Hancock Holding's (HBHC) CEO John Hairston on Q2 2016 Results - Earnings Call Transcript

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Hancock Holding Company (NASDAQ:HBHC)

Q2 2016 Earnings Conference Call

July 21, 2016 10:00 AM ET

Executives

Trisha Carlson - IR Manager

John Hairston - President and CEO

Mike Achary - CFO

Sam Kendricks - Chief Credit Risk Officer

Analysts

Jefferson Harralson - KBW

Kevin Fitzsimmons - Hovde Group

Ebrahim Poonawala - Bank of America Merrill Lynch

Jennifer Demba - SunTrust

Michael Rose - Raymond James

Emlen Harmon - Jefferies

Christopher Marinac - FIG Partners

Operator

Good morning and welcome to Hancock Holding Company's Second Quarter 2016 Earnings Conference Call. As a reminder, this call is being recorded.

I will now turn the call over to Trisha Carlson, Investor Relations Manager. You may begin.

Trisha 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 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.

John Hairston

Thank you Trisha and good morning everyone, we appreciate you joining us today. Let me open by saying we’re very pleased with our quarterly results and we hope investors are as well, but we still have work to do. But we believe today’s Investor Day reflects the progress over the past several quarters about 3,800 associates have been focused on strengthening and growing, both our balance sheet and our income statement. Unfortunately, the impact of the recent energy cycle has overshadowed the progress we’ve been making but with some degree of oil price stabilization, this quarter makes more clear the impact of those difficult efforts.

After two consecutive quarters of significant reserve bill for our energy portfolio, our provision expense decreased to an amount in line with the lower end of our gas. Our reserve coverage in the energy portfolio improved to 7.5% and our energy portfolio, as a percent of total loans continue to decline single-digit level and is now just over 9%. This quarter also reflects positive progress towards achieving other goals and targets we’ve communicated in the past.

You can see on Slide 5 of the Investor Day on the left charge, core pre-tax pre-provision income of just over $85 million increased almost $9 million linked quarter, or 12%, and we’re up almost $20 million or 30% from the same quarter one year ago. The chart to the right shows that at the half way market for the year, we’re exactly halfway to meeting our stated goal for core pre-tax pre-provision earnings. As a reminder, that number is $323 million for this year. We’re doing so by following basic fundamentals, expense management coupled with revenue growth, including both margin expansion and improvement in many big categories.

Our reported loan growth for the quarter was live 1%. However, we had a net decrease in our energy portfolio of over $150 million. This decline mainly reflects pay-offs and pay-downs on lines as we work with our clients to manage through the cycle. Charge-offs in the second quarter for the energy book were minimum, totaling just $4 million. As noted on Slide 8, if you exclude the energy book, our linked quarter annualized loan growth would be 6%, similar to the 6% of non-energy loan growth we enjoyed in the previous quarter.

We are leaving our loan growth guidance unchanged for 2016. However, given the level of energy pay downs for this quarter, we have noted our bias is towards the lower end of that range. Energy pay downs continue to leave a wildcard in projecting net loan growth for the balance of the year. Our revenue improved through both margin expansion and growth in fees. While the margin has been relatively stable over the past year, we were pleased to report 3 basis points of expansion this quarter as yields on both the loan and security portfolio improved.

Our fees are beginning to reflect the work we’ve done recently on revenue generating initiatives. When asked about those initiatives in the past, and I pointed out mortgage card fees with various favors in wealth management. If you take a look at Slide 19, you will see that while there is always typical seasonality in fee income, this slide shows the progress we’re making to improve certain categories, or returning to historical levels after strategic decisions versus branch rationalization or subsidiary divestitures causes the lose portion of that fee income and we needed to rebuild. I encourage you to match second quarter with the same quarter with previous years to compare to improvement inside those cyclical patterns. We do still have work to do, but for this quarter, every fee income category we were counting on to then expected to improve this so, and shows movement in the right direction.

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

Before I turn the call over to Mike, I’d like to point out Slide 24. We want to restate that we've been busy over the past few years making and executing tough decisions designed to get us to this point. We are relentlessly focused and will remain so on following this successful track and exploring innovative revenue ideas that we believe are right for our company, our associates, our clients and most certainly our shareholders. We're attractive and diversified market to loan of our staff. We're improving our franchise value created by the merger which is evidenced in our [indiscernible] results. The impact of unexpected headwinds is subsiding and we hope the stabilization and energy prices over the last quarter is an indication that an emergent recovery is on the horizon. It's been just over six quarters since I stepped into the President CEO role and it's been eventful to say the least. I do hope investors can look past the associated noise and see the progress made as we remain focused on improving upon our results for the future. I'll now turn the call over to Mike Achary our Chief Financial Officer for a few additional comments, Mike.

Mike Achary

Thanks John, good morning everyone. I'll take just a few minutes to go over a couple of our quarterly detail. So EPS for the quarter was $0.59, that was up $0.54 from last quarter and was also up $0.15 from the same quarter a year ago. As a reminder the first quarter's results were impacted by the large energy provision of $0.41 per share. So a few important financial metrics to note for the second quarter include ROA of 82 basis points. Return on tangible common equity of just over 11% and efficiency ratio of 62.1% and a TCE coming in at 7.81%. All of these metrics represent significant improvement from both last quarter as well as the same quarter a year ago.

So period end loans for the company were up 58 million or about 1% annualized for the quarter. However as John did note we did see a $153 million net reduction in our energy portfolio which certainly impacted the overall loan growth for the quarter. So while we can't predict how energy loans will trend for the remainder of this year. We continue to see growth across our footprint and are maintaining our 2016 loan growth guidance at 5 to 7%. We will continue to work hard to reduce our concentration of energy loans but also to cover those reductions from energy with growth in other areas. At this point I'd like to point out a change in our loan reporting this quarter. Previously our tables reflected a line item titled commercial real estate. This line item included both owner occupied as well as income producing real estate. So while they are separate line items in the call report we felt it was important to distinguish between these two segments in our financial tables.

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

The company's core net interest income increased 3.4 million linked quarter and was up almost 19 million from the second quarter of last year. This improvement reflects what we've been noting as our strategy for revenue improvement. Stabilizing growth to core loan yield as well as the balance sheet with improvements in the overall loan mix. I think it’s becoming apparent that our strategy in this area is beginning to yield tangible results. Growing noninterest income is the other component of revenue which we've been working on but admittedly has been more challenging and certainly taken longer to show results. But as you can see from Slide 19, we believe we turned the corner. While there is always some level of seasonality in certain fee lines, our bar of the items such as gains and sales, all fee categories reflected improvement this quarter.

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

So at this point, we’ll conclude our prepared comments. We have a usually start, i.e. with energy. So for the most part, there were many positives from energy this quarter. The provision for loan losses came in at just over $17 million compared to $110 million of the previous two quarters. This lower level reflects the recent stabilization in the price of oil. So should that stabilization remain through year-end, we do expect to finish the year at the lower end of the range of our provision guidance.

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

On that note, as you can see on Slide 12, our criticized loans were up $37 million for energy, reflecting an increase in support non-drilling of about $97 million. However, that was partly offset by a reduction in the upstream segment of about $64 million. So while our energy non-accruals were also reflecting a similar shift, it's important to note that 58% of our energy non-accruals are not pass-due. We’re leading our guidance for expected energy losses during the cycle unchanged at $65 million to $95 million. To-date we’ve reported about $25 million in energy charge-offs with about $4 million in current quarter.

And so finally, as a reminder, Slides 22 and 23, detail our 2016 guidance and targets. At this point, I’ll turn the call back over to John.

John Hairston

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

Question-and-Answer Session

Operator

Thank you [Operator Instructions]. Our first question comes from the line of Jefferson Harralson with KBW. Your line is open. Please go ahead.

Jefferson Harralson

I guess I’ll start where you guys ended up, which was on the energy book. Could you just talk about the milestones, the things you’re looking at and we had the spring redeterminations just happened. But now we have energy prices up, you mentioned that there might be some volatility. What are the things you’re looking at that are the predictors of the losses you’re going to see in the migration of the books.

John Hairston

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

Sam Kendricks

Well, Jefferson, it's my take, we're very encouraged by this. The stabilization we've seen in the most recent quarter and we're starting to see some early signs of recovery showing sales as prices have moved up in the mid up to 40. I think you've probably seen the improvement in the rig count. They're showing up as a way seen more activity and really when the upstream segment starts to pull CapEx dollars either add to, excess or enhance existing reserves, the momentum will become clear and you'll see more trickle down into the other segments. So if we continue to approach the $50 range beyond I think we'd see more activity, that will generate more positive again some additional lag but all in all we're approaching the point where we expect to see more positives than negatives.

Mike Achary

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

Jefferson Harralson

Alright, and the followup is kind of the same question but it's relative to commercial real estate or consumer and more energy heavier market, are you seeing, what are you seeing in those, evaluations of [indiscernible] properties or in consumer losses in heavier oil markets.

Mike Achary

Yes, so we haven't seen significant movement in value for real estate in the oil impacted markets as yet. If you look on this slide, on slide seven we provided a little bit of detail as it relates to our fused in CRE as well as the map that details those parts of geography that are more heavily dependent on the oil related employment. The Houston, I'm sorry the Houston CRE book the Houston CRE book continues to perform very well. We talked about the potential challenges from multifamily in that market over some interim period of time and so we think that's going to continue to play out just as we talk about the last quarter or so. But the other segments continue to hold up well. As it relates to consumer in the oil impacted geographies we are starting to see some movement up and some of the consumer pass through metrics which become a traded largely in the range as the remainder of the bank that they're starting to inch above that. But the losses have yet to rebuild themselves.

And so we've been talking about the lag effect there, it was frankly surprise just a little bit from a positive perspective but we continue to assess that, part of our qualitative adjustment for reserves is considering the potential impact and lag affect of that, so we're considering that is yet, just some [indiscernible] within a little surprise deposits that we haven't seen more negative drag in those geographies on the consumer side particularly.

Operator

Thank you. And our next question comes from the line of Kevin Fitzsimmons with the Hovde Group, your line is open, please go ahead.

Kevin Fitzsimmons

Hey guys, good morning.

Mike Achary

Good morning.

Kevin Fitzsimmons

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

John Hairston

Thanks Kevin, this is John. We’ve accepted the same price of evidence of a merchant recovery as being benchmark which currently we’d want to at least begin talking about buybacks again. So far all those stands are pointing that that emergent recovery may very well be on the horizon. But we’d like to see a little bit more time pass to convince us that that is indeed what we’re seeing. As you know the last couple of years have been these bumps up for and then unfortunately they subsided. But in this case we’re seeing supplies beginning to truly roll over and there is some doubt amongst industry expertise that resumption of supply can happen as quickly as perhaps it could have a year two ago before so much equipment as far as so many people left their jobs and with other industries.

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

Mike Achary

And John, the only thing I would add-on to that is, certainly the notion that we’re not out of the woods yet certainly with respect to energy and there is additional risk out there as we mentioned a little earlier, especially with respect to the support non-drilling segment. But also we would like to continue to build our capital ratios, I think, a little bit more to where they stand today. Certainly, they’d two quarters with really outsized levels of provision that did a little damage to our capital ratios. And so certainly we hold out the TCE ratios, the proxy for all of our capital ratios. But we would like a little bit more time to build those back from where they stand now before we really get back into the buyback market.

Kevin Fitzsimmons

Mike, just while I got you, just a quick follow up on the subject of the margin. I see the near-term outlook is for stable and great to see that the identical for the core on the reported margin, I am sure you guys are happy to be able to say that. But looking ahead, I am sure what’s happened recently to the 10 year and to the yield curves are not really fully building in or reflected in second quarter results. So looking out over the next three or four quarters. You all have always been perceived as being more asset sensitive. Can you talk about some of the levers that you guys have at your disposal but try and keep that margin stable going out even beyond the next few quarters if we’re in this rate environment? Thanks.

Mike Achary

Sure, absolutely. And that absolutely is our stated goal and that’s what we’re working to achieve that is this notion of stability in our core net interest margin. So, obviously there’re pretty significant headwinds out there, but really as they are pretty much any quarter but certainly with the 10 year where it is. And then for us specifically an additional headwind is around the level of energy pay downs that we have. We’re pleased to reduce our energy concentration but in some cases those are little bit higher yielding loans that kind of come off the books and we have to replace and again in these efforts to maintain our NIM.

So those are probably the two biggest headwinds that we face right now. As far as kind of tailwinds or things that we're doing you know to stabilize that core NIM is we're effecting a little bit of a mix change in our bond portfolio. Historically we've carried a pretty low mix growth to muni bonds, and if you watch our numbers you'll see that we've been hedging that mix higher, little bit past couple of quarters. And certainly we can look to that to continue in the coming quarters. So that's an absolute tailwind. The other tailwind's really are related to continuing to grow loans, outside of energy, that's something that's very important to us and very important toward the efforts to maintain our core NIM and then lastly deposit cost is an area that we think we have some opportunity to potentially reduce those over the next couple of quarters and again work hard towards stabilizing that NIM. So hopefully all those things make sense.

Operator

Thank you, and our next question comes from the line of Ebrahim Poonawala with Bank of America Merrill Lynch, your line is open, please go ahead.

Ebrahim Poonawala

Good morning guys.

Mike Achary

Morning.

Ebrahim Poonawala

Just a quick question in terms of if we sort of think on expenses and the efficiency ratio looking out into '17, if we don't get any relief on interest rates could you sort of help us think about what we should expect bottoms of the trajectory of the expense numbers and if we can still sort of get some operating leverage and bring that efficiency ratio down.

Unidentified Company Representative

Abraham, good morning this is Mike. Certainly that's our stated goal and that's what we’re working to achieve. You know we're thrilled at where the efficiency ratio came in this quarter, just over 62% certainly it's not an accident. And specifically related to expenses, we take two quarters now where we've actually reduced expenses quarter over quarter and so while we can’t be expected to keep expenses lower quarter over quarter we do expect to see some modest level of growth over the next couple of quarters and again we talked about our stated objective, maintaining expense growth at 2% or less and as John noted for the beginning of this call we believe that we can beat that guidance. As far as into 2017 is concerned we really haven't given a hard and fast guidance yet for the next year. But I would expect to see a little bit of a modest increase in expenses '17 compared to '16, so hopefully that helps.

Ebrahim Poonawala

And does that mean that even though expenses would go up in '17 you could sort of keep the efficiency in the low 60s at the very least, given the [indiscernible] benefits.

Mike Achary

Yes, that's our objective and for us to achieve our objectives that we have developed with our board, it's absolutely necessary for us to continue to show improvements in operating leverage.

Ebrahim Poonawala

That's helpful and just on a separate question and I'm sorry if I missed it, but could you remind us in terms of we made a lot of sort of push and investment on fee income size I think is there anything in particular that we should watch out for where you expect growth to pick up as some of these investments pay off both in the back half and into '17.

Mike Achary

Ebrahim, thanks for the question, this is John. We're obviously counting on fee income growth to continue, that said, most fee categories are somewhat cyclical and a few like wealth management slots can experience some degree of headwinds during a low spiked yield curve, so from I guess a watch out perspective use your term. But swap income which is somewhat transactional can diminish somewhat when you see rates flatten up to half.

But internally our expectation is, I think, I’ve said this before and this is I believe Slide 19 shows some of the items that we’re most focused on. One of those is mortgage, which continues to make healthy gains as of both fresh and strong legs under it, and we’re very pleased with that trajectory and expected to continue. Wealth management might bump around a little, given the rate environment but we’ve expected to continue to be favorable in similar quarter previous year comparisons. And in cards of all flavors, I expect continue to improve.

I’ve spoken about merchant, as we finished hiring all those open positions just a few weeks ago. So with a fully staffed merchant sales group, we expect to see that again to improve. And just as a reminder, all that stands for sunk in the last several quarters before the resi improvement comes, because these sales people get on the street and they’re all now hired. So, I’d expect to see some benefit from merchant in the future about the only fee income or sales category I am disappointed in is consumer credit cards done moved into cliff I’d like. And so we’re reevaluating what we might be able to sweep to make a little more progress. That’s very competitive, but it's an area that we’ve been under-punching for a while and about to see that improve. But overall, very pleased with fee income growth and we’ll keep on both strong.

Operator

And our next question comes from the line of Jennifer Demba with SunTrust. Your line is open. Please go ahead.

Jennifer Demba

John, I think you said your most troublesome energy loans back in support non-drilling, is that correct?

John Hairston

We did Jennifer, but I’ll let Sam speak to that and then I’ll maybe add some color when he’s done. Do you want to start that Sam?

Sam Kendricks

We put some pretty good detail in the package here I am going to refer you to Slide 12 where we outlined the various buckets of energy in the segments as well as the criticized level of those respective loans. So, we stopped some early migration in 2015 for the drilling segments. And then as we’re talking about the lag impacts we have started seeing the non-drilling segment now start to move see some movement into the criticized category. So those are the segments that we’ve been talking about for several quarters now that where we expect to see some migration.

So despite the improvement in the price of the commodity and encouragement we’re seeing there, the improvement in the upstream space, we’re going to continue to see some pressure in the support segment. It's going to take some time to resolve. So, a very encouraging quarter in terms of what we see here. But again there remains some work to be done in those support segments, both drilling and non-drilling. But non-drilling is the one that lags behind the others. And so we’ll be the last one to really show the recovery as we work through the remainder of this year and only 2017.

John Hairston

I’ll add, you probably -- it's okay. I’ll add some more color to that which may be helpful. We shared before I think on webcast when on the road the best way to look at the next several quarters, maybe a year or two, would be prices in the 40s or higher. Say 40s up to around 50 or so, people will and already have shown improvement in everything that's land based. The bulk of our RBL book is land based so we’re seeing the improvement that you note in the asset quality metrics for our strength. The cost of per variable to lift and the [indiscernible] that we'll hire, based on days on land at least amongst ROBL and service clients so land is going to improve and recover faster at a $50 or so price than the gulf. Another you know $8 or $10 and you begin to see better activity in the gulf, so when we're looking at, we're sort of calling it drilling services and non drilling services, you can almost look at it as drilling services land and gulf and non drilling services land and gulf. Everything on land is making improvements, the gulf is hanging in there but we're seeing some of that migration Sam mentioned. So the question will be on net basis will be improvement in the land side happen fast enough to offset whatever continues steady migration you see downward in the offshore. So far that's happened, so we'll begin to see I think in the early part of next year the remainder of that book recover as prices begin to hit, some of the prices in gas. Did you have a follow up on or was that what you need.

Jennifer Demba

Just a quick follow up, you've had 25 million in net charge offs in the energy bucket, can you break down roughly how that's been allocated between drilling and EMP midstream.

Sam Kendricks

This is Sam, I'll tell you that top of my head I know we had a heading in charge offs in the upstream segment, the other segments I know I'll have the data here in front of me it's just escaped me for the moment. But the vast majority of that has been in drilling services.

Mike Achary

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

Jennifer Demba

Thank you.

Operator

Thank you, and our next question comes from the line of Brad Milsaps with Sandler O'Neill, your line is open, please go ahead.

Brad Milsaps

Hey, good morning guys.

Mike Achary

Hi Brad.

Brad Milsaps

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

Mike Achary

Good question, so first off no, we've given no guidance about increasing the size or decreasing the size of the bond portfolio so it sits at right around 20% or 21% of our total assets and in all likelihood we’ll maintain it, at that rough level. As far as the muni portfolio last quarter we were at about 11% of our total bond portfolio was in munis, we've bumped that up this quarter to about 14% and over the next couple of quarters we'd like to get that mix somewhere in around 20%. That can’t happen overnight, because as you probably know muni bond sometimes are in short supply but that's our stated goal as far as improving that mix and I think you had a third question that.

Brad Milsaps

Yes, how that affects the tax rate, what can I expect going forward.

Mike Achary

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

Brad Milsaps

And then just a follow up, I appreciate John, and just color on some of the other income, that was up quite a bit linked quarter. Is that where some of the swaps you use are embedded? Just kind of curious what kind of the driver was there? And secondarily does the IA amortization, does that number go away in ’17 or is that something we’ll continue to see for into 2017?

John Hairston

Sure, so the last question first. The IA amortization for the quarter came in at about $1.5 million, and that’s been relatively stable over the last four or five quarters. But we’ll add that level of amortization really for as long as we have that loss share agreement on our books. And as you probably know, we have a couple of years to go on that. So your other question was around the increase in other income this quarter. And as you probably know, if this drive that category really is kind of a hot spot of a bunch of different kind of fee income sources.

So that’s the place where we, with both lot of our derivative fees related to customers, things like our [indiscernible] incomes fees, as well as different gains that we might have on different asset dispositions from time to time. And the vast majority of that $2.3 million increase was in items that would disable one-time, but there’re certainly items that might be hard to sustain and most of those came in the form of different types of gains that we were able to book this quarter.

Operator

Thank you. And our next question comes from the line of Michael Rose with Raymond James. Your line is open. Please go ahead.

Michael Rose

Just wanted to circle back to the energy reserves, so I guess what I am thinking about is, so $111 million in energy reserves, 7.5% of the portfolio get back $55 million to $95 million in charge-offs through the cycle you’ve realized a portion of that already. Oil have moved up [indiscernible] also over the next couple of quarters you have higher service exposure, fully understand all that. But how should we think about against the pace of provisioning into ’17 assuming the status quo. I mean, it seems like some of those reserves eventually as charge-offs work their work through become fungible. Should we expect into ’17 the pace of provision could actually fall from current level, and you could actually begin to bleed the reserve down borrowing any general credit negative migration? Thanks.

Mike Achary

Michael, this is Mike. And certainly the scenario that you’ve described is something that could be possible as we move into 2017. But at this point we’re really not going to go there in terms of forecasting or predicting that we actually could begin drawing down reserves. What we have said specifically for 2016, and again last quarter we gave that provision guidance that range from $105 million to as much as $145 million. And then late last quarter we publicly kind of gave some guidance around this notion of a bias toward the lower end of that range. And certainly the provision where it came in this quarter at $17 million was really right on top of that additional guidance and the only add on to that would be for the next couple of quarters, you know we certainly see that we have an ability to maintain that bias towards the low end of that range, you know should energy prices continue to be stabilized. And so that's what we're looking for over the next couple of quarters and you know again no one has a crystal ball and no one knows exactly where energy prices are going to go from here.

But should they stay within the realm of being stable than we would continue to kind of guide folks toward the bottom end of that range. So that implies you know a provision again somewhere in the $15 to $17 million range in the next couple of quarters.

Michael Rose

Okay that's helpful and I guess just kind of stepping back and thinking about it structurally I mean pre, pre the Whitney acquisition you guys had much more real estate, if I look at your reserves where they stand now and obviously energy's elevated now but before the Whitney deal your reserve level kind of about where it was, prior to the deal I guess if you go pre cycle somewhere in the '05, '06 range, I mean just structurally it seems like an higher CNI lower loss severity that you a structurally lower reserve ratio so just seems from my point of view that there could be some room to maybe, assuming credit trends remain both to be stable outside energy that that reserve ratio can actually begin to weep out a bit. Am I thinking about that incorrectly or.

Mike Achary

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

Michael Rose

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

Mike Achary

You bet.

Operator

Thank you and our next question comes from the line of Emlen Harmon with Jefferies, your line is open, please go ahead.

Emlen Harmon

Hey good morning.

Mike Achary

Morning Emlen.

Emlen Harmon

So, it sounds like you guys have just started again if energy prices stay where they are you think you're biased for the low end of the provision range, would your assumption in that scenario be that you continue to see some grade migration because we did see kind of like criticized in the non accruals go up a bit, I guess the question is can you still stay at the low end even if those buckets are headed up.

Mike Achary

Well the short answer is yes, and I think we're able to do that in the current quarter the second quarter. There's a page in our deck that gives a fair amount of detail on our [indiscernible], dig into those details, I think we mentioned this in the prepared comments, we did a pretty nice shift of reserves within energy, have away upstream and again the segment that we talk a little about having more risk the support non drilling. So you're absolutely correct that Sam, color.

Sam Kendricks

What I would say is we may see a little movement up and down in the various categories, you know the upstream segment continues to perform very well and look the more capable but we may see more pressure in the support segment so maybe a little bit of washback and forth as we continue to address the issues through as I said the [indiscernible].

Emlen Harmon

Okay, thanks and then, was hoping to get an update on hiring activity in I guess both the mortgage and the commercial banking, did you guys add anybody this quarter.

Mike Achary

We did, this is John, thanks for that question, we really never stopped adding, we run a pretty rapid cliff next year adding revenue producers and then as we began to ranch down a little on ensuring the expenses stay correct relative to our revenue growth. We had dampened our hiring place just a little, but we did add about half of dozen key revenue producers in the second quarter. And that mix was primarily tied to fee income categories right now in the first quarter and really the previous two quarters from there, it was really all around commercial purpose tankers, but the last quarter was all around fee income. And that was mortgage and merchant.

Emlen Harmon

Mortgage, and merchant -- okay. Thank you.

Operator

Thank you. And our next question comes from the line of Christopher Marinac with FIG Partners. Your line is open. Please go ahead.

Christopher Marinac

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

John Hairston

Thanks for the question, this is John. Are you specifically interested in those three boxes on page 7, is that what the question is?

Christopher Marinac

Right, and then really the emphasis outside of energy on growing the Company…

John Hairston

Well, let me start with Houston. Sam mentioned earlier that the CRE ties, which you see on the bottom left of page 7, we’re holding that steady. Right now, we’re not growing CRE in Houston even though there’re portions of Houston that probably still have opportunities, we just think it's prudent to sit tight on that one. We’ve talked about energy ad nauseam, so I won’t waste any time on that one. But the bottom line, the refuse, is doing good and so we’re continuing to grow the other part of the Houston book.

It's really a great market just adopt the time and so it's doing well. The pipeline for second quarter or the end of the quarter versus the end of the first quarter improved somewhere around 25% to 30%, I think the actual number is 28%, if my memory is correct, and New Orleans, and the entire eastern part of the franchise and Baton Rouge, were the primary drivers of that pipeline improvement. So, as we go through the rest of the year I’d expect to see Baton Rouge, New Orleans and Mississippi Atlanta, Florida continue to improve.

Christopher Marinac

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

John Hairston

Yes, I do think so. We’ve got in Mississippi on with Gulf Coast as I think you know we have a very strong market share. So certainly growing the Mississippi book is not as easy with nearly half the market as it might be in other places. But we are still continuing to have success there. In New Orleans in the downstream commercial purpose segment, we don’t have a stronger partnership here as we did, maybe a decade or two ago and that’s primarily in business purpose clients in the, call it, $5 million to $20 million in annual revenue range.

We’re investing pretty heavily and we’ll be adding staff in New Orleans to improve our penetration in those markets. It's a great market for that type of business and while we have very fine market share larger in of business in New Orleans that middle size is where we think there is a whole that we can improve. We also believe we can make good headway and have done so in private banking and consumer there. So we continue to believe New Orleans is even though we have good coverage there, there remained great opportunities. Baton Rouge we have new leadership, I mentioned I think last quarter on the call very promising looking pipeline there. Again that's been commercial in middle market and consumer.

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

Christopher Marinac

Great John, thanks for that color, I guess just a follow up, this has to do with Tampa. Are there new hires that you can make there or it's just all perhaps just even more emphasis on that market over time.

Unidentified Company Representative

Yes, and that's a good question, you know that, Tampa's been an interesting market in that, that was a string of I believe three acquisitions made by Whitney back pre recession that were fairly heavily laden with real estate. Whitney made a great hire and a leader for that general MSA, he turned over a fair amount of staff, actually almost all the staff, hired great [indiscernible] leadership and consumer banking leadership and really turned that whole region around. That is continued in Hancox's tenure in Tampa to the point that it's become one of our fastest growth markets, of late, the hires we made there we actually in mortgage. We had a very anemic mortgage pipeline there years ago, that has been dramatically rejuvenated to the point that one of the fastest growing markets we have for mortgage business is in Tampa which is unusual given that we have very light branch density there, but the folks that we hired are very talented deep realtor relationships and have done exceedingly well. We're very proud of that team.

Christopher Marinac

Sounds great, thanks again for all the feedback here.

Mike Achary

You bet, thank you, thanks for the call.

Operator

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

John Hairston

Thanks Michelle for running a flawless call. To our team members on this call, we have a number of our specialists call in, let me give you a direct thank you for your dedicated work towards creating value, I always am and want to say at every opportunity I'm very proud to serve at your side. Thanks for investors and others on the call, we very much appreciate your continued interest in the company, everyone please have a great day.

Operator

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

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