Hancock Holding's (HBHC) CEO Carl Chaney on Q2 2014 Results - Earnings Call Transcript

Jul.25.14 | About: Hancock Holding (HBHC)

Hancock Holding Company (NASDAQ:HBHC)

Q2 2014 Earnings Conference Call

July 25, 2014 10:00 AM ET

Executives

Trisha V. Carlson – Senior Vice President of Investor Relations Manager

Carl J. Chaney – President and Chief Executive Officer

Michael M. Achary – Chief Financial Officer

Samuel B. Kendricks – Chief Credit Officer

Analysts

Jennifer H. Demba – SunTrust Robinson Humphrey

Ebrahim H. Poonawala – Bank of America Merrill Lynch

Jon Arfstrom – RBC Capital Markets

Michael E. Rose – Raymond James & Associates, Inc.

David Bishop – Drexel Hamilton

Matt Olney – Stephens, Inc

Mikhail Goberman – Portales Partners, LLC

Christopher W. Marinac – FIG Partners, LLC

Kevin B. Reynolds – Wunderlich Securities Inc

Operator

Good morning, and welcome to Hancock Holding Company’s Second Quarter 2014 Earnings Conference Call. Participating in today’s call are Carl Chaney, President and CEO; Mike Achary, CFO; Sam Kendricks, Chief Credit Officer; and Trisha Carlson, Investor Relations Manager. As a reminder, this call is being recorded.

I would now like to turn the call over to Trisha Carlson, you may begin.

Trisha V. Carlson

Thank you, and good morning. During today’s call, we may make forward-looking statements. We would like to remind everyone to review the Safe Harbor language that was published with yesterday’s release and presentation and in the Company’s most recent 10-K and 10-Q.

Hancock’s ability to accurately project results or predict the effects of future plans or strategies is inherently limited. We believe that the expectations reflected or implied by any forward-looking statements are based on reasonable assumptions, but actual results and performance could differ materially from those set forth in the 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.

I will now turn the call over to Carl Chaney.

Carl J. Chaney

Thank you Trisha, and good morning. And thank you for joining us today. Yesterday, we reported first quarter earnings of nearly $50 million or $0.59 per share and an ROA of 1.04%. These results reflect our continued growth in core earnings. We were able to further reduced operating expenses below our stated goal and coupled with double-digit loan growth increases in core revenue and improvements in asset quality metrics. We once again reported solid solids.

As you well know, our main strategy these past several quarters has been replaced purchase accounting income with improving core earnings. We’ve been able to accomplish that over the past several quarters and the second quarter was no exception. A good illustration of this improvement is noted on Slide 4 of our earning deck.

Both EPS and ROA showing narrowing of the GAAP between our reported and core results for maintaining solid results. The $0.22 GAAP in EPS from the first quarter of 2014 as narrowed to $0.13, and the ROA GAAP as narrowed from 41 basis points to 22 basis points. We obviously are not finished closing this GAAP but the result are promising and we remain focused on executing our strategies.

Now let’s take a quick look and some highlight from the second quarter. Core net interest income was up 700,000 linked-quarter, with the core net interest margin relatively stable. Core noninterest income was up about $1 million linked-quarter. Operating expenses declined $2.3 million linked-quarter. The efficiency ratio improved to just under 62% and we are continuing to work on our goal of lowering it to below 60%.

Our loan growth was strong again with approximately $383 million in linked-quarter net loan growth are 13% annualized. We’ve afforded improvement once again in our overall asset quality metrics with the provision down over $1 million linked-quarter. Given our projections for continued strong loan growth we may see this increase somewhat as be build the reserve for future loan growth.

And finally, based on these solid results and improving trends our Board of Directors recently authorized a new 5% common stock buyback program. Our strong capital position coupled with the confidence our Board has in our results and our strategies for enhancing shareholder value are all reflected in this decision.

At this time, I’ll turn the call over to our CFO, Mikle Achary, who will review some of the quarter’s results in more detail.

Michael M. Achary

Thanks Carl and good morning everyone. As Carl just noted the results from the second quarter were solid with another quarter of replacing the diminishing impact from purchase accounting with core earnings. So just a few additional comments related for the quarter. Total loans for the company were $12.9 billion up about $350 million from last quarter.

Excluding the covered loan portfolio total loans increased $383 million or 13% linked-quarter annualized. We out performed our own guidance for upper single-digit growth and so for the year we now expect 2014 EOP loan growth to be in the range of 8% to 11%.

Markets contributing most of the net growth were Huston and south Louisiana with Central Florida also continuing to report positive results. Our mix of loans improved with consumer mortgage and construction lending adding to the overall growth, this help bring the average rate on new loans to about 4% up 15 basis points from last quarter’s new loan activity. However, given the rate of loans maturing and renewing, we did see 5 basis points of compression in the core loan yield.

Asset quality remain strong an improved in the quarter, net charge-offs were flat at 13 basis points and net provision decline $1.3 million, while ALLL remain virtually unchanged from last quarter, we did build the reserve for non-covered loans by about $3 million. Non-performing assets were down $22 million with about half of the decline in nonperforming loans and half from reduced ORE levels.

Of the remaining ORE portfolio about 40% is from loss share properties and another 30% from closed branches. As Carl noted earlier, with continued strong loan growth expectations in the continued migration of acquired loans to the originated portfolio, we do expect to build the allowance on the non-covered loans portfolio in the near-term.

Total deposits for the company were $15.2 billion, virtually unchanged from the end of the first quarter. While the overall level of deposits were stable, we did see an increase in DDA of about a $110 million offset by a decline in time and public funds of about $101 million. Growing deposits is now a focus point for the company, as our bond portfolio has reached the floor of about $3.7 billion. Initiatives are in place to grow core deposits to help fund our strong levels of loan growth.

Turning to the income statement, net interest income was down less than a $1 million linked-quarter however after adjusting for the decline in purchase accounting core net interest income was up almost a $1 million reflecting an additional accrual day in the quarter. Average earning assets were stable. The company’s reported margin did decline 7 basis points while the core margin remain relatively stable with only 2 basis points compression that was driven mostly by a 5 basis point decline in the core loan yield.

Non-interest income total $56.4 million down slightly from last quarter. In April we announced the completion of the sale of certain insurance business lines that sale led to a loss of about $1.8 million of fee income in the second quarter. Amortization of indemnification asset further reduced non-interest income by $3.3 million in the second quarter compared to about $3.9 million last quarter, if you adjust for this purchase accounting item and normalized for the insurance sale, noninterest income was actually up about $1 million from last quarter.

Operating expense for the quarter was down $2.3 million totaling $145 million. The main driver of the lower expense level was timing differences related to investments and revenue generating initiatives. And also a non-sustainable level of reduced ORE expense from net gains on sales. Reported noninterest expense includes $12.1 million of non-operating items which are detailed on Slide 14, of our presentation deck.

After adjusting for these non-operating items personnel costs were down almost $2 million linked-quarter with occupancy and equipment down 600,000. ORE expense declined $1.8 million from last quarter to nearly zero and its noted earlier is not expected to be sustainable. A more normalized level of ORE expense is above $1 million to $2 million per quarter.

And finally, a quick note on the share buyback Carl noted earlier. We have been authorized to buyback shares in the open markets or in privately negotiated transactions from time-to-time. The authorization is effective through the end of 2015 we will of course update investors quarterly on the results of the repurchased program.

I’ll now turn the call back over to Carl.

Carl J. Chaney

Thanks, Mike. And before I’ll open for questions, I would like to provide a quick update regarding some of our revenue initiatives detailed on Slide 16. We’ve discussed previously our business strategy from markets like Houston and Tampa and the concept of BFCs or Business Financial Centers.

During the second quarter we opened our first BFC in Jacksonville, Florida. And currently expect our Houston BFC to open in the Woodlands soon. These facilities are designed toward servicing businesses and their owners and we will continue to open new centers as we enhanced our branch network. Late in the second quarter, we hire three new middle market lenders in Houston. I’ve plans to hire additional teams of bankers in markets like Houston and Tampa.

In wealth management we’re seeing growth in many areas, including our trust business and the continued success in the external distribution of our managed mutual funds complex Hancock Horizon Funds. And in our treasury management area we have seen double-digit growth in cards and fees with investments being made to continue growth in this business.

I’m proud of our results in the hard work of our associates is reflected in those results. As I said last quarter we’re not finished. So we have made great progress and continue to remain focused on our strategies designed to further enhanced shareholder value.

We will now open the call for questions.

Question-and-Answer Session

Operator

Thank you (Operator Instructions) and our first question comes from the line of Jennifer Demba of SunTrust. Your line is now open.

Jennifer H. Demba – SunTrust Robinson Humphrey

Thank you, good morning. How much of the expense improvement in the second quarter came from the insurance operation sales?

Michael M. Achary

Yes. Hi, Jen this is Mike Achary similar to the revenue decline of about $1.8 million. The decline in expenses related to that sale was probably a little bit less than that $1.8 million.

Jennifer H. Demba – SunTrust Robinson Humphrey

Okay. And Mike, I’m sorry, could you elaborate – you said the reason for the primary reason for the decline in expenses this quarter was related to a timing issue?

Michael M. Achary

Well, some of it, some of it was related to timing issues in terms of the deployment of some of our revenue generation initiatives, certainly that was into whole reason, but last quarter, if you recall we had kind of talked about the expectation of a little bit higher level of expenses this quarter. And certainly that was one of the reasons we thought expenses might increase in the second quarter. All of those initiatives are in the process of being executed so, we’re on course now to get those in place and to begin to see fruits of those labors sometime later this year or in 2015.

Jennifer H. Demba – SunTrust Robinson Humphrey

Okay. And I think in your slide deck or in the press release it says that you guys expect operating earnings to be flat to down over the near-term. I think your previous press release said your expected them to be flat. So, what sort of caused the downside more of the downside risk over the near-term?

Michael M. Achary

Yes, the biggest thing by far of course is the management of the impacts of purchase accounting that we've talked a lot about that we absolutely expect to see in the second half of 2014. So that’s about $4 million or so between second and third quarter. And then a little bit under $5 million or so between third quarter and fourth quarter. And you might also be referenced to Slide 11 of our presentation deck where we give for the first time really kind of a quarterly projection of when we think the impacts of purchase accounting will run off.

Jennifer H. Demba – SunTrust Robinson Humphrey

Right.

Michael M. Achary

And again our stress that that’s our projection subject to change as we move through time.

Jennifer H. Demba – SunTrust Robinson Humphrey

Right.

Michael M. Achary

That makes sense Jennifer?

Jennifer H. Demba – SunTrust Robinson Humphrey

It doesn’t that that addition of event that graph helps. Thank you very much.

Carl J. Chaney

It is a one other item I might added of course file the level of reported operating earnings truth potentially be down a little bit as we go through the second half of the year we are still obviously working very hard to improve our core earnings.

Jennifer H. Demba – SunTrust Robinson Humphrey

So Carl, I’m going to ask one more question I’m sorry on that front. If you look at your efforts over the last year or so to make up the decline in purchase accounting what do you think its gone well? What are you still struggling on maybe it has come in below the plan?

Carl J. Chaney

No, I think we’ve done an excellent job of continuing to grow our loan portfolio and of course they’ve been growing net interest income as far as things have been disappointing I can’t put a figure anything that’s really been on disappointment the only thing this been maybe a little bit different it has been timing issues and that’s really the only thing because I can’t say that anything that’s really a disappoint we, as Mike alluded to we have a number of initiative that are well under way and will indeed provide significant growth in revenue, but just give the timing of those expenses that relate to that before the revenue starts to show.

Jennifer H. Demba – SunTrust Robinson Humphrey

Thank you.

Carl J. Chaney

Thank you.

Operator

Thank you and our next question comes from the line of Ebrahim Poonawala of Bank of America Merrill Lynch. Your line is now open.

Ebrahim H. Poonawala – Bank of America Merrill Lynch

Good morning guys.

Carl J. Chaney

Good morning.

Ebrahim H. Poonawala – Bank of America Merrill Lynch

Just following up on sort of the expense question I guess looking out Carl you talked about your hiring lenders and I assuming that’s part of the investments you guys talk about in the flight deck which should probably put some upward pressure and expenses, but I guess if you can give any color around how to think about the expense on rate from – in term of – in dollar term for the back half of the year and from an efficient ratio standpoint that would be helpful?

Michael M. Achary

Hi, Ebrahim, its Mike Achary sure. Again very hard because we are dealing with certain timing impacts that certainly safe to say that from where expenses are right now, we would expect to see probably in the neighborhood or maybe $2 million to $3 million increase in expenses as we go into the third quarter and fourth quarter of this year.

Again one big variable of course is the non-sustainable level of our ORE expense we have talked about again it more normalized level between $1 million and $2 million, so we do expect that category all things equal to come off of zero can potentially be up as much about a $1 million as we go into the third quarter.

Ebrahim H. Poonawala – Bank of America Merrill Lynch

Got it and should we still expect the efficiency ratio to improve or?

Michael M. Achary

As we go through the second half of the year it has, we achieved success in terms of our revenue generating initiatives that’s when we look for real improvement in the efficiency ratio, so you could see the efficiency ratio go up a little bit related to the timing, related to the execution of these certain initiatives, but when the benefits begin to accrue again later this year or at some point next year is really when we would look forward to some kind of permanent improvement in the efficiency ratio.

Ebrahim H. Poonawala – Bank of America Merrill Lynch

Got it. And I guess that just a second question if I I'm going to ask, I guess for Carl, its interesting you mentioned – you announced your buyback on new program last night, over the last few days we’ve seen a bunch of bank talk about a pick-up in sort of M&A discussions both inbound outbound activity with potential seller. I'm just wondering your thoughts on where we are, I know you’ve talked about sort of beginning to start looking at deals as you sort of move to and if you feel the same way.

Carl J. Chaney

Absolutely we have, we’re continuing to look at books now as we speak and we see that the number opportunities seems to be increasing and so while we felt like it was very prudent to go ahead and authorize a stock buyback, everyone I think appreciates the fact that those types of transactions are all subject M&A that may present itself. So we’re indeed in the market and feel confident that we will have some opportunities to act on.

Ebrahim H. Poonawala – Bank of America Merrill Lynch

Understood. Thank you very much.

Carl J. Chaney

All right. Thank you.

Operator

Thank you. And our next question comes from the line Michael Rose of Raymond James. Your line is now open. Please check your mute button. And our next question comes from the line of Jon Arfstrom of RBC Capital Markets. Your line is now open.

Jon Arfstrom – RBC Capital Markets

Thanks. Good morning guys. Good morning Trisha.

Trisha V. Carlson

Good morning.

Carl J. Chaney

Good morning. Jon.

Jon Arfstrom – RBC Capital Markets

Just take a couple of question that are probably follow-ups, but Mike that Slide 11 table helps a lot and I guess the question is when you step back and you think about the purchase account in accretion running off, what point in time with the growth that you have in the pipeline, at what point time do you think you will reach an inflection point on being able to offset the purchase accounting headwinds and actually put up higher net interest income sequentially.

Michael M. Achary

Great question and the way we’re looking at it Jon that’s probably something that would occur, I would say just to anticipate that in a second half of 2015 very beginning of 2016. And of course, that’s all part of the timeline we have in place related to our efficiency ratio goals of below 60% for 2016.

Jon Arfstrom – RBC Capital Markets

Okay. Good that helps and then the follow-up on expenses just to make sure I am clear which you’re talking about this quarter versus what you’ve said last quarter I don’t think it’s a big deal but my senses you’re saying that some of these revenue initiatives that you’re spending money and may push the ability to get the efficiency ratio back down the goal that you have talked maybe in the year end last quarter might push a little bit into early 2015 is that way to look at it.

Carl J. Chaney

That’s correct, absolutely correct.

Jon Arfstrom – RBC Capital Markets

Okay. That is helpful as well and then I guess the other question on the buyback personally I think it’s a good time for you to buybacks start giving some of the revenue and expense items you are talking about, I just curious your level of aggressiveness and do you think your stock is attractive based on what you are seeing or is this something that you think you’re going – kind of take it as it comes and be a little more cautious on the buyback.

Michael M. Achary

Well, I mean clearly our Board fills that it’s appropriate to step-up another authorization of additional 5% and so we will be opportunistic and take advantage of our opportunities when they present themselves. While at the same time simultaneously, continuing to execute our other strategies which includes it deploying our capital base which would include M&A.

Jon Arfstrom – RBC Capital Markets

Okay. Mike, just one quick follow-up on and I just not come I didn’t ask this but I’m assuming the inflection point you’re just assuming consistent rates where the curves since today.

Michael M. Achary

Yes. That’s correct.

Jon Arfstrom – RBC Capital Markets

Okay, great thanks.

Michael M. Achary

Thank you.

Operator

Thank you. And our next question comes from the line of Michael Rose of Raymond James. Your line is now open.

Michael E. Rose – Raymond James & Associates, Inc.

Hey guys sorry about before.

Carl J. Chaney

No problem. Good morning.

Michael E. Rose – Raymond James & Associates, Inc.

Good morning. Just a couple of quick questions first what’s the actual dollar amount on the gain of sale of the OREO [ph] this quarter because obviously mentioned that you going to expect this slow level but expenses to continue going forward.

Carl J. Chaney

I think the way to answer that question I’ll refer the Sam as well, Sam we based on the current ORE portfolio we probably have about $300,000 to $400,000 of base ORE expense so absent any gains that’s about the leveled expense we would expect to see.

Michael Rose – Raymond James & Associates, Inc.

Okay, that’s helpful and then I think you might have mentioned this before but as of delays you know the loan growth particularly in some of your core markets have you hired any new producers that’s helped drive any event that incremental growth and maybe if you can just talk about your hiring plans as we move forward on the lending side. Thanks.

Carl J. Chaney

Yes, this is Carl. We certainly have hired a number of middle market lenders who have hit the ground running and actually seeing some nice production. We would also having the works a couple of other significant hires that I'm unfortunately unable to talk about on this call, but it will be a plan to shortly. So, we are continuing that. That’s is certainly a significant piece of our future growth is not only true organic, but also a picking up additional lenders in these various markets, which particularly those markets that are doing extremely well from an economic standpoint.

Michael E. Rose – Raymond James & Associates, Inc.

Okay. And then just one final one if I could, what was the snik [ph] balances in the quarter and how much of the sequential growth did that drives? Thanks

Samuel B. Kendricks

Hey, Michael, this is Sam Kendricks. In terms of our overall snik portfolio of our overall growth about third of that was in sniks. So, it was a portion of the contributor for our overall loan growth, but it was about a third of the overall loan growth. Is that your question?

Michael E. Rose – Raymond James & Associates, Inc.

Yes, thanks for taking my question guys.

Carl J. Chaney

Okay, thank you Michael.

Operator

Thank you. And our next question comes from the line of David Bishop of Drexel Hamilton. Your line is now open.

David Bishop – Drexel Hamilton

Hi, good morning guys.

Carl J. Chaney

Good morning.

David Bishop – Drexel Hamilton

Mike, I think you alluded to – I just sort of jumped in late, I heard you say that new loan production maybe is jumped up 15 basis points. Just curious what you’re seeing there in terms of that improvement in loan pricing?

Michael M. Achary

Yes, for the second quarter Dave. We saw the yield that new loans came onto the balance sheet right out about 4%, so that was about 15% compared to last quarter. Our production levels quarter-to-quarter were pretty stable at about $1.2 billion, so with that level of production. And I might ask Sam to comment maybe a little bit on what he sees in terms of loan pricing in the market.

Samuel B. Kendricks

Sure. We obviously are working very hard to have a balanced growth strategy in terms of the balance sheet. So, a good growth in terms of contribution from the consumer segment as well as CRE. So that balance help to give us got a little better yields, so we started to pickup some yield both on the consumer side as well as some CRE transactions. Obviously, the largest C&I are high quality, but pricing can sometimes be challenge in that space as well. So, we are trying to balance out the overall growth strategy for the portfolio.

David Bishop – Drexel Hamilton

Great. And as it relates to the BSEs you are opening in Jacksonville Tampa, obviously you know deal some markets from C&I basis. In terms of the volume in the pricing dynamic there you see that I guess shifting the overall loan yields and pricing relative to sort of the core portfolio just we need sort of your pricing pressure there the types of loans that you are going after?

Carl J. Chaney

But one of the things that they are doing across the company and we talk a lot about this is balancing the mix of loans that we bring on to the balance sheet. And so we make continued progress in that regard over the past three, really four quarters.

And so where we stand now and as to do something certainly that’s contributed to our ability to stabilize our core margin is a little bit more in a way of higher yielding type of that bound categories coming on to the balance sheet that includes things like CRA as well as some of our consumer loan categories, which showed actually pretty going good progress this past quarter.

So going forward while the DFCs and the kind of business that, were most interested in markets like Houston, Tampa and Jacksonville does tend to be a little bit more toward the CNI side of things. We really don’t see that really kind of disturbing that balance of your will going forward.

David Bishop – Drexel Hamilton

Gotcha and then one part of question is related to the funding side, I guess the focus on the core deposit growth any expectations of some deposit promotion initiatives there sort of bolster that or jump start of the growth?

Carl J. Chaney

Yeah, we have several initiatives that we are executing on right now and some of that does involve what might prove to be a little bit and the way of higher deposit cost in the next quarter or so. So, sure the answer is yes.

David Bishop – Drexel Hamilton

Fine thanks Carl

Carl J. Chaney

Okay, thank you.

Operator

Thank you and our next question comes from the line of Matt Olney of Stephens your line is now open.

Matt Olney – Stephens, Inc

Hi, thanks good morning guys.

Carl J. Chaney

Good morning.

Michael M. Achary

Hey, Matt

Matt Olney – Stephens, Inc

Hey that was some pretty positive commentary as far as the recent loan pricing it looks likes that the core loan yields were down again in the second quarter. How we understand the dynamic there of loan pricing and the core loan yield?

Michael M. Achary

Yeah, Matt we still have loans that are coming off the balance sheet at a little bit higher yield and then certainly some of the pricing that we are doing related to our renewals is also impacting the overall core loan yield and so for the quarters the dynamics of that Matt drove that number down a little bit. But I think Sam alluded to a little bit earlier one other things and this is part of our initiatives that we are working on very diligently is looking at ways for us to improve our overall core loan yield.

So there is a lot of activity in that regard around that particular initiative and that’s one of the things that we are looking to that really help us drive additional levels of revenues specifically spread income in future quarters. So again that coupled with the continuation of the loan volumes really is kind of our recipe to achieve our targets.

Matt Olney – Stephens, Inc

Okay. And then also in prepared remarks, I think there was discussion about building the allowance for non-covered loan portfolio. Can you talk more about this and how we should we thinking about forecasting that provision in the future.

Michael M. Achary

Sure we would like to, just real simply, related to the loan growth that we’ve enjoyed over the course of the past year or so and certainly a strong desire to continue that level of momentum, we do expect to have, potential sequential increases in our provision that are kind of allocated toward taking care of that additional loan growth so all things equal that could imply a little bit high or level of provision in the near-term, but again our ALLL so complicated with covered assets and acquired assets and everything that goes with it that the ultimate levels of ALLL in provision is really hard to forecast at this point. Although again, all things equal look for the non-covered part of it to potentially increase a little bit.

Matt Olney – Stephens, Inc

Okay. Thank you.

Carl J. Chaney

Thank you.

Operator

Thank you. And our next question comes from the line of Mikhail Goberman of Portales Partners. Your line is now open.

Mikhail Goberman – Portales Partners, LLC.

Thank you. Good morning. I had a quick question about you originated loan portfolio it seems like this quarter there was really strong growth of over 7%, I'm just wondering if you guys think that this is sustainable pace or if Q2 was sort of an outsized quarter of loan growth or maybe talk about that a little bit.

Samuel B. Kendricks

This is Sam, we are very pleased with our overall progress there, but I think the guidance we included in the release was for the year roughly and 8% to 11% of range, obviously we’re impacted from time-to-time with occasional payoff where some of our clients are able to sell off divisions or have some other plans so, we had the opportunity to participate within this, they make acquisitions and likewise there occasions where they are selling of divisions or portions of their companies. So all-in-all we’re very pleased with the second quarter results, the pipeline looks very good, but the guidance I think we’ve given is in 8% to 11% range for the year. Is that consistent Carl?

Carl J. Chaney

Yes. That is, obviously we feel good about the future ability to continue to grow loans hence the increase in our guidance for loan growth for the balance of the year.

Michael M. Achary

And then certainly a point that I would add is we have to be mindful of the impacts of seasonality and how that impacts our quarterly growth. If you look back over the last couple of years, we have had some seasonally high pay downs that have impacted us primarily in the third quarter, but then additional loan utilizations that tend to occur in the fourth quarter. So we just caution folks would be mindful those kinds of impacts going forward.

Mikhail Goberman – Portales Partners, LLC.

Okay, 8% to 11% loan growth guidance that’s were total period and loan growth right including acquired recovered and originated.

Michael M. Achary

That’s correct, yes.

Mikhail Goberman – Portales Partners, LLC.

And on another subject as you guys think about asset liability management, you talked a little bit about the process growing deposits do you have an internal target of loan deposited ratio that you are sort of thinking about?

Carl J. Chaney

Well, its is in the mid-80s now we watch that closely our Board is very tuned to loan deposit ratios because that’s part of our conservative nature that allow us to be around for nearly 115 years, but we’re comfortable taking that loan deposit ratio up close to 90% to say that we would go and exceed 90% I don’t think that’s probably in the cards. So but we have a unique ability in the market that we operating with the market share that we have to be able to grow deposits fairly easy and so loan deposit ratio is not a concern at least the ability to generate deposits to continue to fund future loan growth is not concerned of hours.

Mikhail Goberman – Portales Partners, LLC.

Got it, got it thank you. And just one – final one if I would. How is that sort of inbound charter from small banks regarding potential M&A is that increase, decrease status.

Carl J. Chaney

I think its certainly increased as and there is several drivers that are behind that one is the continued repertory scrutiny and burden as continuing to drive Boards to a decision of at least the open this to look at alternatives as well as this sustained low interest rate environment is continuing to happen the ability to down from ability to generate earnings and so those are two primary drivers that have clearly a resulted in an increased in M&A activity. Let me just say M&A discussions.

Mikhail Goberman – Portales Partners, LLC.

All right, thank you very much.

Carl J. Chaney

Sure, thank you.

Operator

Thank you. And our next question comes from the line of Christopher Marinac of FIG Partners. Your line is now open.

Christopher W. Marinac – FIG Partners, LLC

Thank good morning, Carl and Mike I add go the thanks and appreciation for the additional disclosure once again this quarter I guess this leads a question to me. As you look at M&A opportunities even if it something has modest and moderate size. How would you think about how the transaction works and how you price it given that back that we’re going to breakout this information on the purchase accounting and almost sort of kind of expected from day one.

Carl J. Chaney

Yes, that’s certainly something that will evolve to do Chris going forward and continue to be as transparency possible with respect to those kinds of impact, but, in terms of the any other M&A opportunities down the road. We certainly are very, very mindful and pay a lot of attention an utmost attention really to what the core impacts would be of any M&A opportunity and certainly accept and we will deal with the purchase accounting, as we’ve done in the past and that has to be very transparent in terms of the impact, but its the core results at any new M&A opportunity bring to us that’s the most important aspect.

Christopher W. Marinac – FIG Partners, LLC

Okay. I guess I was just curious if that is all a kind of hindrance to potential transaction that you may look at?

Carl J. Chaney

I don’t, I think it needs to be a hindrance. Yes I don’t see it being a hindrance at all. Over the last three years, we’ve gotten a good deal of experience in dealing with purchase accounting. So it inst probably the most.

Michael M. Achary

Yes, I think that – what made that the current situation unique is just because the shear size of the acquisition and hence the materiality of the purchase accounting to our numbers compared to a more typical M&A transactions. So, if anything we certainly won’t have any learning curve on the purchase accounting.

Christopher W. Marinac – FIG Partners, LLC

Great, I guess just a related topic, this has to do with seller’s expectation, I mean do you think that there has any material shift in kind of what you think sellers want as this year is unfolded?

Michael M. Achary

I think as we go through the year, I think sellers are staring to understand and perhaps appreciate a bit better the actual pricing demand that’s out there. And of course that does vary from geographic market-to-market, particularly when you look at our five state footprints, but I think overall, I think expectations are starting to come a little closer in loan. Obviously the more transactions are announced the better field that everyone has as to what the real market turn will settle out to be.

Christopher W. Marinac – FIG Partners, LLC

Great, thanks guys for the color.

Michael M. Achary

Thank you.

Operator

Thank you. And our next question next comes from the line of Kevin Fitzsimmons of Hovde Group. Your line is now open.

Kevin B. Reynolds – Wunderlich Securities Inc

Hey everyone, good morning.

Michael M. Achary

Hey Kevin.

Carl J. Chaney

Good morning.

Kevin B. Reynolds – Wunderlich Securities Inc

Just a quick question, we haven’t gone into it too much today, but lot of talk about accretion come in the reported margin. On the core margin, if we go out a few quarters or even a year. I’m sure there will be much more focus on higher rates and what the impact will be to banks. Can you just remind us where you see you are positioning for higher rates and if you can characterize it relative to some of your bank peers not specific my name, just generally? Thanks

Carl J. Chaney

Sure, sure Kevin and the way that we think about asset sensitivity is really in terms of looking at the impact from a 200 basis point increase in rates and in that regard our asset sensitivity is a little bit less and about 4% and as best we can tell from comparing that number to most other banks that’s probably right around average maybe slightly below average if we compare ourselves maybe to the universe and the other banks.

Kevin B. Reynolds – Wunderlich Securities Inc.

But I guess Mike it what it strikes me is that I’m surprised you are not, better than average and do you think that is just a difference and how some of the peers are measuring versus how you are just with these deposit base just…

Michael M. Achary

It certainly could be Kevin, a big thing in our favor obviously is our DDA deposit days which is now about 38% of total deposits and how that will perform in a rising rate environment is a little bit of wildcard in these days of being able to pay interest potentially pay interest on corporate deposits. So we maybe measuring that in a way that slightly conservative or maybe a little bit conservative but that’s really kind of way we look at it right now what are planning for.

Kevin B. Reynolds – Wunderlich Securities Inc.

Okay great. Thank you guys.

Michael M. Achary

All right thank you.

Carl J. Chaney

Thank you.

Operator

Thank you and I’m showing no further question at this time. I would like to turn the call back to Carl Chaney for any further remarks.

Carl J. Chaney

Okay. We thank you all for joining us this morning also we would like to just note that when you look at the top metrics across the Board there have been significant improvement literally across the Board in every metric and that’s something that we are very, very proud off and as we continue to narrow the gap between reported and core but as you can see in that one particular slide significant increase in a core earnings and that will continue and we are very proud of the results. And thank you again for joining us today on our earnings call. Have good day.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Have a good day everyone.

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