. Daryl?

Daryl Byrd

John, thanks, and good morning, everyone. We are delighted to report operating earnings of $0.87 and GAAP results of $0.86 for the fourth quarter. After starting the year with some noise driven primarily by the accounting for our lost share assets, we made tremendous progress across multiple fronts during 2013. This progress should become even more apparent during 2014.

First and foremost, we continued to achieve excellent progress throughout the year. We had an extraordinary quarter from organic loan growth perspective as we grew period end loans $568 million or 29% annualized growth, a strongest quarterly organic loan growth for our company.

While our total deposit growth was more muted during the quarter, we continue to grow non-interest bearing deposits. Non-interest bearing deposits were up $47 million or 7% annualized growth that account for 24% of total deposits, up from 18% a year ago.

As we focus on reducing our deposit cost structure, we allowed CDs and our public funds position to decline throughout the year. The change in deposits mix while certainly helping our net interest margin over past few quarters should be even more powerful in future quarters.

We are also pleased with our progress relative to our expense initiatives and its impact on our efficiency target. As outlined on page nine of our PowerPoint presentation, we achieved $24.5 million in expense saves over the course of the year. While that certainly exceeded the target we provided publicly, we are also not done.

On a non-GAAP operating basis our tangible efficiency ratio dropped from 79% in the first quarter of the year to slightly below 70% in the last quarter of the year. We anticipate methodic improvement in this ratio as we strive to reach our goal of 60%. We believe our recently announced combination with Teche Holding Company will contribute future improvement in our efficiency as well.

I am also particularly pleased with the progress of our new non-interest income businesses. Our capital markets business recently reached the goal of having research coverage on the 100 companies. During the fourth quarter we participated in eight capital transactions and participated in 23 transactions over the course of 2013. That compares to 10 transactions we participated in during all of 2012.

Our number of trades per clients and commission revenue each increased 17% during the fourth quarter. In aggregate, capital markets income increased by $1 million in the fourth quarter.

Another initiative we’ve talked is our focus on small business and our retail businesses. During this -- during the quarter these businesses contributed $60 million of our loan growth, the average loan size of our small business and retail clients is less than $40,000. We appreciate the diversification provided by the more granular nature of these clients.

We had another exceptional quarter from a credit quality perspective. Non-performing assets on the consolidated basis declined by $295 million or 44% during 2013 and were down $110 million or 23% in the fourth quarter.

Although, large portion of these assets were covered under FDIC loss share protection converting these assets into accruing assets helps drive interest income and reduces our cost of managing these assets moving forward.

We expect to see strong declines in non-performing assets again in 2014. In addition, net charge-offs were less than $4 million for the full year and average less than 5 basis points of average loans for the last eight quarters. Our reserves coverage non-performing asset and net charge-offs is very solid.

As always I want to thank our associates for their dedication and hard work across all of these initiatives. I’ll now turn it over to John. John?

John Davis

Thank you, Daryl. My remarks will focus on a quick explanation of how our fourth quarter results differed from the sell side communities projections. To start, our margin was 16 basis points above the analyst’s average, which is understandable given our reported margin was 17 basis points above the top end of our guidance range.

One of the primary reasons for the variance was $1.2 million less bond premium amortization than last quarter which cause our yield on the investment portfolio to increase 23 basis points on a linked quarter bases. We expect this benefit to carry forward into quarter as well.

Second, the yield on the FDIC covered loan portfolio net of the loss share receivable improved 62 basis points as some pools paid off, some of this yield improvement will benefit future periods of the step up in yield, but simply a function of pool performance, while the covered loan yield was higher than last quarter, the income of the portfolio remains fairly stable and closed to what we projected during our last earnings conference call.

We are projecting the FDIC portfolio income to decline $1.8 million in the first quarter and for the full year of 2014 to be only 14% of total net interest income compared to 11% in 2013.

The non-covered loan portfolio exhibited tremendous growth which was a primary driver of net interest income growth of $6 million or 6% on a linked quarter bases. Net interest income was about $4 million better than the average estimates.

In the other direction, the loan loss provision was about $2 million above our average analyst’s projections, the difference of which was primarily setting reserves against the very strongly loan growth during the fourth quarter.

Keep in mind of the provision growth was also simply the results of the shift from unfunded commitments to funded loans, the provision covered net charge-offs by a stout 3.5 times.

Non-interest income results were below analyst’s expectations, service charge income was close to expectation, but mortgage and title insurance-related income were below expectations. Mortgage loan origination volume was down 20%. Loan sales volume was down 31% and sales margins remained fairly stable compared to the third quarter.

Mortgage revenues declined $2.8 million while mortgage commission expense which is included in noninterest expense declined $1.1 million during the quarter. Title insurance revenues declined $1.2 million and capital markets income increased by $1 million.

Commissions earned on derivative activity executed on behalf of clients also declined during the fourth quarter. Total noninterest expenses decreased $5 million on a reported basis and $3 million or 3% on an operating basis.

On operating basis, expenses totaled $102 million below all but one analyst estimates. The drivers of the expense decrease are provided in the press release with two expense categories showing significant increases. The benefit costs that applied to our share price increased $1.5 million and OREO property costs were up about $1.3 million.

We reported $0.86 in GAAP EPS for the quarter, $0.02 better than analyst estimates and $0.03 better on an operating basis. Our share count was very close but we had an effective tax rate of 26.4% which was up from 24.1% in the third quarter but below the 29.4% average that the sales volume modeled.

I’ll now turn it over to Anthony for his comments. Anthony?

Anthony Restel

Thanks John. I’m going to start today with the FDIC portfolio. I’m very pleased to report the performance of the portfolio during the fourth quarter was in line with the expectations we outlined in the third quarter’s earnings release.

Although the average balance and yields were slightly different, the net income on the portfolio was within the $100,000 of the projection provided last quarter. In addition to the strong yield performance on the portfolio during the quarter, we saw the IA declined 21% or $43 million during the quarter.

At year end indemnification assets stood at a $162 million, down $261 million or 62% since year end 2012. I expect the pace of FDIC portfolio resolution to remain relatively brisk in 2014 and expect the balance of the IA to decline materially again this year. As customary, we have provided updated projections for the portfolio in the supplemental PowerPoint presentation on Slide 32.

As a reminder, we are in the final year of commercial loss share coverage on CapitalSouth, Century and Orion. Our current modeling indicates we have $27 million in remaining balances under the non-single family portfolio to collect some OREO transactions and the FDIC on loss share coverage that expires within 12 months.

Although not completely out of the woods on the FDIC portfolio, I would like to point out a few obvious but interesting points. The net coverage yield on the FDIC portfolio is essentially a push with new origination rates. So what does that mean?

We are not on the treadmill trying to replace unrealistically high yield and inflated margins as this portfolio decline. Furthermore continued reductions in nonaccrual and OREO balances within the portfolio had meaningful impacts.

Remember loss share accounting maybe complex but nonaccruing and OREO assets don’t have an associated cash flow stream. Loss share accounting is basically discounted cash flow analysis. Therefore reducing these assets will help overall cash flow and income.

The volatility of the portfolio -- sorry the volatility of this portfolio’s cost or income statement is becoming less impactful every month as the portfolio shrinks. A few examples, net interest income on the covered portfolio will represent less than 10% of net interest income in 2014 and we had almost no impairment on this portfolio in 2013 due to worsening credit expectations. And finally, we still maintain 31.8 million reserves that we established in the first quarter of this year to cover unexpected shortfalls and performance as loss share coverage ends.

Before turning the call back over to Daryl, I want to remind all the normal headwinds we faced in the first quarter due to day count and payable tax reset as well as provide a brief recap of earnings initiative program, we began in the first quarter of this year. At year end, we had achieved $24.5 million in annual pre-tax enhancements.

Although we are not providing new targets today, I’m confident that to tell you that we have not finished looking for ways to improve overall efficiency and earnings of the company. We will see continued progress in 2014.

I’m going to turn the call back over to Daryl.

Daryl Byrd

Anthony, thanks. There are several of accomplishments which occurred recently beyond this mentioned in my earlier remarks which will benefit future periods. First, as Anthony mentioned, please note that our loss share receivable is now bound to $162 million at year end compared to $423 million one year ago. While we experience some earlier noise regarding the impairment charge in amortization of this asset during the year, I do believe we are well positioned as our FDIC contract began to run their course.

Second, we continue to realign our branch network and recently closed 13 branches to address under performance driven by ongoing change in consumer usage patterns. We are very pleased to see strong and growing usage of our alternate delivery channels mainly remote deposits, ATM deposits and mobile capture deposits.

Third, we launched -- we recently launched a new [gridlock] system. The implementation and rollout of which costs us nearly $1 million. This system will help us better understand risk/return tradeoffs we’re currently taking and help improve the risk adjusted returns that we are earning.

Fourth, we also stood up the framework to submit our first stress testing submission at the end of the first quarter. We are not an easy or inexpensive endeavor to complete, we ultimately believe the stress testing framework will help us better manage our capital and clearly identify the amount of additional capital capacity that exists to support additional balance sheet leverage going forward.

Based on year end capital ratio, we currently estimate that we could absorb about $1.2 billion of additional asset growth. This growth does not include Teche because the number of our M&A transactions like Teche have been fairly capital neutral. And finally, we continue to be fairly active on the acquisition platform.

Well over two weeks ago, we announced our intention to acquire cash holding company based in New Iberia, Louisiana which we expect to close in the second quarter pending the approval of shareholders and customer regulatory approvals. We got excited about the prospects of this acquisition and believe it provides compelling value for the shareholders of both companies.

In addition, a little over weak ago, we acquired the Memphis operation of Trust One Bank, a division of Synovus. We successfully acquired, converted and assimilated this transaction over that weekend. We believe favorable industry consolidation and organic client growth opportunities will remain robust and will help us achieve our long-term objectives.

Based on the seasoning of investments, we have executed upon over the last two years. Our enhanced focus on improved operating performance and our financial modeling, we reconfirmed in our recent press release our long-term strategic goals that we’ll establish in October 2011.

Although some of the assumptions in operating and regulatory environment are different than when these targets were originally announced. We still believe we will achieve the targets within the original time frame outlined.

To ensure our executive compensation is fully aligned with our focus on approved operating performance and our long-term strategic goals, the press release outlined some recent changes related to our executive compensation performance. Our Board of Director added greater focus on performance based metrics to the annual bonus and long-term equity incentive components.

Short-term and long-term performance metrics are more closely aligned with achieving specific target metrics and our stated long-term strategic goals. We believe these changes were positive for our shareholders and ultimately more closely align pay for targeted performance for the named executive officers of the company. More details regarding the changes will be available in our annual proxy statement.

In summary, I’m excited regarding our performance in the fourth quarter and the full year we recently completed. But also for the potential opportunities that lie ahead for us. We continued to make favorable progress on our initiatives and I’m very proud of the teamwork and efforts exhibited by our associates.

I will now open the call for questions. Rachel?

Question-and-Answer Session

Operator

Certainly. (Operator Instructions) And your first question, it comes from the line of Ebrahim Poonawala of Bank of America. Please go ahead.

Ebrahim Poonawala - Bank of America

Good morning, guys.

Daryl Byrd

Good morning, Ebrahim. How you doing?

Ebrahim Poonawala - Bank of America

Good. Just first question I guess since you’ve cut down sort of the prepared remarks, I was just wondering if Michael could provide us some color around particularly strong loan growth in the fourth quarter? And as we look into next year, should we anticipate sort of the growth rate on average as sustainable or perhaps even accelerating, given sort of the expectations for an improved economic outlook?

Daryl Byrd

Before Michael jumps in, Ebrahim, we think we’ve got a good client model that’s performed well for a lot of years. Michael?

Michael Brown

Ebrahim, we talked about it already in our conversations on this conference call and others. We’ve made a significant investment in various markets in different areas of business, whether it would be consumer, commercial and business banking. And we’ve been fortunate in terms of being able to attract talented people who have brought with them clients. As we talked about before in the last couple of years, certainly the growth has been driven based upon movement of share versus growth in the market as a whole. I will suggest that we are struggling to see more activity beyond share movement. Certainly, we saw that in the fourth quarter. We are starting to see more of our clients or prospects invest in expanding their businesses or actually acquiring other.

So that’s a very good sign. We’ve historically provided double-digit growth in every year but one as a company from a loan growth perspective. And we expect that to continue certainly going forward. Now, fourth quarter levels of growth that’s probably not something that we would expect to see continue, but certainly double-digit growth is more than attainable for us as an organization.

Ebrahim Poonawala - Bank of America

Got it. Thank you. And just one question, Daryl, on the efficiency improvements. I appreciate you saying that you see this further room to go as you eventually get to your 60% target, which I’m assuming bakes in some help from interest rates in 2016. But I guess as we look forward into next year and realizing that there are two sides to the equation, where do we see in terms of additional expense improvement, especially on the expense side, because it looks like you have done a lot of work last year going forward, where do you think these expense improvements come from?

Michael Brown

As Anthony mentioned and I mentioned as well, we are not done on the expense side. The fact is we are not done on the revenue side. I’m very proud of some of the new businesses that we’ve kind of climbed up. In fact, they are going to contribute in a meaningful way, particularly on the small business retail side of the house we’ll have better yields and more granular. So that’s going to be favorable impact on the revenue side.

We’ve got expense opportunities in the company that we will be executing on this year, probably not going to get into it specifically right now. But pretty confident, we are glad to kind of be in the 6 handle kind of range on tangible efficiency ratio and we’ve got a target of 60 and we are going to keep moving in that direction.

Ebrahim Poonawala - Bank of America

Thank you very much.

Operator

Okay. Thank you. And the next question, it comes from the line of Emlen Harmon of Jefferies. Please go ahead.

Emlen Harmon - Jefferies

Hey. Good morning.

Daryl Byrd

Good morning, Emlen.

Emlen Harmon - Jefferies

As you guys were kind of reiterating your longer term profitability targets, I guess take an opportunity to ask this question. But do you feel like you can reach the lower end of the return on tangible equity range without an increase in short-term rates? And I guess if you could also address kind of what you think the biggest variables are between kind of low end and high end of that target range, that would be helpful?

Anthony Restel

Emlen, what I would tell you is certainly, as you kind of move out, interest rates are projected to start moving up in ’15. And so clearly there is little bit of a benefit from a moving environment a kind of helpful. And as you know it’s pretty low. They got a little slow but they are still pretty low.

What I would tell you is if you really think about it, biggest pluses and minuses in terms of the whole thing, it really just going to revolve around balance sheet size and capital leverage. So clearly, we’ve got -- as Daryl just talked about we’ve got great focus on the expense side. And if you think about it, balance sheet leverage, margin, expense control and then credit cost is expected to remain fairly stout, right and it’s also one of the metrics. So if you ask me, what’s the biggest variable between ’13 and ’17? It’s going to be balance sheet side and equity leverage.

John Davis

Anthony, it is safe to say though -- this is John Davis. It is safe to say though, the short end of the curve comes up and intermediate rates stay stable that’s not necessarily beneficial to us, that flattening of the curve.

Anthony Restel

I want to get into a very lengthy -- we could turn this into an asset-liabilities committee discussion and we’ll just keep going. But I will tell you that, if you think about it, we’ve got a fairly steep slope right now when you look at this industry short-term and longer-term. So nevertheless, there is a slight impact I would say that it’s really not material and I wouldn’t spend a whole lot of time trying to dissect it.

Daryl Byrd

Our focus is going to be more on revenue and required growth and we have a real serious focus on expenses that we had in last year or so.

Emlen Harmon - Jefferies

Got you. Okay. Thanks. That’s all helpful. And then, Anthony, while I have you going here, what's the -- I did noticed there was an improvement in your forecast on the covered income in the fourth quarter of 2014 and presumably kind of beyond that as we get out into 2015. Could you give us a sense of what the driver is there and I guess how meaningful of a difference you are expecting in 2015?

Daryl Byrd

You mean the driver and the forecast and so. We did re-yield with you. I think we yield twice a year. We did one right at the end of the year, coming into this year. And so what you see there, again, is just that improvement in credit flowing through increased accretable income moving forward. So we’ve given you some good color, I think looking at the graphs in terms of what you should expect out into ’14. So it’s really just that, as that credit continues to improve we are going to see more income.

Emlen Harmon - Jefferies

Got it. Okay. Thanks for taking the questions.

Operator

Okay. Thank you. And the next question comes from the line of Catherine Mealor of KBW. Please go ahead.

Catherine Mealor - KBW

Good morning, everyone.

Daryl Byrd

Good morning, Kathryn.

Catherine Mealor - KBW

[Technical Difficulty]

Operator

Your phone is cutting out..

Catherine Mealor - KBW

Okay. Can you hear me now?

Operator

No.

Catherine Mealor - KBW

Can you hear me now?

Daryl Byrd

Yes, better.

Catherine Mealor - KBW

Okay. Okay. Great. You had great progress this quarter. As we think about first quarter, which is a seasonally little slower for you all, loan growth typically slows first quarter and then we typically see higher expenses in the first quarter, as Anthony mentioned too? How should we think about first quarter? Do you think you will be able to stay around the run rate that we saw this quarter and then you will see a build back for the rest of the year or do you think we will see a little bit of a dip in the first quarter versus this run rate? Thanks.

Daryl Byrd

Yeah. Catherine to answer that, obviously we’re not going to give you guidance for the first quarter, but I think, Anthony gave you heads-up some of the seasonal patterns that we typically see first quarter, Anthony.

Anthony Restel

Yeah. I mean, we talked about, Catherine we clearly have to deal with the reset payroll taxes and retirement contribution and some other things which are fairly small. The biggest impact is really number of days on the margin and you have enough stuff that kind of figure that out. It’s not going to be any different then what we have seen in the last couple of years.

Catherine Mealor - KBW

Okay. Perfect. And then maybe as a follow-up on the accretable yield, you cited in the press release about $1.9 million in covered and non-covered interest income from the pools paying off. How much of that is in your covered portfolio versus non-covered portfolio? And does any of that non-covered piece perhaps help drive the higher core non-covered loan yields?

Anthony Restel

Yeah. So the breakdown of $1.9 is about $650 from the covered and the balance being on the other portfolio Florida, Gulf, Cameron and Omni. What I’ll tell you as that we get in towards the end of loss share right, we really want to help….

Daryl Byrd

We have a lot of pools.

Anthony Restel

… we have a lot of pools which created excessive amount of noise with impairments and other things early on. I think as we move to forward, we do have a potential of that, having so many pools is going help us, because we are starting to move down with some pools that have one or two assets left and we’re going to get some closures in those and there is a potential to have a benefit especially given the changing economic improvements that we see kind of how our assets are located.

If you look at that, I know it created a little bit of noise and some people might look at us been kind of a non-recurring item for the quarter. Also remind you, I will point out, during the quarter, we also have $850,000 worth of revolving provision expense on that portfolio. So net, net, that pool closure income on covered portfolio was completely offset by provision expense, so it kind of goes other place. Catherine?

Catherine Mealor - KBW

Okay. That’s really helpful.

Operator

Okay. Thank you. And the next question comes from the line of Michael Rose of Raymond James. Please go ahead.

Michael Rose - Raymond James

Hey. My question has been answered. Thank you.

Daryl Byrd

Thanks Michael.

Operator

All right. Thank you. And the next question comes from the line of Matt Olney of Stephens. Please go ahead.

Matt Olney - Stephens

Hey. Good morning. Thanks guys.

Anthony Restel

Good morning, Matt.

Matt Olney - Stephens

Hey. I wanted to ask about the revenue from the capital markets and wealth advisors, looks like it jumped pretty nicely in the fourth quarter. Can you talk a little bit more about the outlook here and how volatile this could be the next few quarters?

Anthony Restel

Matt, I’ll start and Jeff will take some of those questions. We’re very proud of our capital markets. It’s been a performance during the quarter. We wanted to see the trading of commission revenue again to move up and clearly it has in the second half of the year.

We’re also participating in a lot of capital transactions. We’ll choose up a lot of capital in a nice way and we’re participating in that and it provides a great synergy cutting across through our energy lending group as well. So we’re pretty happy with the energy that’s created at there. Jeff, your comments?

Jeff Parker

Yeah, Matt. We have a good fourth quarter in 2012. We had a good fourth quarter again in 2013 and as Daryl said, that was enhanced by the financings that went on as company’s set the table for the following year and then capital spin plans.

Anthony Restel

And Jeff, your coverage matters, right, having 100 companies, that’s been a goal and…

Jeff Parker

Yeah. If you go back and think a year ago, I think we were 62 companies under coverage and we finished the year at 100 companies under coverage. So we are -- and that’s remember that, the business is about three years old. So, it should give us the opportunity to provide research on a lot of additional names, also to work with those companies from the capital market standpoint. A split in terms of revenues, the capital market business is maybe a very nice contribution as the pickup that Daryl cited in terms of trading revenue.

So our outlook is good, I mean, the tape can be tough as it is this morning, energy stocks can be tough, been fair amount of liquidation in the group over the past two, three months. But we have a positive outlook and we’re better suited as an organization to react to the industry and provide coverage and grow the business in 2014.

Matt Olney - Stephens

Okay. Thanks, Jeff. And then my only other question is as far as what we should be assuming for a tax rate in 2014?

Jeff Parker

Matt, I would say about 28% to 28.5% probably reasonable rate for the whole year.

Matt Olney - Stephens

Thank you.

Operator

Okay. Thank you. And the next question, it comes from the line of Kevin Reynolds of Wunderlich. Please go ahead.

Kevin Reynolds - Wunderlich

Good morning, everybody.

Daryl Byrd

Good morning, Kevin.

Kevin Reynolds - Wunderlich

Most of my questions have been answered. I think -- I will start off by saying great quarter.

Daryl Byrd

Thank you very much.

Kevin Reynolds - Wunderlich

But also wanted sort of -- the question I’ve got is as I look at -- I guess at slide 15 in the PowerPoint presentation, and we're talking about the legacy portfolio and ALLL associated with that. It looks like you are telling us that the ALLL on non-acquired loans is about 1.1%. And while that is not too low, you’ve had rapid loan growth for the last few quarters, likely to persist, not necessarily at this pace, but at a -- let's call it a mid teens pace as we go forward on average. What does that do in your mind to the provision for loan losses? Does that necessarily have to go up just to match new loans, or is there something else happening inside the legacy portfolio with asset quality that might be -- ?

Daryl Byrd

Kevin, I will start -- we’ve averaged five basis points a charge offs for the last eight quarters. So our credit performance was extraordinary. And if you look at some of the coverage ratios after either charge-offs or NPAs, they’re pretty strong and that certainly has an impact on this.

Kevin Reynolds - Wunderlich

Right. Right. On the legacy piece of it and obviously you make loans with the expectation that you are making good loans, and so I'm not questioning that at all. But the idea is if you do have --

Daryl Byrd

We do that but we also provision, of course.

Kevin Reynolds - Wunderlich

Okay. I'm just wondering if the provision needs to go up if loan growth is accelerating, or is there some other improvement in the legacy portfolio.

Daryl Byrd

So, Kevin, the absolute dollar of loan losses reserves would be a lot, but not necessarily the percentage as a percentage of loans, right. So think about it. When you put on new loans, new loans aren’t coming on at 81 basis points per se or 5 basis points, and you get kind of a mix as time goes on through the portfolio.

Kevin Reynolds - Wunderlich

Okay. All right. Thanks a lot.

Daryl Byrd

Thanks, Kevin.

Operator

Okay. Thank you. And the next question is from the line of Andy Stapp of Merion Capital Group. Please go ahead.

Andy Stapp - Merion Capital Group

Hey guys, a nice quarter. My questions have been answered. Thank you.

Daryl Byrd

Thank you, Andy. Thanks very much.

Andy Stapp - Merion Capital

Sure.

Operator

Okay. Thank you. All right. And the next question is from the line of Jennifer Demba of SunTrust. Please go ahead.

Jennifer Demba - SunTrust

Thank you. Can you hear me?

Daryl Byrd

Yes, Jennifer. We can here you.

Jennifer Demba - SunTrust

Hi. Just a question on loan growth, you said you think you can sustain double-digit loan growth this year. And I saw on the slide deck where most of the loan growth in the fourth quarter came from. I'm curious geographically where you think most of the strength will be in 2014?

Michael Brown

Hi, Jennifer. It’s Michael.

Jennifer Demba - SunTrust

Hi.

Michael Brown

If you take a look at the investments we’ve made, just clearly, Houston was one of the largest investments and we’ve seen very good growth in that market. And we expect Houston to be a continual contributor to us in terms of growing the company. We’ve also seen very good growth in Alabama. Birmingham and Mobile specifically have generated good growth for us.

We have made investments there as well over the past year or two, expect that to continue. Louisiana, particularly, South Louisiana has been a good contributor historically. That remains favorable from an outlook perspective. There is still a tremendous amount of investment being made into the South Louisiana economy, not by us to some degree but by others, which we think will continue to drive that.

And then finally the market we haven’t talked a lot about is Florida. We are starting to see a pretty nice pick up in activity there as that economy recovers and frankly good level -- the quality of the assets arriving there is very strong. Pretty much every client that we’re adding has gone through the last five to six years and come out very well. So we feel like the relative level of risk we are taking there is low.

So another growth opportunities, we believe and again it’s going to be just clearly commercial, we expect more diversification in ‘14 relative to the growth of our profile. So business banking, consumable will be contributing at a higher level than the commercial business did in ‘13. Does that help?

Jennifer Demba - SunTrust

That does help. Thank you.

Daryl Byrd

Jenny, I would add on to Michael’s comment. I’m pretty excited about what I think we can do from a small business and consumer perspective. I think we will do well in 2014 in those businesses.

Jennifer Demba - SunTrust

Thank you. Just a follow-up on acquisition interest, you said you still think there is opportunities there. I'm wondering if the pipeline is -- has accelerated recently or kind of what you are seeing in terms of inbound interest?

Daryl Byrd

Jenny, I’ll start and then John will jump into this one. Yeah, we think it will be an interesting year from a modern acquisition perspective. We think consolidation will continue in the business and we’re seeing a fair amount of inbound calling. As we’ve always said you have to look at a lot of different transactions to find ones that really make sense for you at the right prices and we’ll continue to be disciplined in that regard. And we also think that from a buyer perspective, there’s a lot of people on the sidelines right now. So interesting kind of environment. John?

John Davis

Yeah. I would say the same things, I think as we probably said last quarter, which was -- we've seen quite a bit of activity. What’s different about this timeframe versus maybe what was the last couple of years which really -- institution that fit our profile much better, which is good. So we’re able to really focus on those that I think would add quite a bit of value that Daryl described. Both inbound and outbound calling efforts have been fairly extensive and we’re getting good receptivity to that. I think our story plays well. I do think that there are some institutions that really are looking for the change of direction we provide a good -- pretty good opportunity in that respect and we’re very positive.

Daryl Byrd

And we’re excited about Teche Holding.

John Davis

Okay.

Jennifer Demba - SunTrust

Thank you so much.

John Davis

Thanks.

Operator

(Operator Instruction) You have a question from the line of Christopher Marinac of FIG Partners. Please go ahead.

Christopher Marinac - FIG Partners

Thanks. Good morning. I had a similar question on M&A, and I guess from a different angle, guys, which was given the small loan growth you have. Is there, sort of, I guess a correlation between wanting more core deposits as you look at this and as you ponder other opportunities that may play out this year and next?

Daryl Byrd

Yeah Chris, I’d start and Anthony and John can kind of jump into this. We’ve been extremely disciplined on the deposit pricing side. And as I mentioned in my remarks, we’ve allowed some public funds to kind of run off and some high priced timed deposits to kind of runoff. We probably had opportunities in different markets to recapture some of that just organically. And we’ll think about that and do that where it’s helpful. And there are some transactions where the deposit side will be interesting to us. Anthony, John, your comments?

Anthony Restel

I just mentioned one thing, Chris, that’s -- I think if you look we do go through some seasonal movements in both loans and deposit. So you’re going to -- quarter-to-quarter you see quite a bit of fluctuation. But if you look back over the last say two years or so, don’t you see its pretty balance growth from core deposits and loans. So very pleased with that aspect of it.

I think from an acquisition perspective, we’ve always said we try to do acquisitions to supplement what we’re doing on the organic side. And I think we’ve done a very good job of that, either a new market entrants and being able to grow those markets or as we saw in the Teche situation, really putting two companies together and extracting quite a bit of cost savings and driving value that way. So we do look at the opportunities and different ways of creating that value but that -- organic growth is really a primary driver of what we did.

Christopher Marinac - FIG Partners

All right. Very good, guys. Thank you for the color.

John Davis

Thanks Chris.

Operator

Okay. Thank you. And the next question is a question from the line of Matt Olney of Stephens. Please go ahead.

Matt Olney - Stephens

Hey, guys, just a follow-up on the core loan yields. I think you noted before they were up 4 basis points, and perhaps that increase was the noise from those pooling closings that you talked about. But outside of that, it looks like core loan yields are relatively flat. What are your thoughts on the core loan yields outside of future pool closing events going forward?

Anthony Restel

Matt, we’ve obviously -- yields on the different assets have been kind of coming down, just as we work through maturities as rates have come lower. We talked about through the year that we were getting close to a point where we were almost at that inflection point. I think what you’re seeing with the numbers kind of flattening out is we’re getting into that inflection point from here. You couple that with the larger contribution from consumer business banking with higher yields and that kind of leads us to a favorable outcome on that stuff.

Matt Olney - Stephens

Thanks, Anthony.

Operator

Okay. Thank you. And there are no further questions in queue. Please continue.

John Davis

Well, thank you everybody for joining us today and for your confidence in our organization. I hope everybody has an outstanding day. Thanks.

Operator

Okay. Thank you. And that concludes our conference for today. Thank you.

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