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Edited Transcript of IBKC earnings conference call or presentation 26-Jan-18 2:30pm GMT

Thomson Reuters StreetEvents

Q4 2017 IBERIABANK Corp Earnings Call

LAFAYETTE Jan 31, 2018 (Thomson StreetEvents) -- Edited Transcript of IBERIABANK Corp earnings conference call or presentation Friday, January 26, 2018 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Anthony J. Restel

IBERIABANK Corporation - Senior EVP, CFO & Treasurer

* Daryl G. Byrd

IBERIABANK Corporation - President, CEO & Executive Director

* Fernando Perez-Hickman

IBERIABANK Corporation - Vice Chairman & Director of Corporate Strategy

* Jefferson G. Parker

IBERIABANK Corporation - Vice Chairman and Director of Capital Markets & IR

* Michael J. Brown

IBERIABANK Corporation - Vice-Chairman and COO

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Conference Call Participants

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* Casey Haire

Jefferies LLC, Research Division - VP and Equity Analyst

* Catherine Fitzhugh Summerson Mealor

Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP

* Ebrahim Huseini Poonawala

BofA Merrill Lynch, Research Division - Director

* Emlen Briggs Harmon

JMP Securities LLC, Research Division - MD and Senior Research Analyst of Regional Banks

* Jennifer Haskew Demba

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Michael Edward Rose

Raymond James & Associates, Inc., Research Division - MD, Equity Research

* Stephen Kendall Scouten

Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research

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Presentation

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Operator [1]

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Good morning, and welcome to the IBERIABANK Corporation's Fourth Quarter Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Jeff Parker, Vice Chairman, Director of Capital Markets and Investor Relations. Please go ahead, sir.

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Jefferson G. Parker, IBERIABANK Corporation - Vice Chairman and Director of Capital Markets & IR [2]

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Good morning, and thank you for joining our call this morning. On our call, we have Daryl Byrd, our President and CEO, who will make summary comments on our earnings report, after which we will go directly into Q&A. Anthony Restel, our Chief Financial Officer; Michael Brown, our Chief Operating Officer; Fernando Perez-Hickman, our Director of Corporate Strategy; and Terry Akins, our Chief Risk Officer, are all in the room, and available for Q&A following the call.

If you have not already obtained a copy of the press release and supplemental PowerPoint presentation, you may access these documents from our website at www.iberiabank.com, and this is all under Investor Relations. Finally, a replay of this call will be available until midnight, February 2, and information regarding the replay is provided in the press release.

Our discussion deals with both historical and forward-looking information. Our safe harbor disclaimer is provided in the press release and in the supplemental presentation.

At this point, I'll be happy to turn it over to Daryl Byrd for his opening remarks. Daryl?

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Executive Director [3]

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Thanks, Jeff, and good morning, everyone. We're pleased to have reported a solid quarter, with core earnings of $1.33 per share. Importantly, we believe the momentum exhibited in our underlying core performance provides the foundation from which to deliver on our objectives for 2018 and beyond. We were particularly pleased with our net interest margin and efficiency improvements in the quarter. We also completed the Sabadell conversion in October, another important milestone in this highly strategic transaction for our company. I'll cover more on these topics in a few moments.

Before providing the highlights of our performance trajectory, I did want to note that like many others, our GAAP results were materially impacted by the recent tax law change. Specifically, we had a $51 million net adjustment or $0.94 per share in the quarter, primarily related to the reevaluation of deferred tax assets. We believe the long-term improvement to future earnings will more than offset this onetime write-down, with the benefits to bottom line EPS starting immediately. We currently anticipate our effective tax rate to be between 21% and 22% for 2018 versus 32.9% in 2017.

As I mentioned in our press release, aside from the one-off expenses we detailed, core results improved significantly over the prior quarter as we continue to realize the benefits of our asset-sensitive balance sheet and start to see the synergies from the Sabadell acquisition. In fact, if you look back, this was the company's best quarter in terms of core EPS.

Regarding the margin, our reported and cash net interest margin increased 5 and 4 basis points on a linked quarter basis to 3.69% and 3.33%, respectively. While the reported margin did benefit from some accretion income, the cash margin improvement highlights the asset sensitivity of our balance sheet. Drilling down a bit further, our asset yields improved 8 basis points in the quarter while deposit costs were only up 4 basis points.

As you know, we continue to be focused on expense discipline, and for the quarter, our core noninterest expense came in at $167.9 million. We are pleased that this is actually slightly better than the low end of our expectations. Combining this with our margin expansion, our core tangible efficiency ratio improved to 55.6% versus 58.2% in the prior quarter. As I mentioned, we completed the conversion of branch and operating systems associated with the Sabadell acquisition. We also closed 12 branches and reduced our headcount by 94 FTEs. With the conversion behind us, we remain on track for delivering anticipated cost savings from the Sabadell transaction as well as the $10 million cost initiative that we disclosed last quarter.

We continue to be focused on additional expense and efficiency opportunities. I also wanted to touch on noninterest income, which improved quarter-to-quarter and came in at the high end of our expectation even in light of some challenges we've had over the last year from our residential mortgage business. After the HUD settlement, clearly, our mortgage business needed to change, including the leadership of this business.

We knew these changes would cause some attrition, but are very excited about where we're going with our residential mortgage business. We're very focused on improving our origination business, particularly in our newer high-growth markets and realizing possible synergies from our newly acquired portfolio mortgage business from Sabadell and, in the future, from Gibraltar.

Loan growth for the quarter was approximately 6% annualized or right at the low end of our expectations. New Orleans, Atlanta and Tampa and our new corporate asset finance team had particularly good quarters. We also believe Miami is beginning to gain momentum following the conversion. Our loan pipeline is $1.4 billion. Loan growth came in, in line with the expectations at around 2% annualized. In particular, noninterest deposits grew $246 million or 16% annualized and now represent 29% of total deposits.

Overall, we continue to see a positive mix shift in our deposit books despite increasing rates. We continue to see good client growth. While still early, we're now positioned in markets that should have outsized benefit from the passage of the recent tax legislation. We are also well positioned in [several] markets that should exhibit accelerating growth from the rebuilding that typically follows significant hurricane events.

While our asset quality significantly improved from the prior year, it was a bit of a bumpy road to get there. For the quarter, net -- for the quarter, charge-offs were down $18.7 million to $10.1 million and provision, while down $18.5 million to $14.4 million linked quarter, was still higher than our prior guidance. This quarter was negatively impacted by one credit which was identified as a problem credit in the previous quarter, but arbitration proceedings did not turn out as we had hoped. We had to take an additional provision of $5.7 million this quarter and the exposure on this credit has been charged off. We do expect to see continued improvement in credit and anticipate performing as guided in future quarters.

We're making good progress relative to the Gibraltar acquisition and continue to anticipate closing during the first quarter. This merger is unique from a synergy perspective given the nearly complete overlap with our existing Florida franchise. In addition to significant cost savings, we remain excited about the capabilities and expertise this acquisition will bring to our organization.

During the quarter, we announced a community benefits plan with the National Community Reinvestment Coalition, NCRC, and its 600 community-based members and partners across the southeastern region of the United States. This 5-year plan is an extension of our long-standing commitment to invest in and strengthen our communities through strategic partnerships with well-regarded organizations to promote financial literacy, affordable housing, small business development, underprivileged youth development and neighborhood revitalization. We look forward to continuing to help drive economic growth in the diverse communities we serve.

We're also pleased to announce today our plans to invest a portion of our tax savings in our workforce in 2 meaningful ways. Effective this quarter, a $2 per hour pay raise will be given to our nonexempt, noncommissioned associates who currently earn $15 per hour or less, ranging from an average of 16% to as much as a 23% increase in base compensation. In addition, a $1,000 cash bonus will be paid to all associates who currently earn between $15 per hour and under $100,000 annually in base pay. In total, these items benefit nearly 80% of our associates.

We are very proud of our team and we are pleased to reward those who take care of our clients every day in extraordinary ways. Continuing to invest in our people helps us attract and retain high-quality associates, which translates into strong financial performance and positive results for our shareholders.

During the first quarter of 2018, we will be providing our 3-year goals, which we will refer to as our 2020 goals. Finally, I want to thank all of our loyal clients for their trust in us and our associates for a tremendous effort over the last year. We're excited about our prospects and look forward to building on the strong momentum we showed in the fourth quarter.

Thank you, all, for your time today and with that, Jeff, I'll turn it over to you to facilitate questions.

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Jefferson G. Parker, IBERIABANK Corporation - Vice Chairman and Director of Capital Markets & IR [4]

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Thank you, Daryl. Rocko, could we open the line for questions, please?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And today's first question comes from Ebrahim Poonawala of Bank of America Merrill Lynch.

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Ebrahim Huseini Poonawala, BofA Merrill Lynch, Research Division - Director [2]

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Just a first question, Daryl. You touched upon the retooling of the mortgage business. We've talked about it a fair bit since third quarter results. Just wanted to get an update in terms of where we are, both from an expense and revenue wise on that business and what we should be expecting as we think about next quarter and over the next few quarters, how some of those things trend?

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Executive Director [3]

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Ebrahim, what I would tell you about mortgage is we're working hard with that business. We're actually pretty excited about it in terms of what we're accomplishing. We've got a good core group of people and what we're doing right now is we're adding to that and we're recruiting originators, particularly in some of the high-growth markets that we've gone into in the last few years. So we feel pretty good about the progress we're making there. We can't do anything about rising rates, so you have an impact from a revenue perspective. But we also have the portfolio [mortgage] product that we picked up from Sabadell and we'll pick up from Gibraltar. And we think there's a combination there in terms of products and kind of crossover that will be favorable to our organization, going forward. Fernando, you're in the room, anything else you'd like to add relative to mortgage?

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Fernando Perez-Hickman, IBERIABANK Corporation - Vice Chairman & Director of Corporate Strategy [4]

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No. I mean, we have a plan to transition the business to be more digital and efficient. Retooling our business means that we will be more streamlined through the use of metrics in digital and we look forward to backing -- backfilling the originators that we lost in some markets with new talent that we are bringing to the new -- more growth markets like Florida, Georgia, Alabama, Texas and Louisiana. As Daryl mentioned before, we see these efforts on the secondary mortgage business being in line with growing our portfolio business. We've seen the future having 1/3 of our business being portfolio, 2/3 being secondary and also getting closer to the bank and to the branch -- to the franchise to make sure that we get more referrals both for our secondary business and portfolio.

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Ebrahim Huseini Poonawala, BofA Merrill Lynch, Research Division - Director [5]

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Got it. And just on the margin very quickly in terms of, if you could remind us in terms of, incrementally, Anthony, how you're thinking about rate sensitivity for -- if we get 3 rate hikes over the next few quarters? And just is there any difference in deposit pricing across any of the markets? Or are you not just seeing pressure across-the-board?

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Executive Director [6]

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Ebrahim, I'm going to jump in and then let Anthony. In terms of the differences in the markets, we've kind of looked at that, and we don't really see a lot of rate difference. But what we do see is we see some mix difference from market to market, that's probably the primary thing. Anthony, margin?

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Anthony J. Restel, IBERIABANK Corporation - Senior EVP, CFO & Treasurer [7]

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So Ebrahim, we're still asset sensitive, we'll benefit from that asset sensitivity as we move forward. We think, just -- we talk about it a bunch of different ways. In the guidance that we gave in December, we said the forward curve, at that time, and I believe that's fairly close to what you're asking me about relative to the number of moves, we said it would add about 6 basis points to the margin guidance we provided.

We kind of look at, from an EPS perspective, we're thinking maybe $0.04 on average for every 25 basis points as we kind of roll through the year feels like a good number for us. I will tell you, relative to deposit betas, we're sitting at 22% today. We do expect that to accelerate throughout the year. Again, that's included in kind of those margin numbers that we've given. So we'll see. I think there's an opportunity and, certainly, we're working very hard to make sure we maximize what we can get done on the margin for the year, recognizing it's one of the bigger assumptions that can actually be very favorable if we can do a little bit better.

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Operator [8]

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And our next question today comes from Catherine Mealor of KBW.

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Catherine Fitzhugh Summerson Mealor, Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP [9]

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Just one follow-up to the margin guidance conversation. So Anthony, the 6 bps that you talk about that's impacted by the forward curve as of mid-December, how many rate hikes does that assume? Is that effectively one rate hike or more than one?

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Anthony J. Restel, IBERIABANK Corporation - Senior EVP, CFO & Treasurer [10]

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I believe that when we gave the guidance, there was a rate hike in June and then a rate hike in December, was what was in the forward curve at the time. So keep in mind, although you hear a lot of discussion from the Fed, out of the Fed, speak about 3 rate hikes, the forward curve hasn't had that in -- baked into the guidance for a while. So today, I believe, we said it's somewhere around an 85% probability of a rate hike in the first quarter and then 1 later in the year.

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Catherine Fitzhugh Summerson Mealor, Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP [11]

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Got it. All right, so that's basically, to say, about 6 bps or $0.04 on average quarterly per one 25-bp hike.

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Anthony J. Restel, IBERIABANK Corporation - Senior EVP, CFO & Treasurer [12]

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Yes, on the quarter post the rate hike, right, so just to be clear.

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Catherine Fitzhugh Summerson Mealor, Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP [13]

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Exactly, got it. Got it, okay, that makes sense. Thanks for the clarity. And then on the -- so thinking about loan growth, I think legacy loan growth was really strong, near 19%. And then your acquired runoff was, I think, a little bit higher than I would've expected this quarter. So you net it together and we can see a path to your 15% to 17% growth rate next year. But how do we think about the moving parts of those 2 pieces? And maybe, most specifically, the acquired runoff, how quickly do you think we'll see that move down? And is a slowdown in that runoff really what's driving a pickup in your total loan growth next year versus this year?

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Executive Director [14]

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Catherine, I would ask Michael and Anthony to kind of hit this one. But I would say, in general, we feel pretty good about our organic growth. And one comment, I think we're positioned in some markets that are going to do pretty well over the next couple of years that probably benefit in a meaningful way from the tax legislation. So we feel particularly good about the markets that we're in and the opportunities that present themselves over the next couple of years from an economic perspective. Anthony? Michael?

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Anthony J. Restel, IBERIABANK Corporation - Senior EVP, CFO & Treasurer [15]

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Yes, so Catherine, one thing about the acquired runoff during the quarter, we had modeled as part of our transaction that we would transition out of some of the thinly priced syndicated credits that Sabadell United was carrying. And that number was a little over $100 million during the quarter that we were able to kind of get off of our balance sheet. So that kind of inflated some of the pay-downs we saw during the quarter and I think we've basically accomplished relative to that book of business what we wanted to do. So I think you'll see a natural pullback at least from that aspect. So Mike?

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Executive Director [16]

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Michael, I'd ask you, the asset finance business is not something we've talked about a lot, so you might just mention the progress we've made there and also a little bit about the Carolinas.

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Michael J. Brown, IBERIABANK Corporation - Vice-Chairman and COO [17]

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Yes, I mean, so this, we are bullish about 2018 from a growth perspective and why. Basically, we're going to have a full year representation from a number of investments we've made. Obviously, the largest of which is South Florida, which we feel has a very good growth prospect or profile to it based upon how it was managed historically and how we expect it to continue as part of our business. The other areas that we see the sort of growth from are energy, recovery is in full force, our directly linked businesses are seeing growth. 2017 was a very good year for our E&P business. We expect that to continue into '18, but we also expect to see some lift relative to the resident economies. So Acadiana, for example, we expect to see some growth there. These last few years, we've seen those markets -- or that market decline. Same with Houston, we would expect to see some improvement in terms of that marketplace as well, so that will be working in our favor.

Daryl mentioned our corporate -- the asset finance business, which is our equipment finance and leasing business. We did not have that participate in our numbers for a full year last year. I think it was really affected for about 2 quarters or 6 months. So our expectation is that, that will be good for the full year. But also, it will be benefiting from the fact that we are rolling out the products on a broader base. So if you think about the first 6 months, we had a limited product offering and geographically limited sales. This year, we'll have a broader product offering and we will be marketing across the company.

And then the last component, which will be impacting us on a fully effective basis in 2018, will be the Carolinas, which we were in ramp-up mode in 2017, recruiting, building out infrastructure. Our expectation is that, that will be far more positive relative to the full year effect from a loan growth perspective. So 2018 has a prospect to be very good for us from a growth perspective from our base markets but also from the additional investments we made during '17.

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Operator [18]

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And our next question today comes from Stephen Scouten with Sandler O'Neill.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [19]

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I wanted to follow up just one more on the NIM side of things. So you talked about, Anthony, seeing I think you said 22% betas and some upside to that. Can you talk a little bit about, I don't know if you think about it this way, but kind of the loan betas, if you will and kind of how we can think about the narrowing of the benefit of each rate hike on the loan side versus the deposit side?

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Anthony J. Restel, IBERIABANK Corporation - Senior EVP, CFO & Treasurer [20]

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Stephen, what I'll tell you is I don't spend a lot of time thinking about kind of asset betas. I mean, obviously, we provide all of the floating rate type metrics and you can kind of look at the change in earning assets and calculate it if you want. What I'll tell you is I don't think there's anything unique that's kind of different to kind of what we've been saying in the last quarter, which is we're going to continue to see our assets reprice, given the mix of what we're doing.

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Executive Director [21]

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We continue to be very floating.

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Anthony J. Restel, IBERIABANK Corporation - Senior EVP, CFO & Treasurer [22]

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We continue to be very floating, and so I'm not sure if I've covered everything you really want me to cover.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [23]

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Yes. Maybe if I say it this way, like, I guess, as I look into 2018 from the rate hike we saw in December, how much, I mean, of that benefit do you think you've already absorbed in your current numbers versus what you'll see more heavily reflected in 1Q '18?

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Anthony J. Restel, IBERIABANK Corporation - Senior EVP, CFO & Treasurer [24]

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Yes. So our interest income benefited by about $7 million worth of movement in rates in the fourth quarter. So I'll tell you that I think that's a fairly small amount, I would say, given the lateness of the move. Obviously, LIBOR starts to front run all of the expected move. So I would say you saw maybe 1/3 of the impact, at best, in the fourth quarter. We'll see the full pull-through of that in the first quarter. And keep in mind that right now, you're starting to see LIBOR start to drift a little bit higher as people start to kind of factor in the likelihood of the March raise, particularly on 3-month LIBOR.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [25]

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Yes, definitely. Okay, that's helpful. And maybe thinking about the fee side of things a little bit. There was a bit of a jump there in other income, I think you mentioned in the release, maybe some higher swap fees and other things. Is that -- I mean, relative to your guidance for full year fee income, it looks like that didn't change. So is some of that jump in other income kind of not expected to recur? Or how can we think about the run rate there, specifically around fees in that line item?

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Executive Director [26]

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Yes, Stephen, I'll start. Obviously, first quarter tends to be a little softer quarter from a residential mortgage perspective. I've got to say, we feel pretty good about our swaps business and we feel pretty good about our treasury management business. Anthony?

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Anthony J. Restel, IBERIABANK Corporation - Senior EVP, CFO & Treasurer [27]

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Yes, so if you look at the other income, which was up about $3.5 million roughly, we had some very strong performance from -- our syndications group had some nice activity during the month, as you all know that restarts every quarter. We saw some nice loan fee income. Swaps were up about $800,000 quarter-over-quarter which was great. The Fed last year, we'll see how things transition through the year. That's been a little bit of a slow business this -- last year, but it was really the good year before that. Trust, we have a full quarter of Sabadell, which helped us up about $400,000. And so the other items are detailed in the press release. So again, it's a mixture of things. I'll tell you, relative to the guidance for '18, we certainly, when you look at that, we show very, I'll call it, flattish numbers relative year-over-year. So we're expecting continued growth in the noninterest income, with a little bit of revenue pullback on the mortgage side is what we're kind of expecting for next year.

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Operator [28]

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(Operator Instructions) Today's next question comes from Jennifer Demba of SunTrust.

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Jennifer Haskew Demba, SunTrust Robinson Humphrey, Inc., Research Division - MD [29]

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Daryl, just wondering, we're almost a month into the new year. You guys said you have a strong loan pipeline. What are customers saying right now in terms of their optimism? And do you think the first half of the year could maybe be a little slower for the industry with the additional corporate earnings that these businesses are getting?

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Executive Director [30]

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No, Jennifer, I'll start and I'll let Michael jump in. Most people, most clients I talk to are feeling pretty good. It feels like we have a pretty pro-business kind of economy and administration. And the tax relief, I think, is welcome. Personally, while there is the -- you have different laws in the different states and all from a tax perspective, but the markets we're in feel pretty good. So Florida, obviously, is a beneficiary. Texas, clearly. But actually, I think markets like Atlanta are going to do very well just given the amount of the kind of -- Atlanta's such a corporate market that I just -- I think that market is going to do pretty well. So I'm feeling pretty good about where we're positioned in the markets we're in, and I think our clients are feeling pretty bullish. Michael, any...

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Michael J. Brown, IBERIABANK Corporation - Vice-Chairman and COO [31]

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Yes, the only thing that I would add is competition. It's just a very competitive business environment today right now within the banking space, particularly, as it relates to C&I lending as banks try to diversify their book of business away from real estate. We're seeing a lot more competition around the C&I space. So although we're seeing an increase in activity, it is very competitive out there.

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Jennifer Haskew Demba, SunTrust Robinson Humphrey, Inc., Research Division - MD [32]

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Okay. And Anthony, I just wanted to confirm, so with Sabadell getting converted in October, I'm assuming you're expecting full cost savings realizations in the first quarter?

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Anthony J. Restel, IBERIABANK Corporation - Senior EVP, CFO & Treasurer [33]

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That's correct, Jennifer.

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Jennifer Haskew Demba, SunTrust Robinson Humphrey, Inc., Research Division - MD [34]

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And then for Gibraltar, will that occur in third quarter?

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Anthony J. Restel, IBERIABANK Corporation - Senior EVP, CFO & Treasurer [35]

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Relative to the full run rate, yes, we should be at the full run rate of what we provided in our guidance when we announced the deal, by the third quarter.

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Operator [36]

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And our next question today comes from Michael Rose of Raymond James.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD, Equity Research [37]

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Just wanted to talk about credit quality for a second. You guys have historically been way ahead of the curve. You guys have been running down the indirect auto portfolio, saw -- were very effective in reducing your energy portfolio. Obviously, now, with tax cuts, that should increase cash flow of your borrowers. Why not -- why won't you see an improvement in credit quality as you move through the year? I guess, I'm just asking, what are the puts and the takes at this point?

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Executive Director [38]

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Michael, actually, we feel really good about credit quality and totally agree with your comment that we're going to see a lot of our clients getting a benefit from a tax perspective. Our NPAs are down, our watch list is down. We were a little disappointed in one credit this quarter. But we really feel like we're going to perform as we've guided in the coming year. And so yes, we feel pretty good about credit.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD, Equity Research [39]

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Okay, that's helpful. And just dovetailing on that ahead of the curve. Are there any areas that you guys are maybe shying away from on the loan side? I know you talked about some new initiatives in asset-based lending. Are there any areas that may be a little hypercompetitive at this point? Is it C&I? Is it -- any areas, any commentary would be helpful.

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Executive Director [40]

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Michael, and Michael Brown commented on it, you're seeing the regulators have put some pressure on the CRE lending and that's pushed some people over into the C&I space. And you see a little bit more competition there. What we're trying to do is we're trying to do a really good job from a portfolio monitoring perspective and kind of understanding our markets and kind of the subsegments, in particular, around commercial real estate. So I think we're trying to be very thoughtful and forward-looking in that regard. So the main competitive piece is you just have people piling into the C&I space and I often wonder if they're not actually -- if the regulators have not actually pushed people out of the lending area that they really understood into a lending area that they don't understand. But those things tend to kind of play out in time.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD, Equity Research [41]

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Agreed. And then maybe just one more question for me. With Gibraltar, you gave some comments last quarter, Daryl, about the New York market. Now that you've had, I guess, another 3 months, effectively, have you given any additional thoughts for what that market could be and what your plans might be?

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Executive Director [42]

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Yes, certainly. We plan to keep the office open. It's a very profitable branch. It's got about $70-something million in deposits and about $340 million in loans, and those are mostly private banking, residential mortgage type loans. Look, we've got a great team in New York and our focus will be to help them be successful.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD, Equity Research [43]

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So no plans in the immediate term to offer a broader product suite similar to the rest of your franchise?

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Executive Director [44]

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Not really. Certainly, we may try to do some C&I lending. But right now, we've got a really good team in place and we'll try to support them in what they already do.

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Operator [45]

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(Operator Instructions) Today's next question comes from Casey Haire with Jefferies.

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Casey Haire, Jefferies LLC, Research Division - VP and Equity Analyst [46]

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Daryl, can you give us some updated thoughts on capital return, given the -- I know you guys just bumped up the dividend, but with tax reform, the payout ratio is well under 30%. Just, again, you must love your stock price, why not add some buyback?

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Executive Director [47]

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Casey, I think, where we are, it's pretty early relative to the tax release -- tax relief. And so the organization and our board are evaluating the best use, and we're trying to think about whether it's to plow it back into the company, whether we do share buybacks, whether we increase the dividend. We're very pleased with the positive impact of the tax relief, but it's going to take us a little time to kind of figure out what's the best use.

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Casey Haire, Jefferies LLC, Research Division - VP and Equity Analyst [48]

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Okay. And then just one more, I guess, on the loan pipeline. Daryl, you sounded pretty upbeat about storm recovery in Florida. The loan pipeline up, was Florida a driver of that increase? Or is that sort of more on the come?

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Executive Director [49]

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Well, Casey, I'm really pretty positive about the markets that we operate in. One, from a tax legislation perspective, and then South Florida and the Texas markets. We've seen the rebuilding that happens after hurricanes before and we know that can be a very positive event, so we'd feel good about that. Michael, any comments?

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Michael J. Brown, IBERIABANK Corporation - Vice-Chairman and COO [50]

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Yes, the hurricane improvement is a case-by-case basis. So the real driver behind the pipeline improvement is just a broader recovery. I would suggest, from all of our markets or participation from all of our markets again. First quarter tends to be a little bit slow. We'll have some churn as we did in the fourth quarter. But for the full year, again, we feel good about prospects for growth.

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Casey Haire, Jefferies LLC, Research Division - VP and Equity Analyst [51]

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Okay, great. And just one housekeeping question on the NIM guidance. Is that inclusive of the new FTE adjustment, post-tax reform? I know it's not a big adjustment for you but...

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Anthony J. Restel, IBERIABANK Corporation - Senior EVP, CFO & Treasurer [52]

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Just for what it's worth, the impact of the tax adjustments is about 2 basis points, which is fairly immaterial. So we're not -- so our guidance for the year on the margins stays as it was originally presented.

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Operator [53]

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And our next question comes from Emlen Harmon of JMP Securities.

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Emlen Briggs Harmon, JMP Securities LLC, Research Division - MD and Senior Research Analyst of Regional Banks [54]

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Just on expenses. You've got a few areas that could kind of help drive expenses down from here. Just how much of a step-down in expenses should we see between the Sabadell saves, the $10 million cost-save plan and any kind of like bubble expense that you guys have left?

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Executive Director [55]

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Emlen, I'll start. Expenses were up in 4Q a little bit, and you have $4.2 million, primarily from the result of a full quarter impact from Sabadell. But we feel really good about where we're coming in relative to expectations there. I would remind everybody, I know Anthony wants me to remind everybody, that the first quarter, we always see some seasonal influences and so please don't get ahead of yourselves relative to first quarter because we will have some things there that we kind of typically have.

Relatively to the $10 million initiative, we think that's probably more like $12 million, and we had very limited impact from that in the fourth quarter. We would expect about $2 million in impact in the first quarter and about $3 million, thereafter. And then, on top of that, you kind of have to factor the Gibraltar expenses that fall on top of that. And like Anthony said, we expect to achieve those results by the fourth -- by the third quarter. And really, all of this is kind of in the guidance we've disclosed. Anthony, anything else?

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Anthony J. Restel, IBERIABANK Corporation - Senior EVP, CFO & Treasurer [56]

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Yes, what I will tell you, Emlen, is just being a little bit more direct to the question. I think you should be looking for something flattish on the expense side. Certainly, you've got the impact of the $10 million cost saves coming. But as Daryl announced earlier this morning, we have -- the $1,000 bonus is going to go to a lot of our employees, which is going to create a bucket of expense in the first quarter as well. So I would be thinking more flattish relative to the expense. We're certainly working very hard to lower expenses everywhere we can. But just recognize, we do have a few things that pop up in the first quarter. The nice thing about some of those expenses is they're kind of onetime and they'll kind of come through, and then we'll reset to a lower perspective.

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Emlen Briggs Harmon, JMP Securities LLC, Research Division - MD and Senior Research Analyst of Regional Banks [57]

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Got it. I asked in the context of it was a good quarter for expenses. It just feels like there's maybe a couple other tailwinds for you guys there as well.

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Operator [58]

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(Operator Instructions) This concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Byrd for any closing remarks.

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Daryl G. Byrd, IBERIABANK Corporation - President, CEO & Executive Director [59]

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Rocko, thank you. I want to thank everybody for listening today and for your confidence in our organization. Again, everybody, have a great day and a great weekend. Thanks.

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Operator [60]

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And thank you, sir. Today's conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.