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Edited Transcript of IBKC earnings conference call or presentation 28-Apr-17 1:30pm GMT

Thomson Reuters StreetEvents

Q1 2017 IBERIABANK Corp Earnings Call

LAFAYETTE May 1, 2017 (Thomson StreetEvents) -- Edited Transcript of IBERIABANK Corp earnings conference call or presentation Friday, April 28, 2017 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Anthony J. Restel

IBERIABANK Corporation - CFO, Senior EVP, Treasurer, CFO of IBERIABANK and Senior EVP of IBERIABANK

* Daryl G. Byrd

IBERIABANK Corporation - CEO, President, Executive Director, CEO of IberiaBank, President of IberiaBank and Director of IberiaBank

* J. Randolph Bryan

IBERIABANK Corporation - Chief Risk Officer and EVP

* John R. Davis

IBERIABANK Corporation - Senior EVP of Mergers, Acquisitions & IR and Director of Finance Strategy

* Michael J. Brown

IBERIABANK Corporation - Vice-Chairman and COO

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Conference Call Participants

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* Catherine Mealor

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

* Christopher Whitbread Nolan

FBR Capital Markets & Co., Research Division - Analyst

* 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

* Joseph Anthony Fenech

Hovde Group, LLC, Research Division - Co-Head of Research

* Matthew Covington Olney

Stephens Inc., Research Division - MD

* Michael Edward Rose

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

* Peyton Nicholson Green

Piper Jaffray Companies, Research Division - MD and Senior Research Analyst

* 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 First Quarter 2017 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to John Davis, Senior Executive Vice President. Please go ahead, sir.

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John R. Davis, IBERIABANK Corporation - Senior EVP of Mergers, Acquisitions & IR and Director of Finance Strategy [2]

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Good morning, and thanks for joining us today for this conference call. On our call this morning are Daryl Byrd, our President and CEO; Anthony Restel, our Chief Financial Officer; and Randy Bryan, our Chief Risk Officer. The rest of our team is also available for the Q&A session of the call.

If you have not already obtained a copy of the press release and supplemental PowerPoint presentation, you may access those documents from our website at www.iberiabank.com under Investor Relations. A replay of this call will be available until midnight on May 5. Information regarding that 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 supplemental presentation.

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

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Daryl G. Byrd, IBERIABANK Corporation - CEO, President, Executive Director, CEO of IberiaBank, President of IberiaBank and Director of IberiaBank [3]

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Hey. John, thanks, and good morning, everyone. We reported earnings per share of $1 and core earnings per share of $1.02 for the first quarter, which includes the $0.11 cost of carrying the capital we will be using to finance our acquisition of Sabadell United Bank. Add back that cost of carry and $1.13 feels like strong performance for a first quarter. Needless to say, we had a busy quarter given our Sabadell United announcement, and I appreciate our team multitasking and delivering good results across a number of fronts.

As expected, we had a very good bounce back in our net interest margin, driven in large part by the benefits of being very asset-sensitive and having little change in our cost of deposits. Deposit volumes were much higher than we expected and loan growth was a little softer than expected, though first quarter is always seasonally soft for us.

We did experience greater loan payoffs in a few markets. We were particularly pleased with our loan growth in Florida and Atlanta. We're delighted to have Sam Erwin and the team he is building out for us in Greenville, South Carolina. We also recently added a terrific leasing group in Atlanta. We're excited about the potential client growth prospects associated with these additions.

The strong deposit volumes in the first quarter of 2017 led to significant growth in average earning assets, up $737 million or 4%. The small 2 basis points move-up in deposit costs was the result of some clients choosing different products, not raising deposit rates. We are pleased with our noninterest-bearing deposit growth. Anthony will provide more information on our net interest margin in a minute.

This quarter, we experienced continued improvement in credit, which was a continuation from the fourth quarter and a trend we expect to continue. I'm very pleased that our legacy NPAs are now back below 1%. During the quarter, we saw several energy credits emerge from bankruptcy and either payoff or significantly pay down their debt.

We certainly did not enjoy the downturn in energy prices over the last several years. However, our focus on exploration and production credits and our culture of addressing credit issues early is resulting in a recovery pretty much as we anticipated.

We've been consistent in our messaging throughout the downturn. That is not to say the situation is completely behind us, but it seems that we're in a much more stable environment. Our energy team did a terrific job navigating this difficult environment and as I mentioned last quarter, the risk return trade-off is much more favorable in the E&P space now. As a result, our energy lending team is active in high-quality energy lending opportunities.

In fact, we added several new energy credits this quarter such that the new credits have been offsetting some of the pay downs, and our portfolio stands at about 3.7% of total loans. I am pleased that our credit discussions are back to being rather boring.

From a noninterest income and noninterest expense perspective, we experienced our traditionally season -- the traditional seasonality in the first quarter. Noninterest income was down 11%, primarily driven by the seasonality in our residential mortgage and title businesses. Also, our noninterest expenses were up as usual for the first quarter, driven by personnel expenses and some marketing expenses we always incur in the first quarter.

We continue to do a nice job containing expenses. And while our tangible efficiency ratio tilted up slightly, we expect that, that will -- we will get that back below 60% as the seasonal influences ebb. We believe that our combination with Sabadell United will favorably impact our efficiency ratios as well. We have filed the merger applications and are making good progress relative to the approval and closing of this transaction. We are very cognizant of the financial costs to our shareholders of holding that excess capital.

As we become more immersed with our Miami colleagues, we're very pleased across multiple fronts. First, we are impressed with their banking, sophistication and the talent of this organization. We will be gaining significant expertise in several areas that we could not have anticipated in the courting process. Second, they have a strong credit culture that I think is very similar to ours. They have a very clear and experienced view of their market and have thoughtfully built their loan portfolio to avoid exposures, particularly avoiding what we perceive to be potential pending credit issues likely to occur in certain segments of that market. This thought -- well, this is one of the characteristics that stood out to me as I got to know more people throughout their organization, particularly compared to some other expansion opportunities. As is usual, when you seek solid credit discipline, they also have a strong client base that they know well and provide thoughtful credit structures.

Finally, I continue to feel this transaction allowed us a financially attractive entry point into the South's third-largest market and what will be our largest market. I also believe this market will continue to experience significant consolidation.

I continue to be pleasantly surprised in nearly all aspects of this acquisition. I believe over time, we'll find this transaction, its growth prospects and its financial attractiveness to be even more compelling. Unfortunately, the Street sometimes focuses more on the financing side of an acquisition and less on the true value of a franchise over time.

Again, I want to thank our team for a solid quarter and the discipline demonstrated. I'll now turn it over to Anthony.

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Anthony J. Restel, IBERIABANK Corporation - CFO, Senior EVP, Treasurer, CFO of IBERIABANK and Senior EVP of IBERIABANK [4]

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Thanks, Daryl, and good morning, everyone. I'm glad to report that the first quarter ended up in line with expectations communicated on our previous earnings call in January. As expected, we saw the normal seasonal impacts we experience in the first quarter. Margin expansion reflective of our asset balance sheet came through. We had nice deployment of liquidity in our higher-yielding assets, and we saw a steady improvement in our overall credit metrics as our troubled energy loans continued through the resolution process.

Our cash balance at quarter end was $1.3 billion and will likely stay in that range until the Sabadell deal is closed later this year. As a reminder, the cash component of that deal is $803 million. So our cash is only about $500 million after adjusting for the acquisition-related cash and therefore, our on-balance-sheet liquidity is roughly in line with where we'd like to be on a normal run rate basis post closing.

During the quarter, we continued to deploy cash into our investment portfolio and loans to improve our overall mix of earning assets on the balance sheet and drive a higher earning asset yield. Our GAAP margin expanded by 15 basis points and our cash margin expanded by 11 basis points. The strong margin increase drove an $11.1 million increase in our net interest income compared to prior quarter.

The margin expansion in 1Q was driven by the full impact of the December 2016 fed funds and other short-term rate increases, the elimination of the indemnification asset amortization, recovery of previously deferred interest to principal on energy loans, the full benefit of recoveries on the acquired portfolios and an overall better earning asset mix, offset by a very stable cost of acquired funds, which only increased 1 basis point versus the fourth quarter. A roll forward of the margin versus the fourth quarter with the components broken out is available in the supplemental presentation on Slide 7 for your review.

I am particularly proud of the margin expansion since the overall average liquidity position is largely unchanged from last quarter due to the additional cash received from the most recent equity raise.

Relative to deposit rates, we have not raised rates this year, and at this point, we do not plan to raise rates in the second quarter. My expectation was that we will continue to see improvement in the margin during the second quarter as a result of the fed funds and short-term LIBOR move, which occurred in mid-March.

I also think we will continue to benefit from interest recoveries on troubled energy loans as they resolve and additional recoveries of acquired FDIC loans throughout the remainder of the year, although those items are difficult to forecast.

On a longer-term basis, I would expect to see some of the recent growth in our investment portfolio, which currently sits at 18% of assets, will be reversed with those dollars flowing into the loan book, enhancing our overall earning asset yield. As a reminder, 57% of our loan book is floating with 92% of the floating index -- index has been tied to either 1 month LIBOR or prime. Within our $8.5 billion floating rate book, we have approximately $533 million of loans, where the average floor is approximately 64 basis points above its corresponding rate index.

Our current forecast projects that the net interest margin in the second quarter will expand to 3.60%, assuming no significant recoveries during the quarter. The company's balance sheet will react favorably to upward moves in interest rates based on its current interest rate risk modeling.

Slide 8 of the supplemental PowerPoint provides key information on our asset-sensitive position. During the quarter, we saw the normal seasonal slowdown in our noninterest income businesses as expected. Activity in our seasonal businesses has started their normal seasonal upward climb as experienced by pipeline volumes, and we expect the income from these businesses to be materially higher over the next 2 quarters.

We also witnessed some softness in commission income, swaps and SBA gains during the quarter. Revenue levels for swaps and SBA gains are somewhat tied to overall lending activity at the bank. Given the traditional softness we see every first quarter on the lending side, the softness in these businesses -- or in these business units was not unexpected. Commission income was also soft at IBERIA Capital Partners as investment banking and trading activity was lower. I expect all of these revenue categories to rebound in future quarters as activity picks up.

Core expenses during the quarter increased $5.9 million. As expected, salaries and benefits increased as raises went into effect in March, payroll taxes reset and the benefit received on health care during the fourth quarter did not reoccur. We had some nice growth in unfunded commitments during the quarter, which required a build in our reserves for unfunded commitments in the amount of $1.2 million.

Marketing expense increased $900,000 quarter-over-quarter as the company made its customary CRA-related contributions during the quarter. The growth in FDIC insurance versus the fourth quarter reflects the new lower run rate I telegraphed on our last earnings call. Recall, we had $1 million recovery in the fourth quarter and thought our new normal run rate would be about $300,000 lower than where we had been running.

All in, the expense growth during the quarter was as expected and we actually came in under budget. We will see the full impact of raises in the second quarter, and we will see some seasonally higher expenses like payroll taxes start to fade as we move through the year. I expect noninterest expenses to be relatively flat next quarter and also expect our efficiency ratio to be below 60%.

On taxes, we benefited during the quarter from a change in the accounting rule related to the tax benefits on the vesting of restricted stock in the amount of $1.8 million. My expectation is that our tax rate will bounce back in the final 3 quarters of this year to 33.5%.

Spending a moment and talking about tax reform and its potential impact on IBKC. We've done some preliminary analysis using the first quarter as the base. In the event that our statutory rate were to drop to 20% from 35%, the net income benefit using the first quarter numbers would have resulted in lower taxes in the amount of $7.7 million and provided an incremental $0.16 to EPS.

The flip side of a lower tax rate is the impact on the usability of our built-up deferred tax asset. Simply stated, if taxes are lower, we have less ability to use that asset and hence, a DTA impairment would occur. Keep in mind, all these assumptions assume there are no other underlying adjustments relative to the deductible items that IBKC currently uses to reduce its tax rate below the statutory rate.

Relative to guidance for 2017, we are not adjusting the guidance we provided last quarter other than lowering the tax rate for the year by 50 basis points. Overall, I feel very good about the start to the year and continue to believe 2017 will produce very strong results and believe the Sabadell transaction will enable us to make significant improvements to our overall earnings and return metrics.

I'll now turn the call over to Randy.

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J. Randolph Bryan, IBERIABANK Corporation - Chief Risk Officer and EVP [5]

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Thanks, Anthony, and good morning, everyone. Today, I'm going to start on Slide 13 of the supplemental by giving an update on what we refer to as our risk-off trade, the term we've used to describe our approach to reducing our direct and indirect exposure to the energy sector.

We've moved nearly $850 million of loans off of the balance sheet. And when coupled with the normal growth we would have expected from these segments, the impact on our portfolio is well north of $1 billion. As you can see in the chart, the impact slowed in the first quarter as we expected. About 3/4 of the runoff in the indirect book is behind us, so this will be less of a headwind going forward. And when coupled with the resumption of some energy-related lending and a pickup in consumer lending activity in our energy-impacted markets, the impact to net loan growth was low and eventually reversed itself. As a reminder, the pretax earnings impact of this was nearly $26 million over the past 9 quarters inclusive of the first quarter impact of $5 million or about $0.07 of EPS.

Turning to Slide 14. Criticized energy loans decreased $70 million or almost 25% during the quarter. They're down nearly 1/3 from the peak in the first quarter of last year. This is the net of payoffs, upgrades and charge-offs. As we indicated on the last call, the additions to criticized energy loans have effectively stopped and we peaked at the $356 million level we saw 1 year ago.

Energy-related nonperforming assets declined $35 million in the quarter driven primarily by 2 payoffs in E&P credits where we received full payment of all principal, interest and fees due. On the third quarter call, we indicated that we thought asset quality challenges in the energy portfolio had crested, and the past 2 quarters bear that out. We should see another reduction in energy nonaccruals during the second quarter.

Although we cannot still completely rule out the risk of unexpected or negative energy-related credit events, we believe those events will now be confined to a handful of what remains in the nonperforming asset category. While it may not be a completely straight line of improvement in all of the energy asset quality metrics in each and every quarter, the basic trends through the year should be improving.

While the total energy loan balances were relatively unchanged from prior quarter, beneath the surface, there was a significant rotation into higher rated credits. While we had over $50 million in payoffs and pay downs in adversely rated credits, we had almost $80 million in new originations and line draws by pass-rated borrowers. We're seeing good quality opportunities in the sector and our Texas energy and credit teams are working hard on evaluating new opportunities while continuing to work the remaining challenged credits.

There's some additional credit detail available on Slide 15. And outside of energy, nonperforming assets were up by less than $3.5 million from the prior quarter and represented 49 basis points of assets, which is in line with where we ended the year. That's including both legacy and acquired assets. Total accruing loans past due in the quarter were 25 basis points of the total loan portfolio. Net energy charge-offs in the quarter were $2.8 million and were largely taken from specific reserves established last year. All in, including energy charge-offs, the annualized number was 16 basis points for charge-offs, down from 21 in the fourth quarter. The provision expense is in line with our general expectations. We also had an increase in reserve for unfunded loan commitments reflective of first quarter loan growth.

Given some of the headlines coming out of the U.S. retailing industry and some of the questions we're beginning to get from the investment community, I wanted to make a few broad comments about our exposure to retail. While we appreciate some of the challenges that industry is facing, we believe we're well positioned and not exposed in a significant way to the sectors that are facing the most pressure.

Overall, in our retail CRE portfolio, the weighted average risk ratings are a bit better than the overall average for our commercial portfolio. We don't have any material direct large loan exposure to national retailers through Shared National Credits or otherwise. Most of our lending activity directly to retailers is more localized and the average loan size is very granular, really much more small business in nature.

To give a bit more color on our retail CRE portfolio, looking at all the exposures we have north of $2 million, we don't have any direct exposure to publicly traded REITs or loans secured by traditional enclosed malls. Our average loan size is in the $5 million range and the weighted average LTV is sub-60%. 85% of this portfolio has guarantors. About 1/3 is grocery, grocery anchored or drugstores and approximately 1/4 is construction and development, much of which we expect to eventually move to the permanent market. All of our retail construction loans have guarantor support. Finally, this is also a fairly granular portfolio. We only have 5 loan commitments in excess of $20 million, the largest of which is $35 million.

So in conclusion, I'm pleased with where we ended the quarter and also to see some of the headwinds from the risk-off trade abating. We are also looking forward to further building our business across our existing footprint and as we expand into South Carolina and further in Florida. Once the Sabadell team is onboard joining the strong Florida team we have there now, we'll be even better positioned to build our momentum in those markets.

We're working through the integration process and spending significant time with our future colleagues down there. We see continued reaffirmation of our views developed during the due diligence process about the quality of their team and the high degree of similarity in our approaches to credit as well as other aspects of risk management and compliance.

I'll turn the call back over to Daryl. Daryl?

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Daryl G. Byrd, IBERIABANK Corporation - CEO, President, Executive Director, CEO of IberiaBank, President of IberiaBank and Director of IberiaBank [6]

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Thanks, Randy. I want to thank our financial team, John and Beth, for producing another excellent annual report. I also want to remind everyone that our annual meeting is here in New Orleans on Tuesday May 9, at the Windsor Court Hotel at 4:00 p.m. We would enjoy your attendance. I'll now open the call up for questions. Denise?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question will come from Jennifer Demba of SunTrust.

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Jennifer Haskew Demba, SunTrust Robinson Humphrey, Inc., Research Division - MD [2]

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Two questions. First on your South Carolina expansion. Can you just go into some more detail on what your plans are there over the next 1 to 2 years in terms of either acquisitions or hiring?

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Daryl G. Byrd, IBERIABANK Corporation - CEO, President, Executive Director, CEO of IberiaBank, President of IberiaBank and Director of IberiaBank [3]

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Sure, Jennifer. You know historically, we've gone into markets through acquisition. We've also gone in de novo. This is one we're going de novo at this point, and very pleased with the opportunity to recruit Sam to our company. I think many of you know Sam historically and just a great guy and he's building a really nice team for us. So we'll start in Greenville. We may expand out a little bit, but that will be in time, and our early expansion in Greenville will be pretty disciplined from a branch perspective. Michael, any other thoughts for you?

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Michael J. Brown, IBERIABANK Corporation - Vice-Chairman and COO [4]

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It's a similar, as Daryl said, pattern that we've used before in a number of different markets. We start with good leadership and then we add in commercial support, meaning relationship managers and administrative support with limited infrastructure, and that's the same model we're following in Greenville. And so far, we've been very well received. We opened our first branch location this week and we already have a healthy commercial pipeline. So we again feel good about the direction we're taking there.

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John R. Davis, IBERIABANK Corporation - Senior EVP of Mergers, Acquisitions & IR and Director of Finance Strategy [5]

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Yes. This is John Davis. I would also suggest, from an acquisition perspective, we're always looking for the most cost-effective way of expanding in a given market and frankly, in upstate South Carolina, there just aren't many acquisition candidates up there. It's a fairly consolidated market, so it's going to be fairly limited on the acquisition front.

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Daryl G. Byrd, IBERIABANK Corporation - CEO, President, Executive Director, CEO of IberiaBank, President of IberiaBank and Director of IberiaBank [6]

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But as always we like to start with people and we think we've got a great person in Sam. Jennifer, do you have a second question?

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Jennifer Haskew Demba, SunTrust Robinson Humphrey, Inc., Research Division - MD [7]

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I do. My second question is regarding the events of this week at your competitor in Lafayette. I was just wondering if you anticipate some market share gain opportunities out of that management transition.

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Daryl G. Byrd, IBERIABANK Corporation - CEO, President, Executive Director, CEO of IberiaBank, President of IberiaBank and Director of IberiaBank [8]

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Jennifer, we're just kind of getting the information and kind of thinking about it. We've known that team for a long time, both the old team and I guess, the new team because Jim used to work with us way back when we first started this company. So we wish them well and we'll see how that kind of develops.

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Operator [9]

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And the next question will come 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 [10]

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Anthony, on the NIM expansion in the second quarter, to 3.60%, kind of what are your assumptions in there? Is it simply the March rate hike? Kind of what amount of loan growth do you have in there? Any mix changes in the securities portfolio? I'd just be curious what your underlying assumptions are.

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Anthony J. Restel, IBERIABANK Corporation - CFO, Senior EVP, Treasurer, CFO of IBERIABANK and Senior EVP of IBERIABANK [11]

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Yes. So Emlen, I think it's just basically the move that we saw in March relative to 1-month LIBOR and the prime move. I don't think we are forecasting any significant shift within the asset mix to really drive anything significant.

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Emlen Briggs Harmon, JMP Securities LLC, Research Division - MD and Senior Research Analyst of Regional Banks [12]

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Got it, okay. And then just on the commercial pipeline this quarter. You called it $600 million on a probability-weighted basis versus -- I think last quarter was $811 million, but you hadn't used that kind of probability-weighted language. Could you give us a sense on a like-to-like basis just how the pipeline is proceeding and just kind of maybe what any differences quarter-to-quarter might be?

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Daryl G. Byrd, IBERIABANK Corporation - CEO, President, Executive Director, CEO of IberiaBank, President of IberiaBank and Director of IberiaBank [13]

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Emlen, I'll ask Michael to address that, but we did make -- have a methodology change and you are picking that up. Michael?

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Michael J. Brown, IBERIABANK Corporation - Vice-Chairman and COO [14]

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Yes. I mean, we decided to move to a more predictive methodology that was, as you noted, probability based. Pipeline is healthier running into the second quarter than the first. It's typical for us to have a seasonal effect for those who've followed the company for past quarters. The first quarter is always the softest and it was true again this quarter. We had good growth in Florida, Georgia, Alabama, specifically Dallas within Texas and then we had softness in the usual suspects, particularly in Louisiana. The second quarter has already gotten off to a very good start. We're up about $100 million already through the month of April. So we feel good that the traditional seasonal rebound from an asset growth perspective is occurring. Sorry for the confusion around the change of methodology, but again, the outlook for growth is very favorable.

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Operator [15]

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And the next question will come from Ebrahim Poonawala of Bank of America Merrill Lynch. All right, we'll move on to the next question...

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Ebrahim Huseini Poonawala, BofA Merrill Lynch, Research Division - Director [16]

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Yes. I guess, just first question I had for perhaps Randy, given sort of -- you've seen a little bit of volatility in oil prices. Now it seems like you think you guys are ahead of the curve in terms of identifying the issues and sort of going after them last year. Just wanted to get a sense of -- if oil sort of slides a little bit lower here, how do you handicap the risk there in terms of the credit outlook and your existing borrower base?

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Daryl G. Byrd, IBERIABANK Corporation - CEO, President, Executive Director, CEO of IberiaBank, President of IberiaBank and Director of IberiaBank [17]

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Yes, you're right, and I'll jump in. I'd start with saying it feels -- actually feels fairly stable still for me.

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J. Randolph Bryan, IBERIABANK Corporation - Chief Risk Officer and EVP [18]

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Yes, no I agree, Daryl. I think if we kind of stay in the range where oil and gas have been trading of late, it doesn't really change anything with regards to our outlook as we kind of look at kind of where we are from a borrowing base perspective, and the spring redetermination season, kind of a mixed bag in terms of what we see there, some -- a significant number probably won't have much of a change in their borrowing base, we'll probably have some that will go down a little bit, some that will go up a little bit. So barring some sort of sharp move in the prices doesn't really affect my outlook in terms of kind of what we think we're going to have from a provisioning or charge-off standpoint.

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Michael J. Brown, IBERIABANK Corporation - Vice-Chairman and COO [19]

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Ebrahim, just worth noting, on the newer loans that we are seeing in the marketplace, the commodity risk is really kind of mitigated. There's fairly extensive hedging programs being built into these new deals. So for the foreseeable future, the movement in commodity prices really doesn't have an impact on the new transactions we're doing.

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Ebrahim Huseini Poonawala, BofA Merrill Lynch, Research Division - Director [20]

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Understood. That's helpful. And just separately, following up on your comments, Michael, on loan growth, obviously, this is a seasonally slow quarter for you guys. But as we think about -- there's been a good amount of uncertainty around -- do we need pro-growth policies from D.C. before loan growth picks up? You have a fair diversification both in terms of the businesses that you cater to, end markets. Like what is your expectation in terms of -- there is middle to small market business around it, sort of borrowing demand, investment trends? And do we need tax policies to take shape before we actually see a material pickup?

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Michael J. Brown, IBERIABANK Corporation - Vice-Chairman and COO [21]

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Real quickly, what I'd suggest is that we're traditionally about moving market share as a company, and we invest in individual markets depending upon the opportunity that exists. So we're less dependent upon overall economic growth. So when we see growth in markets like Dallas, I mentioned Atlanta, the various Florida markets, we're less susceptible to overall economic activity. It would certainly help if there was sort of greater growth than there has been for, say, GDP and how it would impact our individual clients or prospects. But again, we're more about moving share than we are looking for economic expansion.

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Daryl G. Byrd, IBERIABANK Corporation - CEO, President, Executive Director, CEO of IberiaBank, President of IberiaBank and Director of IberiaBank [22]

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And again, Ebrahim, we like our diversified geography.

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Operator [23]

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The next question will come from Catherine Mealor of KBW.

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Catherine Mealor, Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP [24]

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Maybe first on the securities book. Anthony, can you talk a little bit about -- you mentioned that you think that the size of the book will shift over time -- we're probably at a peak at 18% of average earning assets. So how should we think about the pace of that portfolio? Is it declining from here? Or is it just kind of -- is it stable from here? And just as loans continue to grow, that kind of grows as a greater percentage of average earning assets.

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Anthony J. Restel, IBERIABANK Corporation - CFO, Senior EVP, Treasurer, CFO of IBERIABANK and Senior EVP of IBERIABANK [25]

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Catherine, it's a great question. And if you go back a little bit, the portfolio as a percentage of assets is at 18% today. We got as low as 14%. But I'll tell you, if you go back in time, we seem to have been kind of range bound with 14% being the low and maybe 20% kind of being the high. What I will tell you is we have a fairly low pledged ratio today, so we're carrying a lot of bonds, which basically means that we have the ability -- as loan growth picks up, to shift and keep the balance -- without necessarily just ballooning the balance sheet, we can shift some of that cash flow as it comes due. Which is running generally about $50 million a month of cash flow off of the portfolio that we have the option to either reinvest into the bonds or if loan growth is picking up, we can go into loans. So I think on a longer term basis, what I would tell you is we'll shift as the opportunity presents itself based on how loan growth kind of moves. The ultimate objective would be to really continue to push the earning asset up and improve the margin and drive a higher return on average assets for the company.

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Catherine Mealor, Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP [26]

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Got it. That's really helpful. And then on the deposit side, [user] deposits were -- came in higher than you were expecting. Are there any -- as we go into next quarter, are there any kind of large seasonal public funds that you expect to come then out of the second quarter? Should we see the -- that the decline in deposit base has just shifted out a quarter? Or do you think the increase in deposit inflows are more sticky and this is just a bigger deposit balance moving forward?

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

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Catherine, we've had some -- we've had tremendous success continuing to grow deposits. So some of the large transitory deposits we talked about in the first -- or in the fourth quarter did leave, and we were blessed to get in some new deposits, which is great. I think if I had to handicap it, I would say we'll see some run-off in deposits related to kind of last minute tax payments going out this quarter. We do have some more temporary deposits expected to leave. It's always hard to handicap kind of what we're going to see from a new deposit perspective. But I would say all-in, my guess at this point for the quarter is we're probably going to be relatively flat quarter-over-quarter, knowing that we could see some slight movement one way or the other depending on how few different things bounce.

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Operator [28]

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The next question will come from Michael Rose of Raymond James.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD, Equity Research [29]

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Maybe for Anthony. I just wanted to dig into the margin a little bit. Looks like 7 basis points of the increase was related to higher purchase accounting accretion. What are your expectations kind of as we move forward? And I guess, this quarter specifically, how much was scheduled versus maybe unscheduled accretion? And then how does the Sabadell transaction, at least from initial blush, relate to your margin expectations going forward?

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Anthony J. Restel, IBERIABANK Corporation - CFO, Senior EVP, Treasurer, CFO of IBERIABANK and Senior EVP of IBERIABANK [30]

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Yes. So what I'll tell you, Michael, is the pickup on the acquired loans is more so an elimination of the amortization of the IA versus -- which is always carried [to drags]. Since we include the IA amortization, unlike some banks, we include it up in the margin line, right? So by eliminating that, with exiting loss share in the fourth quarter, that's really what put the push relative to the accretion number. So my expectation is certainly, as that acquired portfolio kind of burns off over time, the overall level of income there will slowly go down. But I don't think we'll see much real movement or significant movement relative to the yield on that portfolio. Keep in mind, we have benefited from some recoveries historically as I mentioned on the last quarter call. Now we'll fully benefit from those recoveries, and we do expect that we are going to see some pretty significant recoveries as we move over the next, let's call it, year or so. And those will cause some nice, I'll call it, positive pops relative to the margin for us as we get those. So I think that's, if I had to handicap it, I think that's what I would tell you on the accretion side.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD, Equity Research [31]

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And any thoughts on initial expectations for Sabadell?

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Anthony J. Restel, IBERIABANK Corporation - CFO, Senior EVP, Treasurer, CFO of IBERIABANK and Senior EVP of IBERIABANK [32]

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Yes. And then relative to Sabadell, clearly, the Sabadell United does have an absolute lower level of margin than IBERIABANK has. Keep in mind that Sabadell's balance sheet is also structured in an asset-sensitive kind of position as well. And then finally marks, as they come to play, will also make a difference. I would say probably all in, once we close that deal, the margin will slightly reset a little bit lower. But keep in mind that as we kind of start working through some of our strategies and what we think we can do there, we'll be able to kind of pick that up as we move forward.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD, Equity Research [33]

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Okay. That's really helpful, Anthony. Maybe just one follow-up maybe for Michael. Just thinking about Sabadell's franchise and the strong growth that you guys are experiencing in Florida, how should we think about the combination of those 2 as we move forward. I mean, do you think you can move their growth up to where you guys are at in some other markets in the state? And how should we think about kind of the combined loan growth in Florida as we move forward?

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Daryl G. Byrd, IBERIABANK Corporation - CEO, President, Executive Director, CEO of IberiaBank, President of IberiaBank and Director of IberiaBank [34]

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Michael, it's Daryl. And I'm going to start with that one. I said it in my remarks. They have a very strong credit culture and they've been, I think, very conservative in the way they've kind of built their book of business. And so they've been pretty low risk and I think very thoughtful in some areas of their market. I think we'll have an opportunity to partner together and improve the growth prospects in that market for us. I think you will over time be pretty pleased at what we can do together, and I'm pretty optimistic in terms of my view of what the growth is going to look like. Michael?

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Michael J. Brown, IBERIABANK Corporation - Vice-Chairman and COO [35]

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Yes. I would concur with Daryl. I'd just also reinforce the point he made earlier of the quality of the people at Sabadell. It's a very, very good group. They're well connected in the marketplace. We tend to do well in large metropolitan markets where we're competing with what we define so kindly as the large clumsies, and that certainly is the case in Miami. So back to the original point I made about liking to move share, I think there's plenty of share to move in Miami and with a good team, good strategy, good people, I think we'll be successful.

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Daryl G. Byrd, IBERIABANK Corporation - CEO, President, Executive Director, CEO of IberiaBank, President of IberiaBank and Director of IberiaBank [36]

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It's a very large market. And by the way, Michael, and this is again just my view, I think it's a rapidly consolidating market. So we see quite a few opportunities.

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

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That's great. And maybe just one more quick one for Randy. The energy reserve is down to about 3.5%. I wanted to more focus on the retail, which you called out. Just curious through a cycle, I mean, what is the typical reserve allocation for that portfolio? And if things are a little bit more stressed moving forward, would you expect to allocate some additional reserves to that?

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J. Randolph Bryan, IBERIABANK Corporation - Chief Risk Officer and EVP [38]

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So just to clarify, Mike, are you asking about the energy reserve?

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Daryl G. Byrd, IBERIABANK Corporation - CEO, President, Executive Director, CEO of IberiaBank, President of IberiaBank and Director of IberiaBank [39]

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No, I think he's asking about retail.

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Michael Edward Rose, Raymond James & Associates, Inc., Research Division - MD, Equity Research [40]

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Yes, I'm just talking about the retail. So obviously, the energy reserves have been elevated for a while. But just curious about the retail side, if we see additional stress there, what have historically been the reserve allocations? And would you expect to allocate more if there's additional stress as we move forward?

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Anthony J. Restel, IBERIABANK Corporation - CFO, Senior EVP, Treasurer, CFO of IBERIABANK and Senior EVP of IBERIABANK [41]

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Yes. Look -- this is Anthony. I'm going to take that one just because it's more of an accounting question than kind of what Randy kind of thinks. So what I'll tell you is I don't think that, at least since I've been with the company over the last 17 years, we've seen a downturn really relative to retail like we -- like what you're, I guess, asking us to speculate on. What I will tell you is our allowance methodology is fairly quantitatively driven based on risk rating migration. So to the extent we start to see negative migration within the portfolio due to, let's call it, trends within those businesses, the revenue will build, in all likelihood, advance of challenges -- I'm sorry, the reserve will build as we see kind of shifting within the risk rates tied to those portfolios. So I don't know that we really know an answer. I think we'll do some work in terms of where we think things will go. And maybe at a different call, we can have some more info on that. But I would tell you, it is, for us, the reserve, is largely quantitatively driven. We do, do some level of qualitative overlay. So if we believe that the reserve levels are not building at an appropriate level and it warrants a qualitative overlay because we think something's kind of happening different, just like we did on energy, we will add to the need.

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J. Randolph Bryan, IBERIABANK Corporation - Chief Risk Officer and EVP [42]

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Yes. That's exactly what we did with energy, Michael. But I would also say, we looked at this portfolio given all the attention obviously pretty closely. And from a credit quality standpoint or a ratings standpoint, it's performing extremely well and as I said in my comments, it is a very granular portfolio.

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Operator [43]

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The next question will come from Stephen Scouten of Sandler O'Neill.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [44]

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I wanted to -- I know a lot of the differential in loan growth was obviously just seasonal kind of effects here in the first quarter. But also, it sounded like, in the presentation, that you guys were maybe a little surprised at some relative weakness even over and above the seasonal effects. So can you talk a little bit about maybe year-over-year trends and what you saw that led to maybe slightly lower growth and why you think that won't persist moving forward.

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Michael J. Brown, IBERIABANK Corporation - Vice-Chairman and COO [45]

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Yes, sure. This is Michael. A couple of things I would suggest that we are seeing this past quarter that we didn't see last year. It's -- a large part of it, frankly, is related to the rise in rates. So what we've seen is a number of our real estate clients who are traditionally longer-term investors in terms of holding onto properties in the bank market, have either sold those properties because of concerns around the cap rates rising or have taken them into the long-term market at an earlier point than they typically have done. So what I would suggest is payoffs in the real estate side have been a little bit higher than we would've normally seen. On the traditional C&I side, we've obviously continued the risk-off strategy and we've seen the runoff in the E&P portfolio specifically, lesser on the service side, but certainly impact the C&I balances. But we've also interestingly seen some of our C&I clients sell. Private equity seems to be more active with respect to the lower middle market than they've traditionally been. I think that's just simply a function of the fact that there's a tremendous amount more money chasing deals, so they're going down in relative size. Again, those would be sort of effects on the portfolio. And then obviously, the overwhelming effect for us is just traditional seasonality, which tends to depress production levels so if you have a rise in payoffs in the sort of flat to down production levels, you're going to have limited growth.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [46]

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Yes, that's really helpful color, Michael. And then maybe back to the NIM one more time, really impressive move, I think, in light of all the excess liquidity that we saw this quarter. And it sounds like obviously, we're looking at maybe 3.60% next quarter. But can you talk a little bit about how the continual drag of the equity and liquidity will impact that? And maybe what -- where the NIM could go ex that liquidity drag because, I guess, on Slide 12, it sounds like maybe about an $0.18 drag to EPS per quarter relative to the $0.11 we saw this quarter? So I'm just trying to frame up kind of where the puts and takes are moving forward in terms of how the incremental benefit from the March hike will allow the NIM to increase, if that makes sense.

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Anthony J. Restel, IBERIABANK Corporation - CFO, Senior EVP, Treasurer, CFO of IBERIABANK and Senior EVP of IBERIABANK [47]

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Yes, what I'll tell you is keep in mind that, that $0.11 drag is a net, right? So we're backing out the -- what we earned from a cash perspective, right? So if you think about interest-bearing cash 1%, kind of the rate, so if you want to think about opportunities, I'd like to think about it more of income versus just where the margin might go. But -- so obviously, as we move that cash, especially the, I'll call it, 2/3 of the cash will go to pay for the Sabadell transaction. The Sabadell deal will come on with a significantly higher margin than 1%, right? So that will certainly help from an overall mix and continue to push us along. So fairly confident we're going to see some significant move in the net income related to that. But like I said, the margins are going to move relative to mix. I think we'll move up 3.60-ish in the second quarter. Once we close, we'll have to kind of align kind of where we think things actually are going to land. If you ask me to handicap the excess cash and what I think it costs us overall, it's probably about 5 basis points impact to the NIM right now. So I think if we were just to bring it down, I would say you'd probably get another 5 basis points to the net interest margin absent the Sabadell transaction.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [48]

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Okay, that's helpful. So maybe think about it this way. If you hadn't had that excess capital from the raise, you can see the NIM going from 3.53% to 3.65% apples-to-apples.

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Anthony J. Restel, IBERIABANK Corporation - CFO, Senior EVP, Treasurer, CFO of IBERIABANK and Senior EVP of IBERIABANK [49]

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Yes, I think that's reasonable.

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Operator [50]

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The next question will be from Matt Olney of Stephens Inc.

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Matthew Covington Olney, Stephens Inc., Research Division - MD [51]

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Anthony, can you just verify that the outlook on the NII assumes no incremental rate increases from what we've already seen going back to March?

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

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It does. And so it assumes basically, Matt, that the treasury yields basically stay somewhat in check. And there's -- yes, flat rates, stable rates.

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Matthew Covington Olney, Stephens Inc., Research Division - MD [53]

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Okay. And then on deposits, I understand your commentary as far as not planning on changing any of your product pricing. I'm curious, you're in a number of markets throughout the South. Any color you can add as far as deposit pricing pressure, where you'd expect it to be through the course of this year through your various markets?

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Anthony J. Restel, IBERIABANK Corporation - CFO, Senior EVP, Treasurer, CFO of IBERIABANK and Senior EVP of IBERIABANK [54]

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Matt, we obviously price our deposits different across all of the different markets using our market-centric kind of model. What I'll tell you is I think I think we've got a couple of good things that are working for us is -- overall, we don't really see banks driving their deposit rates up, right? So we see some select competition for individual kind of clients, let's say, but we don't see it in the rate sheets per se. And I think that's a function of, today, given that loan growth has been somewhat tepid across the industry, it's kind of kept the loan-to-deposit ratios in check. And so I think with that, most banks are taking the opportunity to say, "We're going to go ahead and let the margin expand by not moving deposit rates." So I think that's going to continue, especially if loan growth industry-wide remains somewhat soft. I expect loan-to-deposit ratios to remain in check. Again, we're not seeing anything from our competitors' rate sheets deposit-wise. And so I think that, that can kind of hold in for a while. I'll also tell you that to the extent we go with some gaps between the rise in short-term rates, I like to say the longer those gaps, I think the lower the deposit beta. Conversely and if we're moving every 6 weeks like we were in previous cycles, it creates a lot more -- I think, a lot more demand to be moving the interest on deposits. So I hope that color helps.

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Matthew Covington Olney, Stephens Inc., Research Division - MD [55]

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Yes. I appreciate that, Anthony. And then lastly, on fee income, I was a little surprised that you maintained a full year guidance for fee income to show the minimal growth in '17 versus '16. And you mentioned some seasonal influences as far as kind of why it was lower than 1Q, but you were still 15% I think below year-over-year levels, seems like a pretty big hole to climb out of. What else can you tell us as far as the fee income to get us more comfortable with the full year outlook?

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

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So look, I think on the mortgage side, we've seen a couple of things. We've seen the mortgage rate pull back below 4%, which has obviously a help. Our mortgage team, executives in the mortgage group have been very active out on the recruiting front. We've had some success there. So I think you're going to see us start to make up some ground within the mortgage business as we move through the end of the year given the dynamics there. We're very...

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Daryl G. Byrd, IBERIABANK Corporation - CEO, President, Executive Director, CEO of IberiaBank, President of IberiaBank and Director of IberiaBank [57]

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Some of the other items you mentioned on the call are going to pick up as loan growth picks up.

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Anthony J. Restel, IBERIABANK Corporation - CFO, Senior EVP, Treasurer, CFO of IBERIABANK and Senior EVP of IBERIABANK [58]

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Right. So SBA activity is something that we've budgeted for a really stellar growth year-over-year. We've got pipeline, ability to look at that and so we feel good about that. Treasury management is a business for us that's probably posted up now maybe 14 months of consecutive quarterly growth, that's going to continue and post very nice year-over-year growth. So on an absolute basis on the mortgage business, maybe slightly off a little bit. I think I've got enough other things coming along whether it's trust business, treasury management, SBA fees, et cetera, to make up the delta. So that's kind of where I'm at. And until I see something really break differently, I'm comfortable with that forecast.

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Michael J. Brown, IBERIABANK Corporation - Vice-Chairman and COO [59]

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A little bit more just on the mortgage side. We've had a good recruiting pipeline. We've recruited new leadership in Atlanta as well as Birmingham, and those 2 leaders are now out recruiting. We've had a couple of other teams in the process of joining. So we're excited about that. But the other thing is, is that we're also excited about building up the secondary mortgage business in Miami and South Florida, and I think we can build on what's there. We have very good team there, a very good back office there. And so we're going to work on growing that as we integrate in Sabadell as well.

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Matthew Covington Olney, Stephens Inc., Research Division - MD [60]

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That's helpful. And just lastly, one more question, can you just verify the mortgage volume in the first quarter, how much was purchase versus refinance?

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Anthony J. Restel, IBERIABANK Corporation - CFO, Senior EVP, Treasurer, CFO of IBERIABANK and Senior EVP of IBERIABANK [61]

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Just give us one second. We'll look it up real quick.

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Daryl G. Byrd, IBERIABANK Corporation - CEO, President, Executive Director, CEO of IberiaBank, President of IberiaBank and Director of IberiaBank [62]

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Refi was 21%.

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Michael J. Brown, IBERIABANK Corporation - Vice-Chairman and COO [63]

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So they're down a little bit from some of the low rate highs. But -- and we've historically always been a purchase lender. So we'll expect that business to grow.

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Anthony J. Restel, IBERIABANK Corporation - CFO, Senior EVP, Treasurer, CFO of IBERIABANK and Senior EVP of IBERIABANK [64]

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Yes, it was 30% in the fourth quarter.

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Michael J. Brown, IBERIABANK Corporation - Vice-Chairman and COO [65]

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Yes.

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Operator [66]

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The next question will come from Peyton Green of Piper Jaffray.

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Peyton Nicholson Green, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [67]

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I was just wondering, maybe Anthony, if you could talk about how you'll deploy -- I mean, if the style of deposit growth continues and if it outpaces loan growth. What kind of roll on yields would you expect in the investment portfolio going forward? And then was there any particular benefit in terms of mix shift between the year-ago quarter and the securities book? And would you anticipate any going forward given the move in rates?

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Anthony J. Restel, IBERIABANK Corporation - CFO, Senior EVP, Treasurer, CFO of IBERIABANK and Senior EVP of IBERIABANK [68]

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So what I'll tell you is just kind of thinking through the different questions here that you asked me. What I'll tell you is I think that new volumes for the loan -- coming into the investment portfolio, about 2.40. I think 2.40 is, kind of give or take 5 basis points off of that, is kind of where we are right now, on what we're doing. So that's what I would tell you there. Relative to kind of mix shift year-over-year and kind of what we saw relative to the investment portfolio, overall, yield on the portfolio was basically flat year-over-year. I'll remind you that last year -- I mean, you asked me on the call -- the question on the last call, about asset sensitivity and kind of where some of the numbers were or kind of, I'll call it, leaking out of the back end. Remember, as we went through last year, we had a 75 basis point drop on the 5-year treasury, which really impacted all of our fixed rate lending as well as kind of what went into the investment portfolio. So we did see -- although the yield -- the coupon was flat year-over-year, we did see during the year pretty good headwind from increased bond premium amortization we had to deal with. So what I'd tell you is I think all in all, bond premium amortization has slowed quite a bit. New yields are about 2.40. Current yield on the portfolio is lower than that. So all in, I would expect that yields can continue to grow within the investment portfolio. On a longer-term basis, clearly, I think for the next couple of months, my longer-term expectation was that loan growth probably will outpace deposit growth. But I can tell you that if you had asked me last year, I would have told you the same thing. And as we got into the last half of last year, we -- that flipped around on us. So hope that helps, Peyton.

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Peyton Nicholson Green, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [69]

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Just a follow-up to that. What -- the $50 million a month in cash flow that you expect off the portfolio, what's the roll-off yield on that relative to the overall portfolio?

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Anthony J. Restel, IBERIABANK Corporation - CFO, Senior EVP, Treasurer, CFO of IBERIABANK and Senior EVP of IBERIABANK [70]

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Let me see if I can get that answer for you. Tell you what, let's -- I got -- one of my treasury guys are fast and furiously typing for me here. They'll get me that before we jump off the call. So I'll come back on and answer that before Daryl wraps it up.

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Peyton Nicholson Green, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [71]

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And then maybe one for Randy. On the energy nonaccrual book of about $113 million, 79% of those are current, which I guess implies about $24 million is not current. Of the recovery income that was booked in the first quarter, was that off -- I guess, that's off of basically solving issues on ones that were not current? Or maybe help me think through how the migration of those loans, as you cure them, will benefit your recovery income going forward.

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J. Randolph Bryan, IBERIABANK Corporation - Chief Risk Officer and EVP [72]

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Yes. So the -- we had a couple of nonaccrual loans as -- they came out of bankruptcy in the quarter. They were paying all along while they were in bankruptcy. But obviously, we can't take the income while they're on nonaccrual. So that's kind of what we saw, so that's where that came from.

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Peyton Nicholson Green, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [73]

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Okay. And what was the par value of those?

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J. Randolph Bryan, IBERIABANK Corporation - Chief Risk Officer and EVP [74]

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The total value of what we had come off the nonaccruals was about $37 million, most of which was those 2 credits, Peyton.

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Peyton Nicholson Green, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [75]

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Okay, all right. And how does the resolution pipeline look going forward?

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J. Randolph Bryan, IBERIABANK Corporation - Chief Risk Officer and EVP [76]

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Yes. I said on the last call last quarter, we probably thought we'd see the nonaccruals come down $100 million this year, so we're a little north of 1/3 of that 1/4 of the way into the year. I've got good visibility to a couple of others that probably frankly resolve in the next week or 2. So my comments last quarter really hold pretty consistently. So we'll expect to see that number to continue to roll down. As I've said, since this thing started, it's really hard to pinpoint exactly which quarter all those things are going to fall out in. But our overall outlook on the resolution hasn't changed.

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Anthony J. Restel, IBERIABANK Corporation - CFO, Senior EVP, Treasurer, CFO of IBERIABANK and Senior EVP of IBERIABANK [77]

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And then Peyton, going back to your -- the question you asked me. I'm thinking the coupon roll-off for the next 6-months is about [2.65%]. Overall, we don't expect the yield on the portfolio to change quarter-over-quarter. Keep in mind, it is very -- keep in mind, it is going to be dependent on what happens to the premium amortization, which at this point, has been kind of going down every month. So we'll have to see how that kind of turns out.

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Peyton Nicholson Green, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [78]

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Sure, great. And then just in terms of thinking of the mortgage business. I mean, if the forecast for the industry is down 10% to 14%, do you feel like the business is positioned well enough at this point to outperform? Or do you think it's just because of the first quarter -- maybe it performs more in line with the industry?

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Michael J. Brown, IBERIABANK Corporation - Vice-Chairman and COO [79]

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Peyton, a couple of things. One is we've had a good track record recruiting and we think we can continue to do that. We're also less heavy -- less dependent on refis than the rest of the industry. So refis, I think, are the majority of what's expected to come down. And so if we're effective in recruiting and we'll maintain our purchase business, we think that will lead to the outcome we think..

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Daryl G. Byrd, IBERIABANK Corporation - CEO, President, Executive Director, CEO of IberiaBank, President of IberiaBank and Director of IberiaBank [80]

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Peyton, we've got a really good team, and I'm excited about what I think they can do this year, even in light of rates.

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Operator [81]

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(Operator Instructions) Your next question will come from Christopher Nolan of FBR & Company.

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Christopher Whitbread Nolan, FBR Capital Markets & Co., Research Division - Analyst [82]

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Daryl, on your comments in terms of the Miami market, were they -- they seem to be a little bit more guarded than when you announced the Sabadell acquisition in March. Is that a fair way to read it?

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Daryl G. Byrd, IBERIABANK Corporation - CEO, President, Executive Director, CEO of IberiaBank, President of IberiaBank and Director of IberiaBank [83]

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No. I think I would tell you absolutely the opposite. I am way more excited today just based on our experience with the team in Miami. We have been really, really pleased with the talent, and we're finding some people that have skill sets that you just couldn't have anticipated kind of in the courting process that I think are going to be very valuable additions to our company. So just the opposite, I feel way happier with this transaction. And what I've said is that they have a very conservative outlook towards credit, which is pretty similar to ours. And so we don't have -- we don't see a lot of cleanup or anything like that. And I think in terms of working together, you're going to see a pretty good growth outlook.

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Christopher Whitbread Nolan, FBR Capital Markets & Co., Research Division - Analyst [84]

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Great. And my follow-up question is when you did the Sabadell announcement, you indicated the closing's in the second half of 2017. Any indication whether it could be closer to the third quarter or closer toward the end of the year?

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Daryl G. Byrd, IBERIABANK Corporation - CEO, President, Executive Director, CEO of IberiaBank, President of IberiaBank and Director of IberiaBank [85]

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I guess, what I'd say to that is we are working really hard to get this thing approved as quickly as we can. But I'm not going to try to handicap exactly where it's going to fall at this point in time.

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Operator [86]

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And the next question will come from Joe Fenech of Hovde Group.

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Joseph Anthony Fenech, Hovde Group, LLC, Research Division - Co-Head of Research [87]

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Most of my questions were answered, but just 2 more if I could. Daryl and John, a number of banks that are around the $30 billion range in assets, which is around where you'll be with Sabadell. I'm thinking of companies like Bank United, Bank of Oklahoma, a couple of others, have talked about putting on the brakes on M&A until we get more clarification on the status of the $50 billion asset threshold. Just wondering how you all think about that. Would you shy away from larger deals like Sabadell? Or even put the brakes on entirely until we get some clarity there? Or is it not something that you think about all that much?

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Daryl G. Byrd, IBERIABANK Corporation - CEO, President, Executive Director, CEO of IberiaBank, President of IberiaBank and Director of IberiaBank [88]

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I'll start and John's certainly going to jump in on this one. I think we're in a great position. We've got a lot of work to do to execute at a really high level relative to what we got on our plate right now. And so we're going to be pretty disciplined in trying to do a really good job with that. But at the same time, I think we're seeing some sort of opportunities out there. And we're going to be disciplined and we're going to be focused on value. John, your thoughts?

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John R. Davis, IBERIABANK Corporation - Senior EVP of Mergers, Acquisitions & IR and Director of Finance Strategy [89]

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Yes. Joe, the only thing I'll add there is this is really a business model deployment is what we're doing. And so there are certain markets where that model works. And acquisitions sometimes are the most cost-effective way to deploy that business model. As we did with Greenville, sometimes it's organically and you supplement it with acquisitions as those opportunities come along. So I think we're always looking at those. And I think we continue -- we've been doing it now for 18 years, so we're -- I think we're pretty good at it. But I think we're also there -- we've got very disciplined. We don't necessarily have the same -- wouldn't call it inflated currency, but currencies that are well above where ours that some people are using that, that financing mechanism to pay up the deals. We're just not that way. We're looking at value of some of these franchise, what they look like. And frankly, some of them kind of, we think, are well above intrinsic value. So I'd just say we're very disciplined. We go at it maybe differently than other people. And I think we're really focused more on finding the right partners and then being able to grow. And that's really just an ongoing business approach that we take, and we've done that for many years, so don't really see any change there.

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Joseph Anthony Fenech, Hovde Group, LLC, Research Division - Co-Head of Research [90]

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Okay. And with respect to Sabadell and your Florida leadership group going forward, have you made any determinations there regarding leadership of the Florida market? Will you separate out South Florida from the rest of the team? Or will you combine it and then who will lead that?

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Daryl G. Byrd, IBERIABANK Corporation - CEO, President, Executive Director, CEO of IberiaBank, President of IberiaBank and Director of IberiaBank [91]

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We really don't have any commentary today on that, Joe. We're very happy with our leadership in Florida both our existing leadership and the leadership that we're acquiring. And so we'll see how that develops going forward.

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Operator [92]

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(Operator Instructions) And in showing no additional questions, we will conclude the question-and-answer session. I would like to hand the conference back over to Daryl Byrd for his closing remarks.

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Daryl G. Byrd, IBERIABANK Corporation - CEO, President, Executive Director, CEO of IberiaBank, President of IberiaBank and Director of IberiaBank [93]

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I want to thank all of you for your continued support and joining us today. I hope everybody has a great day and a great weekend. Thanks.

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Operator [94]

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Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.