Q2 2024 Hancock Whitney Corp Earnings Call
Good day, ladies and gentlemen, and welcome to Hancock Whitney Corporation's second quarter 2024 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.
Reminder, this call may be recorded I.
I would now like to introduce your host for today's conference Catherine message Investor 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 the 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.
Speaker Change: Participating in today's call are John Harrison, President and CEO, Mike <unk>, CFO and Chris will they've got a chief credit Officer, I will now turn the call over to John Harrison.
John M. Hairston: Thank you Catherine and thanks to everyone for joining us. This afternoon, we're very pleased with the results from the second quarter, which reflect solid earnings amidst our continued efforts to improve profitability reposition our balance sheet for this macroeconomic and operating environment and also growing Catherine we hope our investors are pleased to see our first half of two.
24, resulting in profitability capital ratios dividend and repurchased increases earnings efficiency and overall Ecu ratios all among the best in the mid cap Bank space.
Interest income was up this quarter, driven by lower deposit costs and improved earning asset yields in both loans and bonds fee income continues to grow and exceed expectations and expenses remained well controlled net charge offs were down as was our provision for loan losses, but we still were able to grow reserves our balance sheet repositioning continue this.
Quarter as loans contracted slightly but mostly due to a purposeful decrease in snick balances of $221 million. Our focus remains on more granular full service relationships and our team produced the volume necessary to nearly offset our more selective credit and mixed appetite as we expected these more granular.
It's a contributor to NIM expansion and we will remain focused on loan pricing and the balance of the year.
As promised we have updated our guidance this quarter and we now expect loans to be flat to down slightly from 2023. This guidance reflects our goal of thoughtfully, reducing large credit only relationships, including snacks, while originating more granular loans will be a relationship wins all for the purpose of achieving higher loan yields and really.
<unk> revenue over time as expected our credit quality metrics continue to normalize but the increase in criticized commercial and non accrual loans was at a more modest pace this quarter and we remain at or near the top quartile of our peers. Our loan portfolio is diverse and we still see no significant weakening.
And any specific portfolio of sectors or geography, we continue to enjoy a solid reserve of 143% up slightly from the prior quarter, our guidance with respect to the allowance and provision remains unchanged.
John M. Hairston: <unk> were down in the quarter, but mostly due to a net reduction in broker Cds of 195 million Dth did continue to decline, but at a much more moderated pace than in recent quarters and our DDA mix was actually consistent with the prior quarter at 36% there was normal seasonal run off in interest bearing transaction.
Action in public fund accounts, and we were pleased to experience growth in retail time deposits. Despite maturity concentrations and no significant changes in our promotional rates during the quarter. Our guidance was updated for deposits and we now expect deposits will be flat to slightly down compared to 2023.
We continue to migrate away from brokered deposits, which were nearly 600 million at the end of 2023 during the quarter. We were very pleased to return capital to investors with a 33% increase in our common stock dividend and we repurchased over 300000 shares of common stock even after returning capital we had strong growth in.
All of our capital metrics due to our solid profitability ending the quarter with a TCE of 877% and a common equity tier one ratio of 13 in the quarter.
As I mentioned, we updated this quarter to reflect our expectations for the rest of the year. Our near term expectation is to maintain this forward momentum of repositioning our balance sheet, improving NIM controlling expenses and growing fee income our efforts to control expenses will allow us to reinvest in the company through hiring additional <unk>.
Revenue generating staff, which should help to inflect the balance sheet back to growth in 2025 and support profitability, Mike will cover the guidance in more detail in his commentary to come as we look forward to celebrating our 125th year and beyond we hope investors view Hw's see more as a journey accomplished with strong.
Profitability granular revenue sourcing admirable learnings efficiency solid capital and ACL reserves, a de risk loan portfolio and know sporting and nearly 9% TCE and over 13% tier one ratio as we celebrate the beginning of our next quarter century, our efforts are on the windshield versus the rearview mirror.
As we worked very hard to grow our balance sheet and value over the strategic planning period with that I'll invite mark to add additional comments.
Thanks, John and good afternoon, everyone.
This quarter's reported net income was $115 million or $1 31 per share up <unk> <unk> per share and about $2 9 million higher than last quarter.
<unk> are at $156 million.
179% of average assets was up three and a half million dollars from the prior quarter.
Our NIM expanded five basis points to 337%.
<unk> growth in NII.
These were up nicely in expenses were relatively flat and well control.
As mentioned, we saw NIM expansion this quarter with NIM of 337, again, a five basis points from last quarter.
As shown on slide 14 of the Investor deck.
Performance was driven by higher loan and bond yields as well as lower deposit costs those were partially offset by a less favorable borrowing mix.
Our total cost of deposits was down one basis points this quarter to an 8% and 2%.
Obviously, it's significant that our total cost of deposits turned over in the second quarter. After nearly two years of consecutive quarter over quarter increases.
We saw $2 2 billion of maturing Cds reprice from around 5.01% to 478% driving down the rate on our time deposit book by about eight basis points.
Also contributing to the love of cost of deposits was a seven basis point drop in the rate paid on public bonds.
Another driving here was continued stabilization in our DDA mix.
The second quarter drop in DDA was only $160 million lowest level, so far with the mix actually increased slightly from 36, 3% last quarter to 36, 5% this quarter.
We now believe the DDA mix could stay at or near this level through year end.
As mentioned our loan yield was higher this quarter and was up eight basis points to 624% due to our focus on more granular level.
Bond yields were also up about four basis points to 6%.
Due to reinvesting cash flows back into our bond portfolio at higher rates.
In the second quarter, we saw a $166 million of principal cash flow I'm off the bond portfolio at 259% and then was reinvested at 523% for.
For the second half of 2024, we have about $411 million of cash flow coming off the bond portfolio at around two 9% that should get reinvested north of 5%.
In reviewing our NIM guidance in the second half of 2024, we believe we can achieve modest NIM expansion for the next two quarters, despite a flat rate environment and little to no balance sheet growth.
Fee income in the second quarter was again strong and was up 2% quarter over quarter with.
We benefited from higher trust fees as well as an increase in both bank card and ATM fees as well as higher secondary mortgage income.
Investment in annuity fees were down a bit quarter over quarter, but from record high levels.
We now expect noninterest income for 2024 will be up between four and 5% from 2020 Three's adjusted noninterest income level.
Expenses for the company were up 1% this quarter, reflecting continued focus on controlling costs throughout the company.
Guidance has been updated and we expect to grow expenses between two and 3%.
This is inclusive of plans to hire additional bankers in the second half of 2024.
Favorable change in guidance here is driven by overall lower levels of personnel expense growth, despite adding additional revenue generating staff and lower occupancy and equipment expense growth.
Our PPE and our guide is for Pete DNR levels to be down about 1% to 2% from 2020 Three's adjusted levels.
That implies modest growth in <unk> in the second half of 2024 compared to the first half.
John M. Hairston: While our overall guidance now assumes zero rate cuts in 2024, we do not believe there is a significant difference between the zero rate cut scenario and one where the fed cuts rates say twice this year.
Lastly, a quick comment on capital as John mentioned, our capital ratios remained remarkably strong even after returning capital through the dividend increase and share repurchases.
John M. Hairston: All things equal we expect the share repurchases could continue at a similar pace for the rest of this calendar year.
John M. Hairston: Certainly changes in the growth dynamics of our balance sheet and share valuation could impact that view I will now turn the call back to John.
Thanks, Mike, Let's open the call for questions.
Thank you we will now begin the question and answer session. Your first question comes from Catherine Mealor with <unk>. Please go ahead.
Thanks, Good afternoon.
Good afternoon, Kevin.
Maybe my first question just on the margin as you think about.
The pace of loan yield increases in the back half of the year as is the change that we saw this quarter.
A good pace to think about what we'll see over the next couple of quarters, just assuming a flat rate environment.
Or do you expect some.
You know kind of a lesser increase in lineal does it get to the back half of the year.
Hey, Catherine this is Mike I'll start off and John can certainly add color, but in terms of the NIM expansion that we're expecting in the second half of the year.
We kind of describe it as modest and I think that means potentially.
Potentially a couple of basis points in each the third and fourth quarter and certainly one of the drivers that will push our NIM a little bit higher in the second half as higher loan yields certainly that comes from our continued repricing of our fixed rate loan portfolio as we've talked about before but then also I think from.
John M. Hairston: Some incremental improvements in our variable loans going forward as well, we had a little bit of a favorable mix change. This past quarter that was very helpful. In assuming that kind of continues I would expect to see a couple of basis points improvement in our loan yields again in each of the next couple of quarters.
Great.
And then I was surprised to see the expense guidance.
Come down so improve because I know you've been talking a lot about hiring in the back half of the year and I know you mentioned that there are some offsets in personnel and occupancy that's perhaps paying for that.
Just kind of.
Walk us through some of the things that you're doing to Cree.
Create those savings and then is it also fair to assume that maybe the growth rate picks up more in 2025, as maybe we get to kind of the full impact of hires in the back half of the year.
Yes, Catherine this is Mike again, and I'll get started and to kind of answer. Your last question first yes, I think as we look at 'twenty five you'll certainly see the annualized impact in 25 of the hires that we make let's say in the second half of this year as well as as well as any new hiring we continue to make in 'twenty.
Five so I do think that will have all things equal you know a little bit higher level of expense growth and 25 compared to <unk> 24, now related to 'twenty four.
One of the things I think our company is known for and this is kind of embedded in our culture is good cost controls and really being mindful of how we spend money and I think that what we're doing here is really something that just kind of been bodies that.
Our pledge is that we will continue to find ways.
By controlling costs in the current cost base to be able to pay for new initiatives, including new hires going forward.
Lots of things going on that kind of make that happen, we've talked about strategic procurement really been institutionalized in our company and I think as each quarter goes by we continue to get benefits from those programs.
But then we also have done some things here and there with looking at outsourcing there I think has been incrementally useful and that's something that certainly could pickup as we go forward.
So those are the things that I would use as examples but again the pledges to really kind of pay for those new hires by creating room inside of our existing expense base. So John anything you want to add to that.
Good.
That's great. Thank you.
You bet. Thank you Kevin.
Your next question comes from the line of Michael Rose with Raymond James. Please go ahead.
Hey, good afternoon, everyone. Thanks for taking my questions.
I wanted to start on.
I just wanted to start on the <unk>.
<unk> reduction I know that's been one of the things you guys have been working on can you just remind us.
What the target is.
At the end of the year over the next couple of years, where you would ideally like to get to and I assume that a lot of these loans or at least the ones that you're going to let run off or move move away from you.
Our yielding and you're replacing them with smaller higher yielding.
So if you can just discuss kind of the interplay on how that should play out in the loan yield because it would seem to me that that would be a positive benefit as we move forward you could actually see.
Sustained higher loan yields versus many of your peers given that dynamic even if rates begin to come down.
Yes, Michael This is John I'll start and then Chris can add color if they like.
I mean, you answered the question the goal would be able to redeploy presuming demand as the air into higher yield and also opportunities for some sell providing liquidity as well as fee opportunities that you get with a smaller full full service relationships in terms of sizing the rest of.
The year we.
We did make a lot of progress in second quarter and typically there is a lot of maturity action in Q2, each year. So it was a bit outsized mover and frankly I was very pleased to see the hustle and diligence of the core of bankers across several lines of business to replace almost all of it in one quarter. The second half the year is going to be a bit more modest.
Michael we would suspect somewhere in the neighborhood of about 100 million and additional snick outstanding balance reductions in the second half of the year based on what we know now and then in 2025 not to get too much into 25 guidance, but to answer your question probably about the same amount of run off in and two.
25 as in the whole of 2024 and that would take us to somewhere in the neighborhood all things being equal of around a 9% total amount a snick outstanding balances as a percent of total loans, which is right on top of those people that published the peer normal and then from there it will go wherever the.
The right answer is so once again the desire of the ore is really to remove any optics that would create a hangover in valuation we're sort of in the business of doing.
Doing whatever we can to improve valuation for investors now.
Now that profitability is at a pretty good place and.
Not really any any concern over any particular part of the Snick book its just a manager of a matter of managing Opex down and frankly, what we're really good at a lot of other things that shouldnt have to depend on snakes for loan growth as much as maybe the last couple of years. When we were awash with liquidity any redirect on that topic you'd like.
I was just going to ask just.
Speaker Change: At 9% is that is that kind of where you want to be I think you just said that's around where where peers are or could we see that drift lower over time, and the kind of the intermediate to longer term.
Well not not to focus too much on it but generally we would like to be in the range of where our peers are both published and unpublished and at that point at this point in time, that's around 9% so.
If that were to go lower then we'd go lower if it goes higher will probably stay about where we are because we think we can generate other types of activity to cover.
Okay understood perfect and then maybe just as my <unk>.
Follow up certainly understand the near term.
Color on on share repurchases, but you can do you guys do have pretty robust capital at this point I know a lot of people are talking about M&A across the industry. If you can just kind of frame up.
What you guys would potentially be looking for because it sounds like now you guys are on your front foot after doing a lot of work over the past couple of years to get where you are and to get the profitability efficiency, where it is what's what's the next step for Hancock does M&A play a part in that and what would you look for ideally. Thanks.
Yes, Michael I will get started and.
Thanks for the question and yes, there has certainly been a lot of fantastic work over the past couple of years in terms of de risking the loan portfolio building reserves building capital and then pretty dramatically improving profitability, both from an ROA and efficiency ratio standpoint. So the last couple of quarters have been.
<unk>.
About thinking about ways to proactively manage capital and so we we had the.
And the common dividend this past quarter, and then again the resumption of buybacks.
And I think I've said in the opening comments.
Going forward, we would expect to all things equal kind of continue the buybacks more or less at the current levels.
And the things that could change that view would be a change in the dynamics related to the growth of our balance sheet and then certainly the dynamics related to our valuation either higher or lower so.
Certainly the stock has enjoyed a pretty nice couple of days as many other banks have as well and that doesn't change I think the way we think about the buybacks I think we will still.
Look at engaging in buybacks at more or less the same levels and.
Having said that that's something that gets evaluated really kind of on a weekly basis as we go through the quarter.
A little bit longer term in terms of the M&A question.
M&A is obviously something that we have not been focused on in the last couple of years, it's really been on the things that I mentioned, a couple of minutes ago and.
That doesn't change today, although we certainly pay very close attention to the things that are going on in the market. We listened to the conversations we talk to people we get to know people all of the things that I think you would expect a company of our size and magnitude to do in terms of actually.
And in an M&A I mean, it's probably something a little bit further down the road I think we'd like a little bit better valuation and certainly I think everyone in the industry would like a little bit better clarity in terms of.
The regulatory oversight and what the approval process actually is.
Maybe there'll be some clarity later this year related to that we will see.
But when the time comes we certainly wont shy away from considering growing our company strategically through M&A, whether that's transactions that would <unk>.
<unk> adds scale to the balance sheet and give us an opportunity to take out costs or other transactions that give us an opportunity to be a little bit more strategic and introduced new markets.
So that's kind of how we think about that.
Speaker Change: Great. Thanks for taking my questions.
Okay. Thanks, Michael.
Your next question comes from the line of Casey Haire with Jefferies. Please go ahead.
Yes, thanks, good afternoon, everyone.
I'm going to follow up on Mike's question on M&A. So.
I guess would you say, it's like a fairly active is there a lot of discussion going on right now and then.
As a follow up to that is there an asset level that would be ideal for you guys and.
Pursuing M&A coming from 35 billion.
Sure sure Casey So the way I would answer that question is.
Certainly a lot of visits from investment bankers.
With books and ideas, so thats, probably picked up fair to say that Thats picked up in the last couple of quarters.
But in terms of our involvement I mean it.
Again as I mentioned, we're doing the things that you would think a company like ourselves would do and that is just getting to know people and paying attention to the things that are going on kind of around us.
In terms of sizing any kind of opportunities I think that's really premature and really kind of don't want to go there right now in terms of indicating any kind of size what.
Did kind of comment on was transactions that would add scale to the balance sheet and then other transactions that would give us an opportunity to expand strategically but.
Nothing in mind, specifically related to either of those options right now I think that if.
And when we engage in M&A, it's probably probably a little bit further down the road looks like.
Okay.
I guess is there a level of capital that is.
Would change your stance on maybe getting a little bit more aggressive on buybacks I mean looking at slide 19, a year ago you guys were.
140 bps.
Lower right so.
Fast forward a year, if we if we continue that cadence we could be north of <unk>.
Approaching 15, so I'm just trying to get a sense like if the capital build is pretty impressive.
Just trying to get a sense of what would change that buyback cadence.
Yeah look it's a great problem to have and we don't shy away at all from our ability to grow capital.
Proud of it and we think it's something that certainly is a hallmark of our franchise and our ability to grow our company. So the guidance that I gave really was for the next couple of quarters in terms of continuing the buybacks at.
At kind of the current levels, but look that's something we'll evaluate as we go through the next couple of quarters and ER.
Certainly don't want to commit to anything right now that would be premature.
Yes. This is John I'll add to that obviously, the best purpose of of.
Of using capital is to capitalize our faster growing balance sheet than we have right now the macro hasnt been friendly to provide that and so the reason we began talking to a couple of quarters ago about.
Trotting more offensive players on the field was because we expected that macro environment was going to be the case. So at this moment in time, our focus is really more deploying.
Our revenue generators into fails supporting them with maybe a bigger marketing span, adding players and potentially officers in markets that we believe the leaderships already in place and ready to move and start adding accounts on a net basis at a faster clip. So that's really I guess, where I'd say, our heart and mines are all the other options.
That you mentioned before and the questions are all fair, but theyre really maybe column part b or C behind.
Inflect in the balance sheet to more northward growth if that makes sense.
We pay attention to capital levels, certainly a view all of those options as possibilities discussed and dangerously with our board members.
And the priorities are exactly what we put in the deck I hope that's helpful.
Thanks, guys.
Thank you.
Your next question comes from the line of Brandon <unk> with <unk> Securities. Please go ahead.
Hey, good evening.
Great.
So in the prepared remarks, you mentioned, keeping the DDA mix, particularly stable through year end. So could you just talk about what gives you confidence in that projection there's any COVID-19.
Fed funds.
Yes, Thanks, Brandon I'll get started with that one and certainly John can add some color a bit.
Really what gives us confidence is I think what we've been able to accomplish thus far this year and that's this notion of stabilization of that mix.
In our deck you know those are rounded numbers and the mix both for last quarter and this quarter, we advertise at 36% but.
Actually those numbers round it to 36%, we actually had a little bit of an increase quarter over quarter in terms of that mix. So the guidance that we're giving for the end of the year is kind of this notion of 35% to 36% and we're as confident as we can be that we'll be able to hit those marks.
At 12 31 of 24, so I think to answer your question. The thing that gives us confidence is the stability that we've actually witnessed.
As well as talking to customers and really kind of ascertaining that the.
The worst of that remix is certainly behind us I think.
Okay, and any sensitivity to the rate outlook does that at play any factor.
No I don't think so.
I mean, our outlook right now has been conservatively reduced to the zero rate hikes.
Maybe we'll get to we'll see at this point, we're not betting on that and should we get a couple of rate cuts later this year then.
There I think would help add to that stability, but with zero I don't think our outlook changes.
Okay, and then just wanted to touch on the increase in commercial criticized I recognize this normalizing.
Could you just characterize what Youre seeing and then also if you're actually seeing any credits move out of that criticized bucket.
Yes, Hi, Brian It's Chris Luca.
Yes, Thanks for your question.
What I would say is is that.
We're seeing a point, where we're seeing a lot less in the way of downgrade activity, which is I think what youre seeing in the way of kind of the slower inflow this quarter from.
From prior quarters.
Speaker Change: Not to say that I can anticipate that thats going to continue to to.
To slow down, but I do believe that.
Our downgrade activity has diminished quite a bit.
We did see some some upgrades in the quarter not not that many as you can imagine when you downgraded credit into special mention or substandard.
It has to season and perform for.
Several quarters, and we were operating at such a low level that the inflows that we've seen over the past.
Two or three quarters need to season and resolve themselves before we can justify upgrading them ore.
We're seeing them refinanced away from us.
And then finally, what I'll say is is that we're really not seeing any sort of connected connectivity between any of the activity in our criticized loan portfolio.
There really isn't any single geography or sector, and I know thats easy to say, but it really is true I've spent a lot of time trying to figure out if there is anything specific in there that.
That would.
Draw my attention to the broader portfolio that those come from and I don't really see anything specifically.
Alright, thanks for taking my questions.
You bet.
Your next question comes from the line of Ben Garlinger with Citi. Please go ahead.
Thanks, Good afternoon.
Hi, Ben.
So on the website it looks like you guys are in five months.
5%.
If I recall correctly, it's a little bit lower than the problems that you had earlier this year as kind of just curious when you look at the cost of deposits, obviously mix is going to be a little bit a part of it but.
When you look at the cost of deposits are down linked quarter, which is a positive.
Next phase.
Excuse me noninterest bearing stays roughly the same on mix.
Most of the world yield driving the margin or do you think you can get the right side of the balance sheet to change as well.
Dan This is Mike so.
In terms of our promotional Cds Youre right, our best rate, our highest rate out there is the 5% for either a three or five months maturity. We also have an eight month and 11 month at four in a quarter. So we have reduced debt.
Net debt ladder rate by 50 basis points, but the 5% has been there for a couple of months now now if you go back to the end of last year. We were at 544 eight months duration. So as we've talked about before we've kind of brought into duration and been able to kind of reduce the promotional rates. So.
Going forward.
Currently our ability to reprice maturing Cds in the second half of the year is certainly a driver of our ability to to continue increasing our NIM, but for the other things that contribute to that is our ability to reprice. Our bond book, we've kind of talked about that we have the better part of 400 <unk>.
$11 million of bonds maturing, our cash flow coming back to us in the second half of the year at a little bit under 3% and we'll redeploy that money, obviously at 5% or better. But then also repricing our fixed rate loans as we've kind of talked about in the past. So the things that will drive our NIM expansion in the second half of the year.
Or really the same things that have been driving our expansion.
Certainly in the second quarter into a large degree in the first quarter as well so hopefully that that helped to answer your question.
Yes, absolutely.
Mainly left there.
Stability on the right hand side of the balance sheet also helps.
Yes so.
When you think about the capital and how we've kind of beat this horse to death, a little bit here, but above 13, now you've talked about potential growth Sir.
Areas via revenue producers and then you also said the lenders and all those terms are often interchangeable.
Previously you guys talked about.
Texas is an area of avenues for organic growth I was curious.
Okay hires today would probably help 2025.
All sequel, but.
Can we see ramping pace of hires this year that will help next year or is this kind of more just 10000 foot view continue to hire across the board youre not really set up a better year, just trying to get a sense of well higher than what you kind of mean by that by revenue production.
So this is John I'll start and if I may and around the answer we felt Phil welcome to redirect me a bit in terms of higher end the target types of bankers. We're looking for are seasoned individuals and what we refer to as the commercial banking and the <unk>.
Business banking space, and that's going to be generally speaking call. It 30, 40 million annual revenues and down which tend to almost.
Self fund and the overall relationship and we've demonstrated a good bit of skill and success.
Developing fee services from that same type of client over time.
So the bankers, we would add would be generally in that space. We would also add wealth advisors given the really impressive success I think we've had the last couple of years.
That may be directed to both small business and retail across our financial centers.
And across the footprint. So it's a bit of a mixed bag band in terms of geography, because where we have market share.
We will have a better success of wealth advisers, because there's a book.
To play takeaway ball from other individuals who may have the asset management fee income, while we have the core banking, we really want at all so we may see more wealth advisors.
And the markets, where we already have a pretty big slice of the pie.
May see more bankers in those growth markets, where it's a bigger pie and we have a small slice and.
In terms of office ads that would be in those book end markets as well so.
Youre correct that the impact of adding bankers is is more of a 'twenty five.
Balance sheet line item and the expectation would be that we began seeing the print of a new banker.
Make itself known within 12 months and under a flywheel concept, we began to see substantial profitability between 18 and 24 months, depending on the segment that are operating in the market theyre in and their experience level. So so it's really all about 25% and 26, we're talking about adding bankers the wealth advisors on the other hand tend to.
Two two.
To make a difference pretty quickly if they're familiar with those markets.
Did I answer where you were headed there the Geneva may be asking more detailed questions.
That was great I'm going to sneak one more in.
If you guys think about the share purchase or no cover that a bit.
His evaluation driven or is it opportunity relative to growth. If you think valuation relative to peer our historical past.
And.
The drivers.
Pressing the buy button there.
Yeah, I think it's a function then of certainly the levels of capital that we enjoy right now as well as our ability to to grow that capital, but it's also a valuation question.
We look at.
Price of tangible book value and certainly the RP ratio when we compare our valuation to let's say the mid cap peer group.
Certainly there is room for iron valuation to improve and one way that we can kind of tangibly show the market that that we believe in our company is to repurchase shares. There's also certainly an opportunistic aspect to this as you would expect so I think it's in part all of those things I just mentioned that you kind of pointed out.
Ben This is John the only thing I'll add to Mikes, Greg comments, we're we tend to look at the combination of <unk> and repurchases as return of capital to investors and when we compare ourselves to mid cap peers, some are lighter or heavier and Debbie some are lighter and heavier and repurchase.
But we generally want to be at the capital levels. We're at right now and the balance sheet not growing quite as quickly as we'd like it to.
I assure that we are competing I think for investor interest at a similar level of return of capital. So it may be more of an art than a science, but all of those things Mike mentioned, what I added or kind of the way we look at it right now.
Speaker Change: Okay. That's helpful color I appreciate it.
You bet thanks for the questions.
Your next question comes from the line of Brett Robertson with Husky Group. Please go ahead.
Hey, good afternoon, everyone wanted to ask a question on the fee income guidance for the back half of the year.
About the high end of the guidance that would basically be kind of flattish from the second quarter, but if you look at the trend the past year.
You had decent growth, particularly in the back half of 'twenty three.
Can we go back to the fee income guide and just maybe is there anything that might be restraining fee income or any line items that might be softer in the back half.
Yes, I'll take a pass at that this is John.
The big wildcard I'd say big wildcard the rate environment matters when ER.
And the and the portfolio.
Portfolio success matters when it comes to wealth.
Fee income so its hard to gauge what that really will be but after four or five quarters in a row of record.
Annuity and wealth income in general.
We try not to get overly exuberant that we forecast net.
Net quarter over quarter increases at what has been a record pace. So we have that moderated a little bit.
Not the fee income itself, but the growth of it.
Secondly, secondary mortgage phase now that we're at about a 95%.
<unk>.
Our percentage of the total deals actually go into the secondary market that fee income category was up sharply in the first.
Quarter end it was up again.
Little more modest, but still up enough to make a difference in the second quarter and depending on what happens with the rate environment. The back half of the year that one may very well prove to be stronger than we have estimated as part of that guide we try to be relatively conservative in the guide and I think we're assuming a flat rate environment that would obviously have an impact on secondary.
Fee income if rates go down then.
And then our guide may prove to be a little short when it comes to the mortgage side.
All things card continue to perform in deposit service charges have been stable and we expect it to remain so for the rest of the year and the only category that we see.
To set a record every quarter as SBA, which second quarter again proved to be a terrific quarter and I think third quarter is going to be even better. So it's really a mix of what I'll call stable fee income sources and those that continue to grow.
But we don't want to try to get I guess, so I don't want to get irrationally exuberant about the first half of the year being so strong and presume that those continued increases or at that pace, we need a little luck in the market.
To continue with that kind of a right did I answer your question.
Yeah that was perfect and very good color John I appreciate it.
Other question I wanted to ask was you know obviously you would have grown the loan book.
Absence of the reduction in the shared national credit portfolio I wanted to just to here.
If you gave it I missed it but just any color on.
You know what you are seeing change with loan demand.
Here in the past quarter or if it's if it's.
I think going back to the Gulf South it sounded like things were softening a little bit from a demand perspective. So I was just curious for an update on demand and just what you were seeing customers think about for the back half.
Sure Brad This is John I'll start again and the other guys can add color if they like.
John M. Hairston: I wouldn't say the tone has changed dramatically since the last time, we visited at Gulf South what I, what I can share is it's really a mixed signals sort of a moment in time, where using second quarter as a basis, we already talked about the snick runoff and that wasn't demand that was just our screening appetite is obviously a bit more narrow.
John M. Hairston: To achieve the goal that we talked about in the first.
First question of the day.
But generally our CRE book as an example, we had the best production in CRE in the second quarter as we've had in the last six quarters.
And today's environment, when I say CRE aside from owner occupied that really means primarily multifamily with a little industrial and maybe a smaller section of retail in there.
Not in the office to speak of obviously at this moment in time, but we had a great CRE quarter and the team did magnificently to the outlook and the.
The.
Pipeline for CRA is also up for the for the second half of the year that said, we are seeing competitors, who have been sidelined for fear who have much higher CRE concentration than we have.
We've enjoyed that advantage for a while and now we're seeing some players come off the sidelines that had been sidelined to become more competitive which puts pressure on our on the deal prices and we've got to make sure and be comfortable that we're getting the yields that debt that need to be there for the business to make sense versus look at other types of lending so CRE.
<unk> had a good quarter equipment finance had a very good quarter pipeline there still looks good.
The offsets would be other than the snick thing.
Sumer and home equity line is still really light both in pipeline and in production is not bad, but we've got to do a fair number of new deals just to stand still given the amortization levels every quarter and they're higher for longer environment has not been kind to grow in.
Consumer purpose balance sheet. So those are sort of the mixes there is not really a huge difference geographically I think all of our footprint.
It is doing well.
John M. Hairston: And frankly, given the tepid demand I'm real proud of our team for doing as much as it did in Q2 to offset the snake.
Runoff that already happened and hopefully in the back half of the year. The Green shoots I mentioned earlier in some of those categories.
We will sprout and maybe our guidance be proven to be a little conservative but right now.
We're calling it flat towards the end of the year maybe a.
Slightly down just depending on what the rate of payoffs are and and sentiment improving as things develop politically and other types of things the back half of the year.
Okay, Great that was very helpful. Thanks, so much John.
Okay, you bet Brett Thanks for the good questions.
Your next question comes from the line of Stephen Scouten with Piper Sandler. Please go ahead.
Hey, Thanks, guys good afternoon.
I guess on the loan growth front, one thing I thought was interesting was just the comment about line utilization ticking up a little bit.
We could see a longer term trend there if acceptability to overall credit is maybe less in this environment or how do you think about that line utilization dynamic moving forward.
That's a great question, we talk about it internally a good bit.
You would you would think at this point in time on the consumer side as cards have gotten a lot harder to obtain were not really much of a card bank. So it's not a big play for us, but others, who have a much bigger basis and cards, if certainly screen credit tighter.
But it really hasn't led to utilization being heavier and the only way. We can really look at that is that the appetite for consumers to purchase big things that they typically put on lines of credit mostly home equity lines secured our home home equity secured that their appetite for purchasing has diminished enough to where.
They really just kind of amortizing with the level that they're at right now so.
So we're not seeing much on the consumer side in terms of utilization increase our small business lines of credit however.
Ill begin to improve a bit.
And I think thats, because theyre getting ready for what they think is can be a busier half of 2024, and then finally on the commercial lines and particularly the C and D lines.
As the drag on our <unk> business from mortgages migrating from sandy to the mortgage category.
Greatly diminishes in the second half of this year.
That drag on CND may begin to to allow the category to grow a little bit more.
And when we get new deals to the C&I pipeline room, they start out at zero utilization and they've worked their way forward.
So as the percentage of deals go up in C and D. The actual line utilization reported guests down if you follow me the way the inverse reporting happens and then as they get more mature and are ready to go into permanent then the utilization goes up until they pay down Indeed department are going somewhere else for longer term financing. So I think to answer your question is slight to up.
Line utilization is what we anticipate over time I don't think it'll be sharply up or down though based on any particular piece of news.
Okay makes sense and then one other thing I've found interesting kind of the new fixed rate loan yield that you guys disclosed on slide 15.
Have obviously trended down the last couple of quarters and it looks like maybe you have done a slightly higher percentage of fixed rate loans as a percentage of overall production.
I'm wondering is that intentional to some degree to try to book a little bit more fixed rate loans as we presumably move towards rate cuts here in the back half of the year of 25 or is that just more of a dynamic of demand and just kind of happened.
I think it's just mix of what we booked at quarter end and the fact that it's fixed rate lending is a little bit more competitive because of the reemergence of.
Steven: Of competitors, you really didn't care too much about fixing the past few quarters and now they do and the quality of the credits were trying to book Steven It is pretty competitive its not competitive at the low quality was very competitive at the high quality.
Makes sense, Okay, and then just last thing for me as you think about the ability to bring in new hires I mean, that's something we're hearing from.
A lot of banks. These days in terms of how they want to grow if they can it seems like there would be a lot of demand for good people. What is it that you think kind of gives you the ability to bring those people on and maybe do you think youre kind of in that sweet spot from an asset perspective.
John M. Hairston: That lenders want to be a part of or is it just your stability and ability to grow in this environment.
Can you give any color on what you think will drive your ability to bring those people on versus your other peers.
And it's a great question and when I when I talk to candidates and every now and then actually get the opportunity to do that.
The selling points of that deliver form it's a company that's going to be here.
We have achieved a great deal of heavy lifting to the point that the company is very stable very profitable, we have capital to deploy and to grow the balance sheet.
We've saved an awful lot of money to become more efficient from an earnings perspective, but we're not afraid to invest in high quality people to add offices and to invest more in marketing dollars over time and so.
I think thats attractive secondly, the parity we have between our credit team and our banker team is very good.
A very constructive while they don't always see eye to eye on every single credit it's a very constructive.
Instructive environment to where they work together and we try very hard to make sure. We're very clear of what we are interested in adding or not adding.
At any given level of segment or geographic concentration and then thirdly, I think were very honest with our team members about where the company is headed and what our activity and investment structure is going to look like in the near term. So it's somewhat predictable. So a lot of the tough lifting that we did to trim expenses to rightsize office levels, all the all that tour.
And the work environment.
<unk> has already been somewhat completed and so the direction forward is a little bit more predictable for people who are interested.
I think coming out of an organization that may have a lot more.
Types of unexpected activity coming at them. So were like I don't want my comment earlier in the prepared area I mentioned, we're focused on the windshield versus the rearview mirror in and part of that is directed at that that type of posture.
Yes, Okay. That's those are great insights I appreciate all the color and thanks for the time.
You bet. Thanks for the question.
Your next question comes from the line of Gary Tenner with D. A Davidson. Please go ahead.
Thanks, Good afternoon guys.
Two questions first on the CD side, Mike you update us the amount of Cds maturing third quarter fourth quarter, along with the prevailing.
Rich on this.
Sure. So in the third quarter, we have about $2 3 billion of Cds maturing those are coming off at a little bit over 5%.
And we think that those will reprice somewhere in the $4 65, or so range.
Speaker Change: Thats, a favourable repricing dynamic of about 39 basis points and in the fourth quarter.
The level of maturing Cds dips, a little bit goes down to about $1 9 billion. Those are coming off at 483 and again, we think those will go back on at somewhere around $4 70 to $4 75.
So those are the dynamics in the second half of the year in <unk>.
In the second quarter, we had $2 2 billion maturing those came off at 5% went back on at about $4 78, So certainly.
And the opportunity for us to reprice, those maturing Cds a bit lower going forward the.
The assumptions that I gave you around the rate that we think those Cds will go back on assumed zero rate cuts in the second half of the year, certainly if we get a rate cut or two.
That improves the dynamics related to those numbers being a little bit more favorable.
Alright, I appreciate it and then.
Second question, John You had mentioned in the past and I think on this call as well.
The outlook for loan growth had kind of shifted from maybe being generated by lower rates to pay more.
Our offense on the field as <unk> said before.
The decline or lowering of your loan growth outlook for the full year I mean should we read anything into that in terms of kind of the timing or pace of hiring that you've been able to accomplish ore that your pipeline looks like it's going to.
Of hires is going to support or are there other.
Is it more about just overall demand.
It's really more of a flip to all of our guidance being tied to a flat rate environment. Gary If you remember we have.
I expect it to have a few more rate cuts in the back half of the year than we now expect them to make things very simple we're trying to give all of our guidance I mean, all of our gastro and fee income growth.
Expense load and everything else to a flat rate environment to the extent that rates come down a bit.
And that obviously gives us a little better shot in terms of growing the balance sheet more than we anticipate at the moment.
Okay, Great I appreciate that Jonathan actually Mike If I go back to the question one more time why would the repricing in the fourth quarter why do you assume that those maturing Cds reprice higher what's the.
Then the third quarter.
What's the dynamic the dynamic of the maturing bucket. So it's just a little bit different mix in the fourth quarter in terms of where theyre coming off and then the potential to reprice. So.
It's a five or six basis point difference, so it's not significant but the.
The driver would be the mix of the maturing buckets.
Okay. Thanks very much.
You bet.
Your next question comes from the line of Matt Olney with Stephens. Please go ahead.
Hey, guys. Thanks for all the good commentary this afternoon.
Just want to go back to the funding strategy that we saw in the second quarter and the outlook the back half of the year, Mike I think you mentioned that the bank lean heavier on the borrowings into queue, just any more color on kind of what drove that and then I guess thoughts on the borrowings at the back half of the year.
Well I think the driver in the second quarter that resulted in a little bit heavier load of borrowings really related to the maturing broker Cds. So we offloaded half of what was on the books at that time and at the end of the quarter.
Down to about $200 million, but then I think also one of the things that drove that a little bit higher level of borrowings.
Probably a little bit heavier tax outflows that impacted <unk> into a little bit lesser degree interest bearing transaction and then also probably a little bit heavier outflow of public fund Cds. So we view most of those things is really kind of seasonal impacts that impacted the second quarter that.
Should kind of rightsize themselves as we go through the balance of the year.
Okay I appreciate that and then in the absence of loan growth and potential loan balance contraction any appetite to grow the securities portfolio in the back half year.
Not at this point the view related to the bond portfolio is to keep it kind of flat at current levels, but but certainly as we go through the balance of the year in loan growth is different than our expectations and maybe deposit growth is a little bit better.
We'll evaluate what to do with that those excess funds should we have them at that point.
Certainly the.
The level of rates at that time, I think will play into that decision and what we can earn at the fed versus what we might earn by deploying into the bond book.
Okay. Matt This is John the only thing I'll add to that is yes.
Just one interesting dynamic as the mortgage portfolio, we expect to flip into contraction in Q3, that's about a $40 million a month amortization level.
Coming off today at $3 77, so.
Certainly wherever that goes is beneficial not only to income but to NIM.
So if we don't see any growth at all and loans then.
I hate to just let it sit overnight at the at the fed, but frankly the improvement over 377 isn't bad there either right. So.
So that may play into what happens with the bond portfolio modestly, but right now the intent is to keep at the site.
Yeah.
Okay. Thanks for the color.
You bet. Thank you for the question.
Your next question comes from the line of Christopher <unk> with Janney Montgomery Scott. Please go ahead.
Hey, Thanks, Good evening, just a quick credit question for Chris can you tell us a little bit about how.
Criticized loans get upgraded if you see any of that pending in the next couple of quarters and just kind of wanted to review process as time passes.
Yes, it's a good question.
Obviously, there are many different ways that we try to.
Manage that segment of the portfolio one is if we don't see.
Long term prospects of any sort of improvement will certainly encourage the customer to seek alternative financing.
Oftentimes with non bank lenders things like that.
Speaker Change: Outside of that in our typically what we're doing is we're staying close to the customer we're understanding their issues. There is obviously.
Close relationship and in many instances between the relationship manager and the client and we kind of understand.
What what their issues are and as the.
The company shows.
Resolution of whatever issue it was that resulted in them going into our criticized category.
We typically will.
Either wait for the financials to support <unk>.
<unk>, if it's a financial issue.
Or if it's an event issue to ensure that the event has been resolved or is no longer a significant enough nature to keep it in that criticized loan category.
Chris Great and Thats helpful. John.
In case, you were thinking more about timing there.
Chris mentioned early you'd like to see two or three quarters of seasoning once whatever the original offending problem was that caused the downgrade you'd like to see it a couple of three quarters healed before you do the upgrades. So when something gets in that category, it's going to linger there for a couple three quarters, even if it's immediately rectified.
And to use a simple example, I know we're at the tail end of an hour long call. So I'll make a brief but.
If a client.
Got stretched a bit our leverage during the pandemic and credit and expense load that the revenue just couldnt keep up with and then we get into a higher rate environment. They might need time to trim their expense loads back down to the point that if they have a covenant breach they've cleared that up in a couple of three quarters later than we feel like we have the justification to.
Presuming that problem is solved so it they linger a bit but you know obviously, we work hard to monitor them and assist where we can to get them to up to a better place, whether that's with us or maybe somewhere else hopefully that answered what you were looking for.
No that's great. Thank you both for that and just a quick follow up just as you allocate reserves do you see the need to put any more allocations towards commercial real estate or.
Just related to some of the maturities that may be coming.
Quarters.
Yes, so I'll take a quick run at it and then if Mike wants to.
Enhanced whatever I say.
Happy for him to do so.
We do segment our portfolio based on.
Both a little bit of geography, and also on portfolio until we do allocate more towards commercial real estate in this current environment.
And it's expected that we would do so.
When you get down to kind of sub portfolios.
We tend to not allocate down further than that although there are certain influencing factors within those sub portfolios that may influence us increasing or decreasing the reserve related to that sub portfolio. So.
We do at this point in time have a higher reserve level relative to our commercial real estate book than we did in the past for instance, and Thats, obviously in recognition of kind of the current environment and the forward view.
That said I would say we are fortunate that our commercial real estate portfolio is holding up nicely.
And.
We don't really feel like.
There is a need to increase our reserve on commercial real estate for any known issues.
Speaker Change: No nothing to add thanks, Chris.
Perfect. Thank you all I appreciate the information.
That concludes our question and answer session and I will now turn the call over to John Harrington for closing remarks.
Thank you Kristen for moderating the call and thanks to everyone for your interest in the bank have a terrific evening after a really terrific trading day.
Okay.
This concludes today's conference call. Thank you for your participation and you may now disconnect.
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