Q4 2023 Hancock Whitney Corporation Earnings Call
Good day, ladies and gentlemen, and welcome to Hancock Whitney Corporation's fourth quarter 'twenty to 'twenty three earnings conference call.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time as a reminder, this conference call is being recorded.
I would now like to introduce your host for today's conference Kathryn Mystics Investor Relations manager you may begin.
Thank you and good afternoon.
During today's call. We may make forward looking statements, we would like to remind everyone to carefully review the safe Harbor language that was published with the earnings release and presentation and in the company's most recent 10-K and 10-Q, including the risks and uncertainties identified therein.
You should keep in mind that any forward looking statements made by Hancock Whitney speak only as of the date on which they were made.
As everyone understands the current economic environment is rapidly evolving and changing.
Hancock Whitney's ability to accurately project results or predict the effects of future plans or strategies or predict market or economic developments is inherently limited we believe that the expectations reflected or implied by any forward looking statements are based on reasonable assumptions, but are not guarantees of performance.
Our results.
And 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.
Some of our remarks 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 with the conference call webcast link on the Investor Relations website.
We will reference some of these slides in today's call.
Participating in today's call are John Harrison, President and CEO, Mike <unk>, CFO, and Chris will Luca Chief Credit Officer, I will now turn the call over to John Harrison.
John M. Hairston: Thank you Katharine happy new year, everyone and thank you all for joining US today, we're pleased to report a strong into 2023 with a very solid fourth quarter.
John M. Hairston: Our results reflect our successful bond portfolio restructurings remarkable growth in our capital ratios.
And the NIM compression and improvement in P. P. In our fee income and expenses after adjusting for the significant items. We previously discussed in the mid quarter update.
John M. Hairston: Opt to carry this momentum into 2024, which will be a year to celebrate our 125 year legacy of commitment by our associates to clients and to the communities we serve.
John M. Hairston: As anticipated we have revised our three year corporate strategic objectives, or <unk> and to provide an updated guidance for 2024, both of which are detailed on slide 22 of the Investor day.
Starting with the balance sheet.
Loan balances were relatively flat this quarter as loan demand. Once again was tepid in Q4 similar to the last several quarters.
John M. Hairston: Under the surface. However, the team was successful in producing loans at a volume necessary to hold our own.
John M. Hairston: Overcome a more select credit appetite continued focus on pricing and then replacing large credit only relationships with granular relationships.
John M. Hairston: Banking continued to impress on both sides of the balance sheet and consumer lending volume has begun to cover the remnant of pandemic recovery pay downs as.
John M. Hairston: As we look forward into 2024, we expect loan demand will return after rates begin to soften in mid year and therefore much of our loan growth is anticipated in the second half of the year.
John M. Hairston: Credit quality metrics were flat quarter over quarter with criticized commercial and non accrual loans at very low levels.
John M. Hairston: As mentioned in the mid quarter update charge offs began to normalize in Q4, but we still see no significant weakening in any portfolio sector.
John M. Hairston: Despite impressive Ecu ratios, we continue to be mindful of the current and potential macroeconomic environments. We are proactive and monitored risks and we continue to maintain a solid reserve of $1 four 1%.
John M. Hairston: Total deposits were down 630 million this quarter, driven primarily by the maturity of $567 million in broker deposits.
John M. Hairston: We were able to use the proceeds from the bond portfolio restructuring to Delever These higher cost deposits.
John M. Hairston: Aside from that client deposits were roughly flat with prior quarter seasonal inflows of public funds did occur as expected. The DDA remix continues but pleasantly at a slower pace. We ended the quarter with 37% of our deposits in D. D. A's and were pleased to finish Q4 at the top end of the range contemplated in the <unk>.
John M. Hairston: Mid quarter update.
John M. Hairston: Retail time deposits grew and interest bearing transaction and savings accounts were stable. Thanks to the promotional pricing, we offered them Cds and money market accounts and our clients remain rate sensitive and we really don't expect a significant moderation until rates begin to decline in the second half of this year, Mike will make a few comments in a moment regarding our.
Future expectations for rates.
Mike: In 2024, we expect low single digit growth in our deposit balances year over year used to fund loan growth another.
Mike: Another bright spot for the quarter was growth in all of our capital ratios, our TCE grew to over 8% due to lower longer term yields and the benefits of our bond portfolio restructuring our total risk based capital ratio reached 14% this quarter and we remain well capitalized inclusive of all a OCI and unrealized losses.
Yes.
As we look back on 2023 and forward into 2024, we believe we have positioned ourselves to effectively navigate the operating environment. This year, our deposit base has been remarkably stable and we expect it will continue to support our funding needs are ACL was quite robust and our capital levels grew throughout the year, which we feel.
Speaker Change: Phil will help position us for success in 2024 with that I'll invite mark to add additional comments. Thanks.
Mark: Thanks, John and good afternoon, everyone fourth quarter's reported net income was 51 million or <unk> 58 per share.
Adjusting for the three significant items. This quarter that were previously disclosed net income would have been $110 million or $1 26 per share.
That's up about $12 million or <unk> 14 per share from last quarter.
Mark: Adjusted P. P. NR was $158 million up 5 million from the prior quarter.
Mark: Both NIM and NII were flat with these up and expenses down so a good quarter in an otherwise challenging environment that drove a nice increase in P. P N R over last quarter.
Mark: As mentioned, we saw no NIM compression this quarter and our NIM was flat at 3.27%. This was better than our original guidance for the quarter of three to five basis points of compression.
Mark: As shown on slide 15, the investor deck, our strong NIM performance was driven by higher loan yields approximately one months impact from our bond portfolio restructuring transaction and continued slowing of our noninterest bearing deposit remix.
Mark: Deposit costs for the company were up 19 basis points to 1.93%, but we're pleased that the rate of growth in deposit costs as continue to level off.
Mark: This resulted in a total deposit beta of 36% cycle to date.
Mark: We expect deposit betas will move up modestly in the first half of the year, but we will be proactive in reducing deposit costs when rates begin to come down which have now we're expecting in the second half of 2024.
Mark: On the earning asset side, our loan yield improved to 611%.
Mark: 10 basis points from last quarter with the coupon rate on new loans at 815, so up 12 basis points from last quarter.
Mark: As John mentioned and continue point of emphasis is improving our loan yields going forward.
Mark: The increase in our new loan rate did slow somewhat this quarter.
And reflected the flattening of the fed funds rate as well as lower long term rates.
Mark: In part due to the bond portfolio restructuring transaction, our securities yield was up 10 basis points to 2.47 for the quarter.
Mark: While the yield for the month of December was 2.57.
Mark: As a reminder, we expect an annualized benefit to NIM of about 13 basis points from the restructuring transaction.
Mark: As we think about our NIM in 2024, we believe modest NIM expansion as possible with single digit expansion in the first half of 2024 and potentially a bit more in the second half of the year.
Mark: As a basis for our guidance, we're assuming the fed will cut rates three times at 25 basis points each beginning in June of 2024.
Mark: We continue to expect some ongoing headwinds from the continued deposit remix which has slowed but we also see tailwind as we move into 2020 for the <unk>.
Mark: <unk> rate cuts will allow us to reprice CD maturities lower in the second half of the year.
Mark: And we expect higher loan and securities yields will help offset the impact of any deposit remix.
Mark: Fee income adjusted for the significant items was up this quarter the fourth consecutive quarter of fee income growth beginning with the fourth quarter of 2022.
Mark: We benefited from strong activity and investment in annuity income this quarter and we remain focused on finding opportunities to grow fee income.
Mark: Our guide for fee income in 'twenty 'twenty four is continued growth of between three and 4% from the adjusted noninterest income in 2023.
Mark: Expenses, excluding the special FDIC assessment were down this quarter, reflecting lower incentive expense, we expect expense growth of between 3% to 4%, which is a welcome decline from 2020 Three's growth rate as we continue to work hard to control costs throughout the company.
Mark: We have continued to reinvest back into the company will continue to do so but at a bit slower pace as we allow technology and other investments to mature.
Mark: And finally, all aspects of our forward guidance, including a revised Dsos are summarized on slide 22 of our earnings deck I will now turn the call back to John.
John M. Hairston: Thanks, Mike, Let's open the call for questions.
John M. Hairston: If you would like to ask a question. Please press star followed by the number one on your telephone keypad and if you would like to withdraw your question again press Star one.
John M. Hairston: We will pause for a moment to compile the Q&A roster.
John M. Hairston: Your first question comes from the line of Michael Rose from Raymond James. Please go ahead. Your line is open.
John M. Hairston: Yes.
Hey, good afternoon, thanks for taking my questions.
Michael Rose: Mike I think you might have just answered this but it looks like if I use kind of the midpoint of the range is the backend to the NII, it's about it's up about.
Michael Rose: Half a percent year on year, if I'm doing my math right I just wanted to get a sense for.
Michael Rose: Yes.
Michael Rose: You know what the sensitivity is kind of per rate hikes since the forward curve is.
Kind of baking in a little bit more I appreciate the.
Michael Rose: Sensitivity you provided on.
Michael Rose: Great.
Michael Rose: Slide it was but just wanted to kind of see what the puts and takes worth two to the NIM and NII outlook. Thanks.
Speaker Change: Yes, I think you're referring to the table at the bottom right of 17, Michael and then also your numbers around how we're kind of thinking about NII for next year I think are pretty spot on.
So we have three rate hikes built into the forecast for next year.
Speaker Change: The first one in June than September and then lastly in December. So those are three rate hikes of 25 basis points each.
Speaker Change: And as we think about our NIM next year.
Speaker Change: Really think about modest expansion in the first half of the year. Some first and second quarter, and then I think a bit more in the second half of the year and some of that calculus is absolutely related to the prospect of lower rates in the second half of the year.
Speaker Change: And to that end, what we're trying to do is kind of choreograph, our CD maturity such that we have.
Speaker Change: A fair amount of those maturities happening in the second half of next year, where obviously the rate environment will be a little bit will be a little bit lower so.
Speaker Change: So the trajectory of our NII really what kind of follow the trajectory that I mentioned around our NIM.
Speaker Change: So that's how we kind of think about those aspects of NII and the growth for next year.
Very helpful. Thank you man rate cuts that rate hikes, I think we're used to.
Speaker Change: At this point so.
Hello again.
Speaker Change: We're so used to rate hikes.
Speaker Change: No worries that got it just as a follow up.
Speaker Change: You mentioned for the loan growth outlook.
Speaker Change: The growth to be weighted kind of in the back half of the year, but I think.
Speaker Change: Increasing number of management teams that I've spoken with have talked about a mild recession and I guess, if you can kind of explain where that growth you would expect to come from and if a mild recession is kind of the base case I know you didn't move the factors.
Speaker Change: Credit weighting Q on Q, but just wanted to get some thoughts there. Thanks.
Speaker Change: We still have that built into kind of our macroeconomic assumptions that obviously and for the ACL, but at this point.
Speaker Change: It looks like that we may have achieved.
Speaker Change: That soft landing or as John says safely.
Speaker Change: Yes, Mike This is John Thanks for the question.
John M. Hairston: I'll start it and then Chris and Mike want to add any more color to it. They are welcome to but if we look at the at the fourth quarter and and see reported <unk> is relatively flat it somewhat disguise is all the activity.
John M. Hairston: Near the surface.
John M. Hairston: As mentioned in several calls the past year or so we've had a fairly acute focus on replacing credit only relationships, particularly larger ones with more granular relationships that bring liquidity and fee opportunities where right now liquidity, obviously is the most important.
John M. Hairston: And that happened in Q4, and so we had about I think about $200 million I think the number I'll have a minus 196.
John M. Hairston: And snagged balances that left in Q4 and will replace nearly entirely backed by core relationships. So theres a lot of productivity occurring it just isn't in the same SaaS chucks and some of the outbound activity and I would expect to see that continue although I don't expect that.
John M. Hairston: Snack production to be at the pace. It was in Q4. So if you think about in terms of puts and takes if you think about another say three or $400 million of snick balances reduced offset.
John M. Hairston: Somewhat evenly over the first half of the year and then more more than other out going out will be coming in the granule relationships. The back half due to rate increases thats really where you kind of get to the low.
Speaker Change: Got it.
Speaker Change: Single digit production of single digit balance sheet growth for the overall year. So while it's weighted to the back half of the year, it's not like there's not a lot of activity. That's already been successful and will continue to be successful in the first half of the year was that the kind of color you were looking for or you want to ask a question.
Speaker Change: That's very helpful. I appreciate that and maybe just one final one for me.
Speaker Change: TCE above 8% you guys have the buyback in place through the end of this year.
Speaker Change: I know you guys haven't been in the market but.
Would you expect to be.
Speaker Change: Particularly.
Speaker Change: The economic environment can you continue to cooperate or is it capital rules are changing for the largest banks theres thought processes that could gone downhill and are you looking to build capital here just just trying to figure out how you guys are thinking about it. Thanks.
Speaker Change: So Michael we were extremely pleased with our ability to grow capital over the last couple of quarters, and certainly rates have kind of help with that especially.
Speaker Change: Especially with TCE, but those rates can also kind of take some of that away. So we're cognizant of that we're cognizant of that.
Speaker Change: The potential impact of any kind of economic slowdown, especially in the second half of this year and I think for now our stance related to managing capital will be to continue to build capital as we have the past couple of quarters. So right now not really thinking about buybacks.
Speaker Change: That certainly could change as you mentioned and.
Speaker Change: I think if it does.
Speaker Change: Uh huh.
Hard to kind of gauge when that might be but.
Speaker Change: It's probably something I think we might look at a little bit more intently in the second half of the year, but again no plans right now.
Speaker Change: Great I appreciate you taking my questions I'll step back.
Speaker Change: Michael Thank you for asking.
Speaker Change: Your next question comes from the line of Catherine Mealor from K B W. Please go ahead. Your line is open.
Catherine Mealor: Thanks, Good afternoon.
Catherine Mealor: Hi, Kevin.
Catherine Mealor: One follow up I'm, just your margin outlook.
Speaker Change: Thank you about how your margin will react in a scenario, where we see rate cuts.
Speaker Change: Can you talk just a little bit about the puts and takes in just loan yields I would have thought with 60% of your loan book variable. We may see a period of time, where your margin actually.
Speaker Change: Down.
<unk> first and then maybe as you kind of see growth improves or the back book starting to reprice at a faster pace.
Speaker Change: Then you may see the NIM expansion, but that Guy that example rate loan book.
Speaker Change: Yes, it could have a near term negative impact on the margin is it just that the CD repricing, it's enough to offset that just can you talk us through why that's not a bigger negative impact on <unk>.
Speaker Change: Thank you.
Speaker Change: Yes, Catherine this is Mike I'll start with that and it's a great question and I think as much as anything else. It really is all about time. So again, if you think about the way we have.
The the rate cuts kind of choreographed out first in June and then a couple of months later September and then finally in December So as you think about 'twenty for the rate drop in December it really won't have much of an impact obviously a bit of an impact in the fourth quarter, but again the way, we're kind of thinking about the second half of the year.
Speaker Change: And the way, we're trying to choreograph again, our CD maturities.
Speaker Change: We'd like to be in a position, where certainly a rate cut of 25 basis points is impactful in terms of our variable loan grade, but again, our fixed rate loans continue to reprice higher.
Speaker Change: Solid 12 basis points per quarter for the past five or six quarters.
Speaker Change: We see that continuing at least through.
Speaker Change: The balance of 24, so that is a little bit of an offset to the impact of the variable rate impact from a lower rate environment, but again the CD maturities. We think will also be very helpful. So I think net net if the rate drops are spaced out the way, we think they could be spaced out that certainly.
Speaker Change: It will be helpful to avoid any kind of NIM potential NIM compression in the second half of the year.
Speaker Change: That makes a lot of sense and then in a scenario where the forward curve is right.
Speaker Change: And I think it is that I don't think it is that if rates stay the way. It plays out there could be more NIM compression is that if we can get fixed rate cuts. This year that are committed faster pace, yes, especially if they are bunched up together.
Speaker Change: In an environment, where the rate cuts or maybe more than 25 basis points.
Speaker Change: So we'll see but again the way we're thinking about it as kind of the way I'd describe so that's the way we haven't kind of planned out.
Speaker Change: Yes that makes perfect sense.
Speaker Change: And then my other question is just.
Speaker Change: And the NII guide.
Speaker Change: Any change to kind of size of the bond book.
Speaker Change: Most recent restructure and how youre thinking about liquidity side, just kind of trying to think about how youre thinking about size of average earning assets.
Speaker Change: As we look to that.
Speaker Change: NII Chris.
In terms of Italy.
Christopher S. Ziluca: Sure sure in terms of kind of managing the balance sheet next year.
Related to the bond portfolio, especially I mean, obviously, it's down considerably because of the restructuring transaction that we affected in the fourth quarter, but as we think about next year, we're really going to be in the mode of kind of resuming reinvesting paydowns and maturities back into the bond book.
Christopher S. Ziluca: So unless there's some other activity in the bond portfolio, we would expect that to be pretty flat from where it ended the year and in terms of average earning assets given the guidance, we've given around the kind of loan growth, we're expecting next year as well as the level of.
Christopher S. Ziluca: Deposit growth again, what we're striving for is for loan growth to be funded.
Christopher S. Ziluca: Kind of dollar for dollar or as close to that as possible.
Christopher S. Ziluca: Through deposit growth and if you put all those dynamics together, including the bond book.
On balance compared to last year being down.
Christopher S. Ziluca: Would you envision a scenario where average earning assets year over year would be kind of flattish for the most part.
Speaker Change: Great that makes sense alright, thank you for the clarification.
Speaker Change: Thanks Catherine.
Speaker Change: Your next question comes from the line of Casey Haire from Jefferies. Please go ahead. Your line is open.
Yeah, great. Thanks, good afternoon, everyone.
Casey Haire: So just another follow up on NIM.
Casey Haire: So if I'm understanding this correctly.
Casey Haire: The modest NIM expansion that you guys are expecting this year is predicated on a little bit of deposit beta pressure.
Casey Haire: In the early going and then proactive management of funding costs of deposit costs down.
Casey Haire: And once you start to get fed cuts I'm, just just wanted to get some color.
Casey Haire: Is the velocity of of the deposit beta in the first half.
Casey Haire: Is that pretty modest and then it's going to be pretty it's going to be.
Casey Haire: More the velocities can be faster on the way down as you guys manage once you get fed cuts.
Speaker Change: Yes, I think I think on balance Casey that's right. So we would.
Back the deposit base.
Speaker Change: Beta impact to be pretty modest if not kind of flattish from where it ended the year, we don't see a whole lot of change in terms of our cost of deposits really in the first quarter. We ended the year at 199 in terms of December was <unk> 93 for the quarter and I think as we.
Speaker Change: Think about the first quarter that could be up a handful of basis points potentially even a little bit less than less than that.
Speaker Change: And again.
Speaker Change: A lot of this depends on.
Speaker Change: Our CD maturities that we have over the cross across the year not only for the first half of the year, but the second half of the year and how that will line up with any potential rate cuts in the second half of the year. So I think overall, what you said is pretty spot on.
Speaker Change: Okay, great and on the CD maturities, which is there any color you can provide on this on the maturity schedule.
Speaker Change: In terms of balances and what the right they're running off at a bus.
Speaker Change: Yeah. So in the first quarter, we have about $1 8 billion of maturities and there'll be running off at about $4 77.
Speaker Change: That goes down by about half in the second quarter. The runoff rate is about the same and then in the second half of the year, we have about $1 five coming off and the runoff rate is just a bit higher right now.
Speaker Change: And again the way we're thinking about those maturities are lined up with the promotional rates that we have in place is that.
Speaker Change: The plan really is to have a lot of the CD maturities that happened in the first quarter come back on or renew and relatively short maturities such that when those mature where in the second half of the year and potentially a lower rate environment.
That's a little bit of color around how that's kind of choreographed.
Okay. That's helpful and I apologize if I missed this what is the promotional rate versus that or $4 70.
Speaker Change: We're at about <unk>.
Five in a quarter.
Speaker Change: And that will be a relatively short maturity now we also have promo rates.
Speaker Change: And the $4 75, four and a quarter range that stretch out those maturities shift a little bit.
Speaker Change: Okay.
Speaker Change: So the CD maturities basically don't benefit don't start to benefit the NIM until the back half when you when we get it right.
Speaker Change: Okay, Gotcha Thats correct, Okay AC presume in June.
Speaker Change: Initiation of rates going down if that happened earlier, obviously the benefits would be quite different.
Speaker Change: Okay.
Speaker Change: Alright, great and just last one.
Speaker Change: The bond book.
Speaker Change: Can you give us the spot yield on the bond book at.
Speaker Change: At 12, 31, I know you gave it at $2 57, but I was just wondering.
Speaker Change: What the exit rate was so we could.
A better better pinpoint.
Speaker Change: Pinpoint on it.
Speaker Change: It was $2 57 for the month of December is that what Youre asking yes.
Yes, I know I saw that in the deck I was wondering what it was at $12 31.
While we were at $2 47 for the quarter to $2 57 for the month of December and the way I will share that information is for the first quarter. We're looking at to be looking at that yield to be just a couple of basis points lower than where it ended the month of December.
Speaker Change: So call it 255 or so.
Okay got you. Thank you.
Speaker Change: Your next question comes from the line of Brett Robertson from Hovde Group. Please go ahead. Your line is open.
Brett Robertson: Hey, good afternoon, everyone. Thanks.
Thanks for the questions wanted to ask first on slide 28, you have the deposit account size.
One of the variables I'm not sure if I'm clear on is the expectation for continuing to atrophy, maybe in DDA from here are you guys thinking that DDA levels at all.
Brett Robertson: Most troughs or maybe give us some color given that the size relative to <unk> or I guess.
Brett Robertson: <unk> 19 is still about 23% higher today.
Brett Robertson: Yes.
Brett Robertson: Obviously, one of the positives for the fourth quarter.
Brett Robertson: The notion of our Niv remix kind of leveling off so in the prior quarter. We were at 38%. We finished the fourth quarter at 37.
Brett Robertson: As we think about next year Brad.
Speaker Change: We expect there to be continued remixing.
At a much much slower pace, so potentially we could.
Speaker Change: We could see ourselves at around 33, 34% or so by the fourth quarter of next year.
Speaker Change: So that's obviously a big help and has been a big help and I think we will continue to be helpful to this notion of.
Speaker Change: Potential NIM expansion next year.
Speaker Change: But mike to be clear it sounds like youre not expecting the average balances to maybe go back to prior levels completely is that fair in your assessment.
Mike: Yes, I think so yes.
Speaker Change: <unk> been in health this is John.
Speaker Change: The consumer balances are a lot closer now to where they were pre pandemic.
Speaker Change: Yes.
Speaker Change: The wholesale balances because of the volume of operating accounts, we are adding and hoping to add on a faster clip this year.
Have have higher balances and that skews. The total if you will on average a little bit higher so there's more than just just the same volume of accounts from 2019 compared to now because the mix has changed.
Speaker Change: The business deposit accounts.
Speaker Change: While the smaller and we expect to hit <unk>.
Speaker Change: Pre pandemic and around June or so.
Speaker Change: That's the run rate extrapolating, so we'll see.
Speaker Change: If the if the expectations around the rate environment changes that any.
Speaker Change: And then on the larger side Youre right.
Speaker Change: Those average balances seem too if upheld.
Speaker Change: And.
Speaker Change: It's somewhat curious because.
Speaker Change: The balance sheet the balance more than cover the earnings analysis fees that we have on the treasury side.
Speaker Change: And you would think that they would have flown back out to cover that but I think just the absence of investment on the wholesale side. The last six months or so has tempered that outflow.
Speaker Change: If rates begin to go down in the environment gets a little bit more optimistic than I think we may turn.
Speaker Change: More to those 2019 balances simply because people are spending the money and investing in the things and want to use their money versus ours for the $10 billion does that all make sense.
Speaker Change: Yes, that's really helpful. The other question I wanted to ask was just around the expense guidance, 3% to 4%.
Speaker Change: You've obviously made a lot of effort and results and getting more efficient in the past couple of years, but you've also talked about.
Speaker Change: Maybe some technology spending upcoming can you talk about what you are looking at in terms of <unk>.
Speaker Change: Spending with technology relative to that guidance and then does that 3% to 4% does that kind of exclude any potential pickups of talent of lenders in any markets, maybe a little more color around that guidance.
Okay. Thanks for the question. This is John I'll start it and Mike can add color if.
Mike: If he likes.
Mike: I wouldn't want to break.
John M. Hairston: A three to four day out between different sectors, because it gets a little complex, but wheelchairs that on the technology side. The bulk of the increase in technology expenses 24 over 23 is the carry cost to a large extent of all the technology, we already completed and put.
John M. Hairston: It into service in the early part of the year. So when you get a full year of the amortization of the capital in the contracts of that impact on 24 carries over to the year over year comparisons.
John M. Hairston: So there's a good bit of tech expense that isn't really new is simply the full 12 month impact of all of that and as Mike said in his earlier comments, our expectation is that as that technology.
John M. Hairston: As the company really matures and using that tax then we get more efficient more effective and to the degree more effective on the revenue generating side and we see a bit of a tailwind topline revenue as the environment improves. So that's the tech part in terms of additional spending we really have done all the heavy lifting.
I will call. The big systems are all done their current it is running well were very happy with the investments that we made and in terms of just the new stuff, we're really down to I guess I'll call them, the dogs and cats, so our ability to compete with with a fewer number of larger banks.
John M. Hairston: We believe is helpful.
John M. Hairston: We believe it is helpful to continue spending more in our digital.
John M. Hairston: Front office.
John M. Hairston: To continue to invest in and fraud detection early to manage any charges that we could have avoided by having.
John M. Hairston: Good tools to help both our clients and our bankers and our our risk professionals identify problems before it's too late to get the money back.
John M. Hairston: And so I think a lot of that type of work obvious what's left so the preponderance of the big stuff is actually all the big stuff is done and we're now I think were add things that just enhanced value for our clients in the future.
John M. Hairston: In terms of people.
The average time it takes in terms of months for a banker to cover themselves got extended a bit.
John M. Hairston: During the the degradation in spreads.
As rates began to go back up but the investments that we've made in SBA and in business banking continue to bear fruit and in fact because of.
John M. Hairston: The liquidity coming in with those relationships. The time it takes to cover the cost of a new banker has held its own and maybe even gotten a little shorter shorter band more attractive on the business banking side. So we haven't set a number that were ready to talk about in terms of adding those folks, but I can tell you that if there were an area if I could.
John M. Hairston: Wait a little bit more room and expenses to add people it would probably be in those areas because frankly the returns have been so good in the fourth quarter was the best quarter in our history and SBA income. It will also the best quarter in our history for for annuities income from the <unk> investment we made back in 2002, so overall.
John M. Hairston: Think we would continue investing there are things that are working.
Yes, I think thats really helpful. Thanks.
John M. Hairston: The only thing I would like to have the thing I would add.
John M. Hairston: Yes, the only other thing I would add to that is.
John M. Hairston: We're not seeing a repeat and we're certainly not expecting a repeat of some of the things that drove our expense levels last year to.
John M. Hairston: The uncomfortable levels of around 8%, so it's things like.
John M. Hairston: Kind of other regulatory costs and some of the FDIC increases outside of the special assessment, we don't see that repeating we also had some increases related to our pension and other retirement plans that we don't see a repeat and finally.
Great Big increase in our insurance costs related to our own properties last year that we don't see at least right now repeat and some of those increases were related to some of the storms that we had in the.
John M. Hairston: The prior couple of years. So that's also very helpful to have those things not repeat this year and puts us in a place where we feel comfortable about the guidance of between three and 4% for the year.
John M. Hairston: Okay.
Speaker Change: Okay. That's really helpful. Thanks for all the guidance.
Speaker Change: You bet. Thank you.
Speaker Change: Your next question comes from the line of Brandon Kang from <unk> Securities. Please go ahead. Your line is open.
Brandon Kang: Hey, good evening, thanks for taking my questions.
Brandon Kang: Hi, Brian.
Speaker Change: So following up on deposits.
Brian: Are there any deposit categories. Besides <unk> that is a part of your strategy as far as managing costs lower.
Brian: Just how are you thinking about the deposit beta lag on the downside, excluding what you expect on the CD front.
Brian: Yes.
Brian: We said before branded when rates start to come down.
Brian: Our posture and plan and this is the way we've kind of approached it in prior environments, where rates were down is to be fairly proactive in reducing our deposit costs.
Brian: The lead there would be on the CD side, especially as we tried to.
Brian: Aggregate the CD maturities in an environment, where rates are potentially lower than they are now so that's probably the biggest driver.
Brian: What we're trying to do we're also very very mindful of the rates on our money market accounts.
We will start to come off of some of our promotional rates related to that category of deposits.
Brian: At the appropriate time.
Brian: So that's kind of how we think about that.
Brian: Okay.
Brian: And are there any sort of customer segments that you envision you can be more proactive in.
Brian: And in consumer versus commercial.
Brian: Okay.
Brian: Brian This is John in terms of rate or just focus.
Brian: Great.
John M. Hairston: On rate the segment Thats enjoyed the best spread.
John M. Hairston: Over year over year was in the segment, we call business banking, so really it's the lower end of our commercial and the reason we.
John M. Hairston: We feel pretty good about it is because even though they've enjoyed the highest growth.
Speaker Change: And Linda.
Speaker Change: Lending because we've added resources in some of our growth markets for that purpose as they have been very successful at covering on literally a par basis with incoming deposits that are carrying on our cost well below our total cost of funds. So it's really been on both sides of our balance sheet.
Speaker Change: That's a small business.
Speaker Change: Our sector has been performing in terms of retail.
Speaker Change: And we define retail is consumer and micro businesses all of which are handled inside our financial centers our branches.
Those segments were really under siege from a paydown perspective through the excess liquidity to portions of the pending recovery and in Q4 and Q3 to begin to get better in Q4, particularly on the very small business side that began to also dampened to the degree that we're actually expecting.
Retail growth in 2024, it's modest, but it's growth and it's really been and pay down our and reduction really for the past three years or so during the pandemic. So on a year to year comparison, the absence of that vacuum is very helpful and just as a reminder, the indirect portfolio, which had been amortizing effectively.
Speaker Change: That business down that impact in 2024 is relatively immaterial really.
Speaker Change: Really for the first time on a year to year basis.
Speaker Change: Okay, and just lastly on the CD strategy.
Speaker Change: How much flexibility do you have an adjusting yet adjusting that strategy, depending on the timing and potential magnitude of rate.
Speaker Change: It could as you look.
For this year.
Yes, I think it's a pretty nimble strategy, Brandon and I think we have lots of flexibility in how we think about adjusting our promotional rates to kind of deal with.
Speaker Change: Any differences that the rate environment may may present us with versus what we're kind of assuming so obviously the CD maturities are in place and there is no flexibility related to those but certainly are.
Speaker Change: Our main way of dealing with that is going to be our promotional rates not only the rate the maturity that we attached to a specific rate.
Speaker Change: So I think we have good flexibility to deal with whatever is thrown at us.
Speaker Change: Brandon This is John with that what I'd add too much on Cds.
John M. Hairston: A little earlier one of my answers to the question about the timing of Cds alluded to how high a concentration of those renewals are in the first half of the year and the expectation that we're that we are offering.
A.
John M. Hairston: Pretty good promotional rate to keep all that money and perhaps gather more but it's got a very short duration to the point that we would be repricing a lot more of that money in the second half of the year in a better rate environment. So one of the two.
John M. Hairston: Whether you use flexible and nimble as Mike said whichever word you prefer.
John M. Hairston: One of those items, our flexibility is yes, how much we're prepared to pay for how short in duration to allow us to benefit of the repricing opportunity in the second half of the year. So that's why we feel very good about it is because the books already short and it has a pretty good likelihood is going to get shorter and the first half of the years, where he has been reset.
Speaker Change: That's very helpful. Thanks for taking my questions you bet. Thank you Brendan.
Speaker Change: Your next question comes from the line of Matt Olney from Stephens. Please go ahead. Your line is open.
Speaker Change: Yes.
Matt Olney: Thanks, guys just a quick follow up on the credit front.
Matt Olney: The charge offs I think there were $16 million of charge offs of which around 13 was commercial any more color on kind of what those <unk>.
Matt Olney: Commercial charge offs were in the fourth quarter. Thanks.
Speaker Change: Yes, Matt Matt as Chris Luca.
Speaker Change: Really it was kind of a handful of accounts that.
Speaker Change: We've been tracking for a while so they werent really kind of any sort of surprise for us.
Speaker Change: And many of them were really kind of.
Speaker Change: Post pandemic impacted and.
Speaker Change: Kind of had to get resolved.
Speaker Change: As we kind of move forward in time and it was compounded by the fact that I think I've mentioned this previously that we are.
Experienced lower recoveries.
Speaker Change: During.
Earlier periods, we had a higher rate of charge offs that allowed us an opportunity to generate greater recoveries, but at this point in time were down pretty substantially on the recovery front, which is a good news bad news thing more bad news and good news on the NGL side, but.
Speaker Change: Certainly.
Speaker Change: <unk> supports the good performance that we had in that regard during the past couple of years.
Speaker Change: Okay. Thanks for that Chris and I guess, the second part of that would be.
Speaker Change: You know those those charge offs higher in the fourth quarter, how much of that is just to kind of the end of year cleanup or is this more of that the normalization of the charge offs that you've been talking about for a while is that is that what we saw in the fourth quarter and is this kind of <unk>.
27 bps of charge offs for the quarter is that something thats.
Speaker Change: A reasonable assumption moving forward from here.
Speaker Change: Yes, I mean, there is.
Speaker Change: And again, it's Chris.
Speaker Change: We don't really kind of handle cleanup in some respects, obviously, we take charges when it's appropriate and necessary.
Speaker Change: We did have probably more as a result of kind of ended the year activity that occurs as people make decisions, mostly are our customers make decisions around what theyre going to do in the way of.
Selling parts of their business or selling themselves that sort of thing.
Speaker Change: And a lot of that stuff does kind of bunch up towards the end of the year. So.
Speaker Change: It's helpful. I mean, we're never happy with.
Speaker Change: Any sort of significant level of charge offs. So we're hopeful that we.
Speaker Change: We can get below that number but there is a normalization going on for sure.
Speaker Change: Yes, Matt This is John the only thing I'd add to it.
I think Chris said was accurate.
Speaker Change: I would add to it is when we described something as normalization there is a certain chunk of.
Speaker Change: NCO level.
Speaker Change: Including as part of normal of things that we just don't know about yet and so we're trying to account in the guidance for the types of activity that occurs when the economy is performing the way. It is right now where even though we may get a little rate relief in the back half of the year, it's still somewhat higher for longer relative to the last decade or so.
Speaker Change: Debt service requirements. So.
We're presuming that the number of unanticipated charge offs that occur on a very short degree of notice are inclusive in the guidance that we gave.
Speaker Change: So that's another way of saying that we're trying to factor in what we don't know not just what we know about because we weren't otherwise give you a number that maybe a little optimistic in this type of an economy.
Sure. Okay. Thanks, guys appreciate the commentary.
Speaker Change: Of course, thank you thanks for the question.
Your next question comes from the line of Christopher Mariana from Janney Montgomery Scott. Please go ahead. Your line is open.
Christopher William Marinac: Hey, Thanks, Good afternoon, Mike just wanted to go back to the OCI change this quarter is there any way to.
Either predict further gains in the next quarter or two or just anything just to explain the mechanics on why that was maybe Peter to about 930 and quite a change.
Christopher William Marinac: <unk> this quarter.
Christopher William Marinac: Okay.
Well I think the big driver there was obviously lower rates so the.
Christopher William Marinac: The 10 year Treasury was down 70 basis points between 930, and $12 31 and so.
Christopher William Marinac: Certainly the.
Christopher William Marinac: Restructuring transaction effective on the bond portfolio.
Christopher William Marinac: Had the impact of reducing.
Christopher William Marinac: Our.
Unrealized loss on <unk> pretty significantly and when you combine that with the improvement on the HCM side on a pre tax basis. It was somewhere in the neighborhood of $411 million or so.
Christopher William Marinac: And so that had.
Christopher William Marinac: The impact of 77 basis points in our cheese on our TCE from Aoc.
OCI.
Christopher William Marinac: And also was extremely helpful in improving our tangible book value per share so that was a semi.
Christopher William Marinac: 11%, 12% kind of quarter to quarter.
Christopher William Marinac: Going forward.
Christopher William Marinac: Without the consideration of any additional transactions.
Christopher William Marinac: Similar to what we did in the fourth quarter more than anything else.
Any kind of further improvement.
Christopher William Marinac: And on rates coming down a bit.
Christopher William Marinac: Compared to where they were at 12 31, so that's a bit of a crystal ball right now.
Christopher William Marinac: From where the 10 year stands right now it's up a bit from where it was at year end, something like eight or nine basis points, but.
<unk>.
Christopher William Marinac: It will depend on where rates go I think in the first quarter.
Christopher William Marinac: Got it perfect and then.
Speaker Change: Question for Chris on the credit side.
Christopher S. Ziluca: What is the at the time, the timeframe and impact of sort of just the annual review process of your accounts for.
Christopher S. Ziluca: Both stress testing commercial bar.
Christopher S. Ziluca: Borrowers in addition to assist new appraisals that come through on the CRE side.
Speaker Change: Yes, good question.
Speaker Change: Obviously, the annual review cycle in general honest, we try to spread it out across the year.
Speaker Change: Some of it is driven by the timing of getting areas financial statements from customers.
Speaker Change: To the extent that they're audited or accounting prepared financial statements.
Speaker Change: Tend to comp.
Speaker Change: Kind of in the middle of the second quarter.
Speaker Change: If their tax tax.
Speaker Change: Tax return type statements they tend to get pushed out a lot of people file extension. So they come a little bit later in the year.
Speaker Change: And if we're also relying upon.
Speaker Change: The business prepared information around the performance, especially if you're talking about commercial real estate.
Speaker Change: Around end of year performance, which we will get in a spread throughout the first and second quarter of the year.
Speaker Change: We regularly stress test our portfolio outside of just <unk>.
Speaker Change: Getting the financial information and to be able to do that.
Speaker Change: <unk>.
Speaker Change: <unk>.
Speaker Change: A lot of times, we're only getting updated appraisals. If there is an issue that we're dealing with.
Speaker Change: Or if there is a renewal situation that sort of thing we're not getting.
Speaker Change: <unk> per se on every loan on the commercial real estate book.
Speaker Change: And last we perceive an issue and we want to get our arms around it and get ahead of it a little bit. So it's kind of a mix of an answer for you there but.
We do.
Speaker Change: Update our stress testing, our risk ratings and in our view of individual credits spread throughout the year, but usually tends to kind of come in the middle of the year.
Speaker Change: Unless there's an event that occurs.
Speaker Change: Great. That's helpful background. Thank you for sharing that and that concludes my questions.
Speaker Change: Thank you for the good question Shannon.
Speaker Change: Your next question comes from the line of Stephen Scouten from Piper Sandler. Please go ahead. Your line is open.
Stephen Kendall Scouten: Thanks, Good afternoon, Hey, guys I'm wondering what youre seeing in terms of kind of customer acceptance of higher loan rates. I mean, you guys laid out nicely on slide 16 of what your new loan rates have been in kind of and you can see how that's affecting production but.
Stephen Kendall Scouten: I'm curious, what you're seeing hearing from customers and if theres any sort of wait and see approach from any customers that are saying, hey, we think rates might be lower in the future. So we might hold off for the time being just kind of how that effects overall demand.
Speaker Change: Oh. Thanks. Good question I mean, certainly that's the case for a new real estate transactions, both consumer and Investor CRE. There is very much up.
Speaker Change: I wouldn't call. It tepid I would I would say anemic demand and that type of activity, primarily because even though theres a tremendous housing demand.
For building multifamily and resi construction.
Cost right now to do that in addition to.
That cost are just really high so I think investors are interested in waiting a couple of three months to see what's really going to happen now.
Speaker Change: Some of that hope was based on buying into the six rate decreases starting in March.
Speaker Change: Activity, which we never really believed and I'm afraid, we're going to be proven right.
Speaker Change: And so they may move forward.
Speaker Change: Q2, with that realization thinking that they'll renegotiate the deal when they can as rates begin to decline so on the real estate and mortgage side, that's absolutely the case when we get into revolvers.
Speaker Change: Line utilization is as low as it's ever been both on the consumer and the business side and Thats simply just good money management on the part of our clients both business and consumer.
Speaker Change: They preferred not to.
Speaker Change: Have any more than the revolver as they can they can they can manage and that's what they are doing so as those attitudes change we would expect one of the tailwind to NII will be line utilization actually going on.
Speaker Change: I'm surprised it hasn't happened already as average balances came down on the deposit side, but in reality really hadn't state and went down low in every quarter. We think it is going to finally creep back up a bit it stays flat or goes lower and that was the case in Q4.
Speaker Change: The other item is acquisition finance is obviously very low right now as people struggle with the appropriate valuation is for different businesses that could be available for sale for whatever reason and I think that that's kind of probably.
Speaker Change: Continue to occur until.
Speaker Change: If we get past the election and people understand what the tax posture might be in terms of those types of transactions and an income get into 'twenty five 'twenty six.
Speaker Change: Yes that makes sense, that's a lot of good color and then just one clarifying question for me, Mike I think when you were answering.
Speaker Change: <unk> question earlier, you were talking about the trajectory of NII should be fairly similar to what you expect the trajectory of the NIM to do.
Speaker Change: Would that imply that NII could be kind of flat to down on a year over year basis, given the tough comp in the first part of the year.
Speaker Change: How would you kind of look at that from a year over year NOI growth perspective.
Speaker Change: Yes, great question, I think year over year flat to slightly up would be would be the way to look at it and.
Speaker Change: I don't know that we will have a core experienced kind of a quarter over quarter decline, but certainly in the first half of the year I think more flat than not if that makes sense.
Speaker Change: It does very much. Thanks, so much for clarifying appreciate the time.
Speaker Change: You bet you bet.
Speaker Change: Thanks, Dave.
Speaker Change: Your next question comes from the line of Ben of Garlinger from Citi. Please go ahead. Your line is open.
Ben Garlinger: Hey, guys good afternoon.
Speaker Change: Hi, Ben and welcome to coverage, we appreciate you picking us up.
Ben Garlinger: Yes. Thanks.
Speaker Change: I was curious if we could just take a quick second here I'm trying to.
Square circle to some extent because I know that you guys had the three cuts forward curve is let's call. It six at this point.
So of the 6% is correct, what im getting at or what other kind of coming up with a model that you have a flat margin for the full year, and then <unk>, probably a little bit more on compression.
Speaker Change: The one to two you gave guidance obviously your guidance is based off of three kind of layered throughout the back half of the year starting in the middle of the back half of the year.
One just kind of confirming that thought process, but is there anything from an expense perspective that you could kind of push out a little bit further essentially towards the year ended into 25, if that revenue is a little bit softer than I expected.
Okay.
Speaker Change: Yes, Ben this is Mike.
Mike: In short I think that what you are describing is more or less correct.
Mike: If we do have more rate drops in their kind of bunched up the way. The forward curve is that that would be a bit more negative than the way. We think it's actually going to be panned out. So I think that trajectory of what you described as again more or less correct and certainly if.
Mike: If we have shortfalls and expectations around revenue.
Mike: We're not here to say, specifically what kind of actions I think we would take on the expense side, but I do believe that we would obviously address that.
Mike: As those kind of conditions warrant whatever action, we might want to take in terms of.
Mike: Further curtailing expense growth. So that's always something I think that we would consider and those kinds of circumstances.
Speaker Change: Anything you want to add to that John I agree what you said okay.
Speaker Change: Alright, Thats helpful kind of 10000 foot view color and then the follow up I had was.
Speaker Change: More along the lines of just lending in general I guess from the first half of this year you have some headwinds from just balance sheet items in general, but when you think about growth in the back half of the year are there areas, where youre just kind of avoiding any general that is the risk adjusted spreads are not nearly as appealing in terms of our credit and I get that looking sick.
Speaker Change: Months down the road is probably pretty difficult at this point.
Speaker Change: The new starting point, but can you just thinking about lending today are there areas, where you are kind of.
Speaker Change: Tapping the brakes are just really not pressing the gas at all I guess.
Speaker Change: Longer areas in general does it seem more P&A, you've already referenced but just just.
Speaker Change: Just from a credit perspective that you're avoiding.
Speaker Change: Yes, Ben this is John I'll start and Chris can add if he likes.
John M. Hairston: Generally speaking.
John M. Hairston: Almost regardless of the rate environment, barring a really significant macroeconomic downside, where the rating Reits collapsed because of concern barring that I think are using your analogy of what have we tapped the brakes on what are we hitting the gas on I think it's going to be the same all year, almost regardless of whether we.
John M. Hairston: We have six adjustments three adjustments or no adjustments the sectors that we're very interested in growing a rather granular.
John M. Hairston: I think the the only one that might change a bit would be investors.
John M. Hairston: Investor CRE, but it wouldnt be because of a fear of the rates would be because theyre, just probably wont be that much demand if the environment was worse, but the things that we're focused on right now.
I think short of a really significant macro event will be the things that we're focused on even as rates began to get better it will just be more of it.
John M. Hairston: So that would probably stimulate more growth given where our footprint is and given the investments we've made in growth markets.
John M. Hairston: To answer your question are we heading down a different road.
No no no that is helpful. I was going to say if you could throw in a geography, but you just did.
Okay.
Yes.
John M. Hairston: The markets were in that we have pretty high density in when things get better we get a really good lift in those markets because the brand is very well known it's very much appreciated.
John M. Hairston: It's kind of a hometown banker in those core markets and so we will always get more than our fair share of the business we wont win.
John M. Hairston: When the environment looks brighter and the growth markets.
John M. Hairston: It's taken us a while I think two two.
John M. Hairston: To flesh out the teams that we want we're very proud and happy with the folks that have joined the company in those areas, but we're operating with a lesser number of of locations and footprint than optimal.
John M. Hairston: And so a better environment makes a little bit bigger of a hunting ground. If you will for our bankers to compete with those people who have.
John M. Hairston: Better.
John M. Hairston: Financial center coverage numbers than we have but so.
John M. Hairston: Optimistic macro.
John M. Hairston: It's probably going to reward us little better than it did the last time.
John M. Hairston: We went from a downside to an upside because we've added all those new markets that are really terrific growth opportunities.
Speaker Change: That's helpful color.
Speaker Change: Thanks.
Speaker Change: You bet. Thank you for the question and welcome to coverage.
Speaker Change: Yes.
Speaker Change: And we have no further questions in our queue. At this time I will now turn the call back over to John Hairston for closing remarks.
John M. Hairston: Thanks, Chris I appreciate you moderating the call. Thanks to everyone for your interest in Hancock Whitney and we'll see you on the road soon.
Speaker Change: And this concludes today's conference call. Thank you for your participation and you may now disconnect.
Speaker Change: [music].