Q4 2019 Earnings Call
Good day, ladies and gentlemen, and welcome to Hancock Whitney Corporation's fourth quarter 2019 earnings Conference call. At this time all participants are in listen only mode. Later.
We'll conduct a question and answer session and instructions will follow at that time, if anyone should require operator systems. Please press Star then zero keep on your Touchtone telephone.
Reminder, this call may be recorded I would now like to introduce your host for today's conference Trisha Carlson Investor Relations manager you may begin.
Thank you and good morning during today's call. We may make forward looking statements, we would like to remind everyone to review the safe Harbor language that was published with yesterday's release and presentation and in the company's most recent 10-K, including the risk and uncertainties identified there in.
Hancock Whitney's ability to accurately project results or predict the effects of future plans or strategies or predict market. Our economic development is inherently limited.
We believed that the expectations reflected or implied by any forward looking statements are based on reasonable assumptions, but our actual results and performance could differ materially from those set forth in our forward looking statements.
Hancock Whitney undertakes no obligation to update or revise any forward looking statements and you are cautioned not to place undue reliance on such forward looking statements.
In addition, somewhat the remarks this morning contain non-GAAP financial measures.
You can find reconciliations to the most comparable GAAP measures in our earnings release and financial tables.
The presentation slides included in our 8-K are also posted but the conference call webcast link on the Investor Relations website, we were reference some of these slides in today's call.
Participating in today's call or John Herrlin, President and CEO , Mike Achary, CFO and Chris The Luca Chief Credit Officer, I will now turn the call over to John Harris done.
Thanks, Tricia and happy New year, everyone. We hope you had a healthy enjoyable holiday season as noted in our release yesterday, we completed 2019 only positive note surpassing expectations with solid results earnings excluding merger costs were 1.06 up 3% linked quarter our upward.
<unk> leverage increased quarter to quarter, and we reported loan growth in line with gosh, including a reduction in our energy portfolio of just over $70 million criticized loans decreased NIM expanded and our capital levels remain strong even with the share repurchases during quarter four for the year 2019.
In the story with similar earnings excluding merger costs were up operating leverage increased 24 million compared to 2018 loans grew 1.2 billion criticized it nonperforming loans, both declined year over year, and our TC ratio was up 43 basis points.
As we began 2020 our team remains focused on building upon positive momentum and also capitalizing on available opportunities in our markets.
Please refer to slide six in the earnings deck to see a five year look back indicating marked improvement. The company is made through those years, we chartered a new course in 2015 that was designed to return us to the profitability levels. We plan for challenging rate in credit environments causes to re evaluate strategy said Michael property adjustments.
During the same time period, we benefited from a growing U.S. economy and restarted acquisitions, we completed five transactions in the past five years that were financial in nature and accretive immediately to earnings along with a deliberate remix in lending growth. The transactions helped grow the company to over 30 billion assets and.
Have strengthened our position in existing markets and facilitated entry to new ones through it all our capital is remain strong and we have managed it we believe in the best interest of our shareholders through organic growth, increasing dividends and stock repurchases and profitable mergers and acquisitions slide seven addresses focus areas for 2000.
Hi, Jane with profitability back to peer levels and holding despite a falling rate environment. We worked vigorously to bring our margin and credit metrics back two or better than peer averages.
Made progress on both actually moving above average won the top right chart on slide seven shows our NIM in the first quarter of 2019, we achieved peer levels then for the past three quarters, we've actually reported a better than peer average margin well, we can check the box on this one we will not lose sight on what it takes to keep it there the other.
Two metrics are related to asset quality, we've made meaningful progress on both but still have work to do especially on nonperforming loans into yours. The gap to appears on criticized loans has diminished from 375 basis points in the first quarter of 2018 to only 44 basis points today.
Well the gap on in P. else has narrowed from 145 basis points to 72 basis points turned out to the future as we do each January we've updated our corporate strategic objectives or see Assos found on slide 22, our see yourselves are based on the results of our annual budget and multi your business plan that has not.
Right.
With achievement of profitability metrics, we opted to take a more conventional approach to discussing longer term goals.
Set of specifying a particular target in quarter two years out we're sharing our expectations for a three year annualized outlook represented by the business plan if interest rates change for the better where we find an acquisition like previous ones. We expect to accomplish the goals early if the environment changes or presents more challenges it could take us longer to achieve.
Our see yourselves are met to convey where we believe the company is headed based on her focus and outlook today, all designed to enhance shareholder value in recent months, we fielded questions about the company's technology readiness and scalability slide 23 in the Investor deck provides a short description of where we are in multiyear technology investor.
The company is both competitive and scalable already with additional improvements specifically in sales technology deploying over the next several quarters with that I will turn the call over to Mike for a few additional comments and details. Thanks, John Good morning, everyone.
Yes for the quarter was a dollar three and included nearly 4 million or three cents per share of the final merger costs related to the mid South acquisition.
So EPS, excluding those non operating expenses, what's a dollar six for the year EPS was 372 on a reported basis, but didn't include almost 33 million of MSL related merger cost.
Excluding those costs operating EPS for the year was $4 in one sense.
Loan growth for the company was inline with our guidance up mid single digit average growth year over year with the quarter coming in as expected.
Mid South did at 785 million of loans in the third quarter. However, we also saw a decrease in legacy energy loans of 164 million over the course of 2019.
We expect to continue shrinking or energy book in 2020, and offsetting that reduction with more granular production across our footprint and other specialty lines of business.
We hit our energy concentration goal of below 5% during 2019 and what the de emphasis on that type of lending, we're updating our strategic goal to 2% to 4%.
Well there were no energy charge offs. This quarter, we do expect to see continued one off type activity as we resolve our remaining problem loans from the energy cycle.
We're pleased to be back on track in resolving problem credits criticized loans were down 79 million from September Thirtyth and after a blip last quarter related to mid south into shared national credit exam.
Nonperforming loans had a small uptick this quarter with an increase of 23 million. However, our year over year numbers did show improvement.
Going forward, we expect to see continued improvement on an annual basis, and our asset quality metrics, but do remind folks at the quarter over quarter progress well not always be linear.
Our net interest margin was one of the bright spots for both the quarter in the year with expansion reported linked quarter same quarter, a year ago in year over year.
Proactive in management that included a focus on improving loan yields and reducing deposit costs were significant focus points in 2019, and we'll continue to be 2020.
Slide 15 details the NIM change quarter over quarter.
As you can see the impact of MSL for a full quarter any accretion related to that acquisition drove in 11 basis point expansion from last quarter.
There were no interest recoveries this quarter in that coupled with the net impact of the recent that rate cards were headwinds.
Swap in funding from brokered Cds to home loan advances was a welcome tailwind and altogether helped drive the overall two basis points of expansion for the quarter.
Going forward, we do expect to see some runoff in our accretion levels from normal activity as well as reclass, a part of our discount under Cecil However, given the portfolio management activities. We noted earlier, we do expect our core NIM remained relatively stable our NIM guidance does not include.
Any additional rate cuts in 20 Twond.
The income was basically flat linked quarter as the addition of a full quarter of mid south species was offset by a lower level of specialty income.
For the year, however fees were up 30 million, partly driven by those specialty lines.
Operating expenses were up linked quarter as expected.
Two quarters in back from mid South added 8 million in operating expense with about three and a half million of that total related the personnel expense.
As noted earlier all MSL related cost saves were achieved in the fourth quarter.
As John noted earlier capital remains strong with T.C.E. ending the year at 845.
The decrease from third quarter was related to the stock buyback we announced in October .
As a reminder, we entered into an agreement on October 21 to repurchase about 5 million shares of our common stock through an accelerated share repurchase program or ANSR on day. One we received 3.6 million shares which is included in our fourth quarter Cps calculation.
We expect to receive the balance of shares by mid year with the number of shares dependent on our stock price over that period.
The HSR allows us to essentially buyback a similar number of shares because the number issued for the mid South acquisition basically changing it from a stock cash transaction and improving the profitability of the deal.
And finally slide 22 includes forward guidance, consisting of both our near term outlook and longer term goals for our Cxos I'll now turn the call back to John .
Thank you, Mike and let's open the call for questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby well, we compile the Q and a roster.
And our first question is from Catherine Mealor from KBW. Your line is now open.
Thanks, Good morning.
Good morning.
Maybe just for start on the fee Guy you said that you believe fees will be up by about 2% to 3%.
Next year, which I think it's a little bit lower than what the street had the modeling he just talk a little bit through how you're getting to that guidance and and how we should think about the level of specialty fees that you're including in that guidance versus what we saw in 2018. Thanks.
Sure Catherine and this is John and Michael and want to add some color I want them done the.
Forward looking guidance on fees presumes, a very static right environment, which typically is not beneficial for the specialty income.
I assume the same thing this time last year than of course things didn't work out that way and fees outperformed so I think it would be fair to say.
At the the guidance is maybe a little conservative depending on what the right environment looks like.
That flat rate environment also presumes very little refinance mortgage income in it which may also be a little conservative so.
We try to be very honest and what we believe will happen in the coming quarters, and and so where our assumptions are that the right environment won't be terribly helpful. In fee income that may prove to be conservative monkey anything else you want yes. Thank you John So so again the guidance of 2% to 3% on fees I think the other.
Changed their admittedly is on a conservative side.
I think we certainly have an opportunity to outperform that guidance.
As John mentioned, if we look back, especially over the second half of 19.
Really almost all of our fee income growth was in the specialty lines that John mentioned, so that's things like boldly derivative fees, our venture capital fees mortgage banking and syndication.
We had absolutely excellent growth in performance in really all of those specialty lines. The second half of 19.
And the assumption as we go into 20 is that a those fee income lines, while certainly have the potential to repeat that performance. This is not something at this point, we feel we can count on with up with complete confidence so again, a conservative assumption around the guidance and certainly.
A a an opportunity to outperform a thing.
Okay. That's helpful. And then appreciate the longer term fees, so called that out this year, we kinda piece sort of your guidance together you. We've got mid single digit growth with a fairly stable margin.
And then you this low single digit kind of fee growth with me, there's upside there, but yes, and then that coupled with this higher 6% to 7% expense growth.
It feels like it this will be a hard year for you to show positive operating leverage and maybe that's more of a 2021 event is that the way we should think about it or do you think there are ways to get positive operating leverage this year.
Well I think if we're going to be you know when the conservative side, you're probably right, but I also think we do have opportunities to outperform that.
We talked about a those those opportunities and fee income.
And and certainly I think we have that opportunity in spread income.
The guidance that we're giving around loan growth again is mid single digits.
If the economy continues to perform well we have an opportunity there to outperform and then related to our NIM. We we absolutely have some headwinds around accretion some of that's related to the out the accounting change related to see so when some of that.
Discount moving to the Seattle, but as we mentioned in the guidance.
We believe we have an excellent opportunity to have really good stability when it comes to our core NIM you see in our materials I think we've done an excellent job with our remix focus we can talk about a little bit more later.
But especially on a on deposit costs. So those efforts around the things that helped us outperform in this year, absolutely will continue in 2020 and certainly give it gives us opportunities I think the show some positive operating leverage this year.
Catherine This is John the only thing I would add to that since you brought up the expense number.
As in the guidance, we broke apart the.
I guess, what you'd call normal inflationary increases of two to two and a half which would be indicative of the same type of expense manage that we've had the last several years.
The increase in the overall expense number takeout MSL, which is easy to understand the rest of that is purely office if investment.
That's an bankers teams and technology investment all geared to take advantage of what probably is the most weakening market disruption we've had from our eastern border to our western border. So we believe this is a good year to invest aggressively and playing offense with ball.
And the timing of doing that may lead to the expense load occurring before we get the benefit of the gains and so the some of that is timing. So when you say operating leverage improvement and 21, maybe better than 20, we absolutely believe it really good 21.
And the timing of all that investment relative to benefit may lead to 20 be a little bit more dampen, but but that's a positive. So looking at expense number. We would encourage you don't look at it is negative is not it's a positive because of where we're investing in what we expected benefits to be going forward.
Great. That's super helpful. Thank you so much.
You bet thanks for the questions.
Thank you. Our next question comes from Michael Rose from Raymond James Your line is now open.
Hey, Thanks for taking my questions just wanted to go back to the expenses you know.
Appreciate the slide 23 talking about all that technology initiatives that you have planned is this a multiyear build out meaning should we expect additional incremental investment beyond 2020 into 2021 2022.
Outside of the 2% to 2.5% kind of inflationary expense growth that you guys will have every year just trying to size, where you stand in terms of technology investments and how long the investment period could be ex no. Thanks. Thanks for question. Michael This is John no you'd expect the expense growth and 21 to playing down you know we're not.
Repair to give numeric guidance around that but in terms of that specific to the technology investments. This is more the wrapping up of a multiyear technology investment and the beginning we've been doing this now for a really about five years and aggressively the last three or four and heretofore had been able to cover all those cost increase.
Leases with operational synergies from within the company.
The combination of doing that plus the investments backend advantageous investments for market disruption.
Pile up together to create the six to seven but I would have looked more for our customary increases and 21 over 20.
Versus the little bit larger one in 2000 joint.
Okay. That's I wasn't clear is this kind of the end of the the investment process. Okay.
Well yeah. It gets you never say, there's no investment Michael of course, but I think I would say, it's more normalized and also in just the dynamics I don't want to get too far in the wage and complicated but.
A lot of the investment isn't back office automation to kind of finish what we did the last several years. So what will happen is the operational synergies that cover the bulk of that costs are major being revenue growth to make it a very profitable venture, but those come in the late part a 20 and 21 just through reductions and.
Some of the back office areas, where that work just simply goes away in the elimination of paper for branches and whatnot. So.
Also out there, which were not prepared to give any detail around but the investments in digital have been beneficial.
The app ratings and the adoption of usage of those for servicing transactions has dramatically increased and really did 19 over 18.
That will facilitate some additional redirection of expense dollars from a brick and mortar to both digital and too.
Analytics used to create revenue. So I think I would look at this more as finishing what we began a few years ago than something need we've already absorbed the bulk of all of our technology cost.
And very helpful.
<unk> as John mentioned, what we'll see in 21 is some of the benefits of the investments we're making this year.
That will help offset future investments in expenses.
So the previous question about operating leverage I understood. One follow for me just wanted to touch on on asset quality.
Energy clearly has been in the headlines.
Over the past couple of months.
Just wanted to get a sense from you guys, where you think we are in the process of this kind of second cycle. The first being the 14 15 downturn couple of years of improvement now some negative migration across the space. Now do you think this is kind of plays out over the course of the next year are we kind of near the end of it at this point.
Thanks.
Well that this is John I'll start and.
Chris can address thank you, specifically, but there's really two ways to look at the I'll use your words the second wave of energy one is the impact on the balance sheet and the second is like you specifically and if we look at.
The balance sheet, we've been pretty steadily reducing energy balances altogether.
And some of the color that we've given on I don't remember the slide numbers for energy, but it's been a pretty healthy reduction in outstanding and Thats going to continue and while energy is a good business and specifically and piece has been more volatile. So as a result, while we continue to press down on that overall book of business.
We're being responsible and we're taking care of core for relationship clients, but the non core relationship paper will over the course of time continue to reduce so we are doing no new energy work, except with very core full relationship Clos, we know a lot about and so when you noted in the guidance the 2% to 4%.
Target versus the five that's the play there so the impact of the of another cycle in the energy will force those balances down.
And some of the loan guidance that we gave for the year not some it includes all of the expected reductions in energy offset by more granular more spreadsheet lines of business. So hopefully that will address the balance sheet Park, Chris you want to talk about a Q specifically.
Yeah, I mean from from my perspective, you know, we think that energy is going to continue to be an area of focus for us and we don't really anticipate any sort of bounce back an improvement in the sector. So as a result, all of our actions from an asset quality perspective are to continue.
You to drive down.
Our asset quality issues in the energy portfolio specifically.
And this is John again in the interesting phenomena.
In the last couple of quarters is.
When we bought some really impressive I think improvement in criticized book a lot of that was related to energy.
And so the downward pressure has been almost uniquely if not completely uniquely NP.
Which we really didnt expect to see particularly with the performance of crude prices and to a lesser extent Nat gas and so.
It's certainly disappointing to even still be talking about energy and that has proven to be somewhat less predictable as an industry. Therefore, it doesn't fit our desire to have less volatile earnings in the future. So for that reason.
The energy book will continue to decline.
Very helpful color. Thanks, guys for all the pilot.
It is thank you.
You very much appreciated.
Thank you. Our next question is from Brad Milsaps from Piper Sandler Your line is now fan.
Hey, good morning, guys.
The one rep.
Hmm appreciate all that the color and guidance I just wanted to maybe delve into the the NIM a little bit more your guidance around a stable.
Core NIM I'm, just kind of curious to get the moving parts. There, particularly do you think more of that stability is going to come from changes you'll make you know into balance sheet versus you know opportunities you know maybe on the deposit side.
Particularly in the context of I think its slide 16, where you show.
New loan yields I think were down.
A fair amount linked quarter due to some specials you've been running just kind of curious if those special expired and how we see that maybe tick up a bit in coming quarters.
Yeah, specifically on that bridge some of that was some of the consumer in home equity related.
Promotions that we had done so we actually expect on a go forward basis for the yield on our new production to kind of bounce back.
To answer your question I think theres several areas.
That will help us with our efforts to.
To keep our core NIM stable, if not have an opportunity to outperform a little bit.
First of the certainly to continue the efforts around re mixing our loan book and striving for production that's more granular.
On segment and having higher yields.
Absolutely will continue and again as Ben I think a bright spot in our efforts to manager in the past year or so.
Second deposit rates.
Next slide in the deck. It shows a monthly breakout of our cost of deposits and you can see that I think we've had pretty good success in being pretty proactive in reducing our deposit rates.
Really very little under way of of customer push back. So those efforts will absolutely continue even in the face of what we believe will be a flat rate environment.
On a aiding our deposit costs of bids is is that we have a pretty pretty good quantity of CD maturities.
Especially in the first half of 2020 little bit less than $2 billion that'll be coming off at a little bit less than 2%. So the reinvestment of those Cds.
They significantly lower rate will obviously be helpful.
Thirdly, managing the balance sheet I think we again as I mentioned have opportunities to maybe outperform our loan growth guidance a bit.
We also have opportunities to potentially.
Look at doing some restructuring in our bond portfolio.
Not ready to talk about any of that in any degree of detail right. Now those are certainly things that if we're able to execute on.
Be helpful to the overall efforts.
Great. Yeah, I know that's helpful. And then just kind of one follow up a housekeeping question on the expense is the right starting point.
With the guidance versus 29 teams at the 737 million dollar.
Core expense number that you guys disclose in in the release.
That's correct so.
737 excludes about $33 million of merger costs related to MSL.
Would it be fair to say that you. Your guidance you know you've maybe gone with sort of worst case scenario for fee revenues and maybe worse case for expenses.
You kind of conservative in both regards.
Well as we kind of mentioned or in some of the early discussion around fees. We do think that's conservative in the guidance that we've given on the expense side, the 6% to 7% or so I think there's an opportunity to come and maybe on the lower end of that range.
But those are the levels that we believe.
Will occur over the course of 2020, we have again are pretty modest increase in base expenses from 2% and then the MSL annualization that adds another 3% or so and then the technology as well as investments related to market disruption you know kind of rounds out the numbers.
Yes, Brad this is John I think the only comment and just using that phrase worse case on the expense number.
I had mentioned earlier a lot of offensive spend than that so I wouldn't want to beat the number because we were unable to hire the number of bankers, we expect to higher.
Those bankers are targeted at the more granular parts of our business that we now I think we're kind of coming into our own in terms of being able to grow those areas and so.
I don't want to say I want expensed or be hot, but I do want to make those investments and see those returns to create value down. The road show I don't think we're going to be shy about spending money to take advantage of those market disruption or not at all I think it's a good time the do it it's it's a little bit of a once in a lifetime opportunity with that much that much disruption happening and.
In the markets that we serve.
Again, as we've talked about many times, that's something we're looking to.
To enhance those opportunities around and insight and this is John it's also.
Somewhat exacerbated by the fact that very very large organizations and some of our markets are dot as focused at those and those markets as we are.
So the sum of all of that opportunity is while we believe it's a good time to invest.
And all things that when the hearts and minds of perspective clients and so up so we pretty aggressive there.
No. Thank you guys. It really appreciate it.
You bet.
Thank you. Our next question from Casey Haire from Jefferies. Your line is now fan.
Thanks, Good morning, guys.
One of the touch on expenses again, just the six to seven.
Can you guys provide like a break down between the three components MSL.
Tech and then the disruption opportunities.
How much you know.
You know for each is driving you know the core driving it from that core inflation of two to two and a half to six.
Six to seven and then.
Do you guys have a want is there any.
Any expectation that the disruption that you're seeing could contribute.
220, 20 or would that be gravy versus your guidance.
Casey This is Mike I'll start with kind of the build up of the six and a half.
As we mentioned I think a little while ago kind of looking first at the base increase related to expenses around 2% or so.
Then the Annualization of the MSL expenses will add year to year I know that 3%.
And then the tech slash market disruption.
Managers, 1% to 1.5% so that's how we get to the six and a half or so.
Okay, Great and then.
So on the disruption side I know you mentioned the tech Cook will will produce revenues this year.
Are you assuming any like is the mid single digit loan growth Guy does that assume that you do get some some business from some of these.
Assumed hires this year well first off I don't I don't think there's any revenue this year associated with this technology spend.
The benefit related to that will come in 21.
Around some expense offsets.
But to answer your question about the market disruption the the loan growth guidance that we've given up mid single digits does not include any benefits related to market disruption at this point.
Yes, we're pretty far down on the weighed on that one but up but I will share the timing of the investment rollout schedule some of the utilities with working for some time.
He is loaded towards granular lending in the first half a year. So presuming that is a successful mid year rollout.
And were timing. The addition of additional bankers to follow that pretty quickly.
If we hit out of the gate.
Finally on that then we may see some benefit in 20, but we're not counting on that for the guidance that we're giving and if we outperformed great. If it takes a little longer than it will be more than 21, but.
I know, you're you're kind of working on a pro forma there, but the timing is kind of hard to predict this many quarters away from the hires whose available when they come on and what the cost is so we're doing our best to kind of give a direction of where we expect to invest this year.
What we think the impact of that will be is expressed to the CSS and if we get there earlier, maybe we'll outperform the CSS in terms of tiny timing and but that's our antenna direction.
Okay.
Just switching to sort of the.
Hi front the.
I think most of us thinking just grow the balance sheet inline with loans.
You guys do have a a strong liquidity profile.
The expectation that that you.
You guys dip into that a little bit and we saw some positive mix shift on the on the funding side with the broker.
Posits I guess basically I'm trying to get at the average earning assets is that just track loan growth or does it lag. It if you guys.
Dip in your liquidity profile.
I think a little bit of a combination of both.
So you can assume that for all practical purposes, the bond portfolio will stay pretty static at around 6.2 billion.
The liquidity side, certainly we have opportunities I think two again move our loan deposit ratio up a little bit.
And in offset some of that with earning asset growth but.
We have a lot of levers and a lot of different.
Avenues of flexibility in terms of how we manage the balance sheet and rest assured that we're going to do that in a way that helps us maximize NIM as well as net interest income.
Gotcha last one from me just on on Cecil sort of the day too.
Provisioning your first quarter guide for provision.
You're basically saying that it will be flat versus the fourth quarter here at 9 million on a on a similar expectation for loan growth pace.
Is that.
Is that what's your it does it seems like it's a business as usual and there's not much of an impact from Cecil day do provisioning is that is that the way to look at it.
Yeah, I think I think for the next couple of quarters. That's certainly the case the provisioning will continue to be impacted by charge offs loan growth.
And things of that nature has its always been certainly the kind of loan growth that we have will be important from a cecil perspective, both in terms of loss expectations going forward, but also duration. So those are all things that.
As we move through the other Cecil World will level impact the provisioning.
The other thing that's out there too is the the assumptions around kind of the macro economic environment right now that's fairly benign.
But at some point down the road that changes that certainly will have impacts to see so.
In the form of what our provision is.
But the next couple of quarters I think it really is kind of has we just describe to us.
Okay, Great just one more if I could the core NIM relatively stable that versus the fourth quarter here at 3.9 or is that versus 29 2019 overall.
We're talking about it.
[noise] relative stability from the fourth quarter on.
With some potential for for a little bit expansion.
Great. Thank you.
Welcome.
Thank you. Our next question is from Matt Olney from Stephens. Your line is now fan.
Hey, Thanks, Good morning, guys I wanted to follow up on the loan growth commentary and the guidance of mid single digits.
If I look at 2019 and strip out mid South I think the organic growth with closer to around 2%. So could you give us some more details on which loan categories. Do you expect to drive between 20 growth and John I think you've mentioned more granular lending can you tell us more typically.
Kind of what's behind this this these new loans.
So you just essentially told my puts and takes on a loan growth 20 over 19 right did I hear you right, Yeah sure well us, let's talk about whats the outsourced first.
We already mentioned energy I won't go any further than that.
That's all going to be a declining one I think indirect lending as part of consumer.
We will decline for the year I mean does the risk adjusted yields.
Our.
Or just not as attractive and the captives are their financing add owns at a rate. We just don't believe the risk adjusted yields on the upside or has upside right now so will diminish indirect.
See Erie was a big pay down quarter for for Q4 in fact, I think we had about $200 million of pay downs, which is a much bigger number in Q4.
Down than we expected and that offset some of the growth we anticipated, but the granular part of the quarter was actually solid.
And it was about consistent with quarter three so I think we'll continue to see commercial banking business banking see or even though it's a big pay down Q4 thing would be a good growth story.
For the year.
And then across our markets, particularly in the back half of the year as the disruption begins to began and we see advantages from the investments we're making.
We should see some goods commercial banking and perhaps middle market. So I think energy in indirect has said it downward and really everything else will we headed up for the year.
Okay. That's that's helpful. And then I guess I'm, Mike on the margin outlook the commentary around the guidance around lower accretion levels from the Reclass that I feel can you put a range on this reclass helpless kind of five it up for our model as the transition into the Cecil for one Q2 0, and then.
The pace that run off the throughout 2020.
Yes, so for the DMR accretion runoff related to the reclass of around three and a half million or so for the year.
There's a little bit more that that will occur in the first quarter and then from that point on the accretion levels should even out a little bit.
Okay, and then I think last question for me on the Cxos.
I appreciate the update there and.
I appreciate this more of a three year update and you gave us the oral ATP and ROTC, but we didn't see the E. P. S that we've seen in previously you says any color on why the decision not to include GPS This time.
I think we're just trying to approach it from a little bit more of a macro point of view Matt.
Certainly I think we've given enough information that you can probably implied.
EPS range to those numbers, but again because the other dsos are now in the context with more three year targets.
The challenges around kind of projecting that for many yes perspective, we thought it was better served by substituting in Norway.
Okay that makes sense. Thank you.
You bet.
Thank you. Our next question from Abraham Poonawala from B of a securities. Your line is now fan.
Good morning, guys.
Good morning.
So I guess, so one question given.
You mentioned multiple times in terms of taking advantage of the market dislocations.
That's happening because of Emoney does that suggest that you don't see hand called being a participant in any kind of a larger deal and we should expect another year, where we could see a mattel's type deal has the most likely path on M&A is that the fair conclusion.
Yeah, I think absolutely is fair.
So from an M&A perspective at least you know for the next year too I think what you can expect from us as a kind of transactions. We've done in the last two three years, so things of the other nature at first NBC and mid South we think makes sense for us.
Add onto that the opportunities we have for market disruption and you know that thatll be really be our stance I think for the next year too.
It's kind of pulling this so in terms of the buyback. So Mike I think you mentioned did about one half million.
Share this part of MSR, which come in in the second quarter.
Could you in the meantime, we are you able to buy additional stock in the open market and do you want to buy multiple most I'll just remind us and don't have the PC levels.
Maintain and operate at the bank at how we should think about any additional buybacks.
Sure so related to Tc E C. The number that the we came in at 12 31.
Probably a little bit stronger than than we had projected so we're good as far as.
He and not not being a challenger and implement.
Toward any future buybacks, so as we've said before.
Focused on kind of completing the HSR that should happen.
Really no later than ended the second quarter at that point, we'll get back.
Presumably somewhere between a million in a million <unk> and a half shares we still have authority remaining and the HSR does not preclude us from buying stock back on our own while the pace CSR is still happening. So those would be decisions that will look at and certainly consider.
The benefits of doing that on a go forward basis, but I think without a doubt our intent at this point is to focus on completing the HSR and second half looking at potentially buying back additional shares.
Okay, and just one last question I'm not sure if you've talked about your loan growth, but would love to your own John any color on on just what you're seeing in the markets until middle of what's on the state being done. This week is business income and getting better or make should we expect potential for upside surprise us things.
Well, all or do you expect things to remain.
A little more cautious given this upcoming elections later this year and if you're seeing any difference across your markets had on growth appetite.
As a great question.
We haven't really seen any change in sentiment quarter over quarter.
We are mindful that it is an election year and there's a fair amount of disparity and the platforms that could lead to some concern from those business leaders, who are in the investment business and so if they begin to have some degree a concern as we get closer to November that it may be a less beneficial.
No.
Environment in 2021 and beyond for their industries to that could curtailed.
Investment appetite, which would have a direct impact on on loan growth. So.
So no change in sentiment now really at all it really hasn't had any impact and if anything sentiment is maybe slightly more positive simply because you know that momentary.
Couple of quarters, where there was a lot of handwringing about a recession seems to have died down a good bit than I think we're sort of back to normal so.
Overall, our marketplace I think sentiment would be considered positive.
Got it thanks for taking my question.
Sure. Thank you for asking.
Thank you. Our next question is from Jennifer Demba Suntrust. Your line is now fan.
Thank you good morning.
Good morning.
Question on the hiring opportunities with market disruption sounds like you want to biased more towards your legacy markets, I'm guessing, Louisiana, and Mississippi and how many hires do you have in the budget for 22.
20, given the guidance the expense guidance you gave.
Oh part first question on where the disruption is really not limited to the core.
It's a it's really spread across our whole footprint.
And as you May remember, we have a healthcare practice out of Nashville, Tennessee is beginning to look a little more promising as well. So it's really more franchise wide opportunities in terms of numbers of bankers it changes a little bit based on where we find opportunity. So if it's in the the.
Very granular areas in business banking in commercial banking.
Number maybe a little higher and if it's more in middle market banking could be a little lower so.
We have an assumption that I really wouldn't want to share across you know with with the public but but it would be the largest number of bankers. We have hired for 2020 in any single year in the past five or six so little bit more substantial hiring that we've had in the past.
Okay. That's helpful and Mike you mentioned earlier in the call you're considering restructuring the balance sheet do you have any details you can share right now as to what you might be considering.
The comment was related to the bond portfolio and again not prepared to to share anything related to that all I think I was doing is stating that as an opportunity at some point later in the year.
Okay.
Last question based on the comments earlier in the call sounds like you feel like your fee income guidance is fairly conservative are there any part other any or other parts of your guidance you feel or on the conservative side or Conversely, a you feel like have more opportunity for for this.
Thing.
In this in this environment right now.
I don't I don't think so I will add again that related to the market disruption opportunities, there's really no revenue or balance sheet growth built into the plan related to that so.
So should some of those investments begin to to yield positive results than certainly that that's upside to the guidance.
Thanks, so much.
You bet. Thank you.
Thank you. Our next question from Christopher Marinac from Janney Montgomery. Your line is now fan.
Thanks, Good morning, just a quick one on the loan yield that you mentioned in the and the presentation last night. So when we look at the real change here. It is certainly a little bit worse.
Then than just the rates in the last quarter, but I'm curious if that is a onetime trend Mike or will that sort of continue to be an issue. This is just the the new loan yield drop that change so much the last two quarters.
Hey, Chris you're talking about the slide 16 of the deck around new production yield that I'll give you. A couple this is John I can add if he likes.
You know that that number is the.
The average of the new business. The day, we initiate the transaction and if you look at the rate curve throughout metric curve, but the actual LIBOR rates between.
October November December they slid precipitously by the time, we got to December .
And cyclicality and he this was even more pronounced in this particular years fourth quarter. Our production was heavily influence toward December and sell the time stay up in the December lot more numbers drag the computed number down to that for 35.
That was exacerbated by a better than expected, which is a good thing better than expected equity line production business, which for Q is usually not a big quarter force, but this time it was and the teaser rates that those.
Lines come onto Prescriptively adjust and months six and so so the number looks like a much lower number but a lot of that was due to timing.
And mix and so there was also a new market tax credit component to that that we enjoyed the benefit of on the tax aside.
But that also put that number a little lower so I wouldn't call it normal, but it's really tough to predict what level is going to be on the day. We we put a lot of the books and that can have an impact some time on the today I will affect color was helpful. For you, but that's really had a number got to be what it was that I think are the only thing I would add is that we do expect that number to improve as we go through 2020.
Okay. That's that's super guys. Thank you very much for the additional color here.
Thank you our next questions from well Curtis from home de group. Your line is now fan.
Hey, good morning, everyone.
I will.
Wanted to just I mean, you've addressed I think everything else, but just curious kind of modeling question in terms of the merger related expenses of 3.9 are you able to provide a little bit of break out in terms of where on an expenses.
We can back those out of thanks.
It's a variety of different categories. Some of that is personnel and other expense as well.
And again Thats kind of our final merger costs related to MSL. The total with some 33 million.
Okay, and I know, it's not it's pronounces last quarter, but any.
In.
In terms of out a break that out is there any additional color you can provide terms.
For the majority I think I, just shared that between personnel and other expense.
Okay.
All right. Thanks.
You bet.
Thank you at this time I'm showing no further questions I would like to turn the call back over to John here soon for closing remarks.
Okay. Thanks, everyone for some very good constructive questions. We look forward to see any on the road sometime soon have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.