Q4 2024 Hancock Whitney Corp Earnings Call
Good day, ladies and gentlemen, and welcome to Hancock Whitney Corporation's 4th Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Speaker Change: Later we will conduct a question and answer session and instructions will follow at that time. As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Kathryn Mistich, Investor Relations Manager. You may begin.
Thank you and good afternoon.
Speaker Change: During today's call, we may make four 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.
Speaker Change: 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.
Speaker Change: 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 or results.
Speaker Change: And our actual results and performance could differ materially from those set forth in our forward-looking statements.
Speaker Change: 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.
We will reference some of these slides in today's call.
Speaker Change: Participating in today's call are John Hairston, President and CEO, Mike Achary, CFO, and Chris Iluka, Chief Credit Officer. I will now turn the call over to John Hairston.
Speaker Change: Thank you Kathryn and Happy New Year everyone. We thank you all for joining us today for the call. We are pleased with our fourth quarter results which reflect another quarter of improving profitability.
Speaker Change: We achieved an ROA of a notable 1.40%, we enjoyed continued NIM expansion, and wrapped the quarter with total risk-based capital of nearly 16%. The quarter was a strong finish to a strong year of improving profitability, building capital, and celebrating our 125th anniversary.
Speaker Change: Last quarter on this call, we shared our expectations for a pivot to growth and smartly deploying capital to create opportunity and value.
Speaker Change: On that note, we announced this morning our acquisition of Sable Trust Company, based in St. Petersburg, Florida.
Speaker Change: We are very proud to welcome Sable's outstanding leadership team and clients to Hancock Whitney.
Speaker Change: Following the close, Florida will become our largest wealth management fee state.
Speaker Change: and the Tampa St. Pete MSA will become our largest individual wealth management fee market.
Speaker Change: The transaction matches perfectly our stated strategy to develop greater market share in the higher growth areas around our geographic footprint. Further details may be found on slide 7 of the investor deck.
Speaker Change: We are also pleased to announce a multi-year organic growth plan, which will include both hiring additional revenue-generating associates throughout 2025 and expanding our footprint in Florida and Texas through opening, this year, five additional financial center locations in North Dallas.
Speaker Change: We added seven new bankers in the fourth quarter, which aligns with our anticipated run rate for 2025 and likely the foreseeable future. As I said earlier, this is a multi-year plan and we will share more over the next several quarters.
Speaker Change: We updated our guidance to give our latest expectations for 2025. This guidance reflects the Organic Growth Plan, but does not include any impacts from the acquisition of Sable Trust Company.
Mike Achary: Just a few more notes from Q4 before turning the call over to Mike.
Mike Achary: Net interest income and NIM increased as we were able to control funding costs and more than offset the impact of lower rates and changes in new loan production mix.
Mike Achary: Fee income was modestly off due to lower secondary mortgage volume, due entirely to higher rates, and a little less specialty income after record numbers in Q3.
Mike Achary: And finally, we were happy to post a modest production and operating expense for the quarter. Loans were down $156 million due to higher payoffs on commercial real estate loans, offsetting otherwise strong production.
Mike Achary: With our organic growth plan, we expect total loans will grow mid-single digits in 2025, tilting toward the second half of the year. We remain focused on more granular, full-relationship loans with the goal of achieving more favorable yields and relationship revenue.
Mike Achary: Deposits were up $510 million despite the maturity of $183 million in broker deposits.
Mike Achary: This quarter we had a very welcome increase in DDA balances.
and our DDA mix is consistent at 36 percent.
Mike Achary: We experienced normal seasonal increases in interest-bearing transaction and public funds deposit accounts, and retail CDs declined due to the reduction of our promotional CD rates. We expect deposits to grow in low single digits in 2025.
Mike Achary: During the quarter, we continued to return capital to investors by repurchasing 150,000 shares of common stock.
Mike Achary: Even after returning capital, we had strong growth in all of our regulatory capital metrics due to excellent profitability.
Mike Achary: Ending the quarter with a common equity tier one ratio of 14.14%.
Mike Achary: TCE declined slightly due to the impact of Treasury yields on AOCI, but ended the quarter at a strong 9.47%.
Mike Achary: We are enthusiastic for the opportunities in the coming year and believe we are very well positioned for a successful 2025. With that, I'll invite Mike to add additional comments.
Mike Achary: Thanks, John. Good afternoon, everyone. Fourth quarter's net income was $122 million, or $1.40 per share, so up $6 million and 7 cents per share from last quarter. PPNR was down slightly, less than 1%, to $165.2 million.
Mike Achary: Express has a return on average assets that continues to be a peer-leading 1.89%.
Mike Achary: Our NIM expanded two basis points to 3.41%, driving modest growth in NII.
Mike Achary: and has mentioned our fee-income businesses had an outstanding quarter and year. And expenses were down again this quarter. So now two consecutive quarters of lower expense levels.
Mike Achary: The NIM expansion was driven by lower deposit costs, a higher yield on the bond portfolio, and a favorable mix of borrowed funds, partly offset by lower loan yields, as shown on slide 17 of the Investor Deck.
Mike Achary: Our overall cost of funds was down 21 basis points to 1.73% due to a lower cost of deposits and a better funding mix as we ended the quarter with no home loan borrowings.
Mike Achary: Our cost of deposits was down 17 basis points to 1.85%, reflecting seeding maturities and renewals at lower rates and a reduction of pricing on interest-bearing transaction accounts.
Mike Achary: We had 3.4 billion of CD maturities that came off at 4.84% and renewed at 4.04%.
Mike Achary: Additionally, as John mentioned, most of our brokered deposits matured during the quarter and were not replaced, and our DDA balances increased this quarter for the first time in almost two years.
Mike Achary: CDs will continue to reprice lower throughout 2025, given maturity volumes and three anticipated rate cuts in the second half of 2025.
Mike Achary: Bond yields were up by basis points to 2.71% due to our continued reinvestment of cash flows back into the bond portfolio. In the fourth quarter, about $200 million of bonds came off the balance sheet at a yield of 3.45% and were reinvested at 4.64%.
Mike Achary: Next quarter we expect about $160 million of cash flows coming off at about 3.09% that should reinvest at around 5%.
Our loan yield was down 25 basis points to 6.02%.
Mike Achary: Our yield on fixed rate loans was up 7 basis points as we continue to reprice that book. But the yield on our variable rate loans was down 49 basis points.
Mike Achary: Putting this all together, we believe we can achieve modest NIM expansion and NII growth of between 3.5% and 4.5% in 2025, driven primarily by the impact of mid-single-digit loan growth, lower deposit rates,
Mike Achary: and continued repricing of cash flows from the bond portfolio and fixed rate loan portfolio.
Mike Achary: Offsetting these drivers will be lower loan yields on variable rate loans.
Mike Achary: We assumed three rate cuts in the second half of 2025. We did model the impact of one and zero rate cuts in 2025, with results that were modestly favorable.
Mike Achary: has mentioned the income was lower this quarter due to lower specialty income.
which was elevated in the prior quarter.
Mike Achary: We expect non-interest income for 2025 will be up between 3.5% and 4.5% from 2024 with nothing yet assumed from our acquisition of Sable Trust Company.
Mike Achary: Expenses were down 1% this quarter as we continue to focus on controlling costs throughout the company.
Mike Achary: We expect non-interest expense for 2025 will be up between 4% and 5% from 2024's adjusted non-interest expense level, inclusive of our Organic Growth Plan, but excluding any costs related to disabled acquisition.
Mike Achary: Our PP&R guide is to be up between 3 and 4 percent from 2024's adjusted levels, and our efficiency ratio is expected to fall between 55 and 56 percent in 2025.
Mike Achary: Our credit quality metrics continue to normalize with an increase in nonaccrual and criticized commercial loans.
Mike Achary: Net charge-offs, however, were down this quarter. Our loan portfolio is diverse, and we still see no significant weakening in any specific portfolio sectors or geography.
Mike Achary: We continue to enjoy a solid reserve of 147 basis points up slightly from the prior quarter. We expect modest charge-offs and provision levels for 2025.
Mike Achary: Lastly, a quick comment on capital. Our capital ratios remain remarkably strong, even after returning capital through continued share repurchases and the impact of AOCI.
Mike Achary: Even with the Sable acquisition and planned organic balance sheet growth, we expect to continue our share repurchases in 2025.
Speaker Change: As always, 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 for watching!
Speaker Change: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Speaker Change: If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: Your first question comes from the line of Michael Rose of Raymond James. Your line is open.
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Michael Rose: Hey, good afternoon guys. Hope you're enjoying the snow down in New Orleans.
Speaker Change: Maybe, Mike, we could just start with just on what you'd mentioned last on the on the buybacks, you know, certainly appreciate the CSOs. I think the only thing that's.
have really changed since last January is the ROA ranges.
Speaker Change: I know you guys have expressed some maybe some displeasure with you know where you guys trade versus you know peers. Just trying to get a sense of how aggressive you might be with the buyback you know given that the earnback is still relatively attractive here. Thanks.
Speaker Change: Sure, Michael. Thanks for the question. Look, as far as buybacks are concerned, we did step down a little bit from the levels.
Speaker Change: that we had been at for both the second and third quarter, and I think that simply just had to do with the fact that
Speaker Change: You know, the stock had pushed up quite a bit post-election, and then, you know, we began working in earnest on the Sable transaction, and when we get to that point with the potential transaction, we've really put ourselves
Speaker Change: Conor then blackout. So The way we view buybacks going forward is I think at the very least
Speaker Change: will revert back to the same levels that you saw us buy shares in the second and third quarters. So call it, you know, around 300,000 shares per quarter.
Speaker Change: And look, there's a lot of things that could change that particular appetite, probably more so for the upside. But that's how we kind of view it right now. So hopefully that was helpful.
Speaker Change: very helpful and then maybe just separately just on the on the loan growth outlook I think that was
Speaker Change: definitely better than, I think, what I was looking for and where consensus is. But just wanted to get a sense for what the drivers are. I know, obviously, one of the benefits will be not having the SNCC portfolio pay down now that you're kind of at normalized levels. But if you can just give us some color around what the drivers would be and how confident are you in the back half of the year pickup. Thanks.
John Hairston: Michael, this is John. Thanks for the question. I'll start it and if Mike and Chris want to add any more detail, they're welcome to.
John Hairston: You correctly pointed out that one of the biggest tailwinds to the confidence is the fact that we no longer have to take down $600 million out the back door as we right-size the stink concentration down to 10% or below. So that's all achieved.
Speaker Change: So, out of the gate, you sort of get the lack of a contract, so to speak.
Speaker Change: impact in the net growth numbers. Beyond that, it's really all about, you know, core conventional growth. You know, our mortgage business will be a bit of a contra as we pivot to secondary fee income. That said, as rates move up for mortgage...
Speaker Change: Certainly, we continue to look at the balance sheet needs more than just the fee income piece. And so if the rates begin to get attractive enough for very high quality paper, we might consider keeping a little bit more mortgage on the books than the 12%.
Speaker Change: that we did the last quarter. We sold 88, we kept 12% in dollars.
Our business banking and small business pipeline.
and it appears that we'll be successful adding.
Speaker Change: Firepower through additional business bankers through the course of 2025. We had good success there in Q4.
Speaker Change: So, I think that's a net growth generator for the quarter.
Speaker Change: for the year, after several quarters of going sideways as we just move up the asset class to the next sector we call commercial banking. So it's less the middle market, but higher than small business.
Speaker Change: That book has been largely sideways for several quarters. The pipeline has improved. Payoffs there have lessened.
Speaker Change: And so our expectation is that that bucket will also grow as we go through 2025. And in fact, I think we'll see growth there in the first quarter of 2025, which hadn't happened for a couple of years.
Speaker Change: Middle market and corporate banking demand is, you know, from decent to good there. The primary growth engine there is the lack of the paydowns that we applied to ourselves this year. But even so, in the health care portfolio,
Speaker Change: and the commercial real estate specialty business while we've had payoff pressure in CRE.
Speaker Change: The production level actually was quite strong in Q4, and we expect that to increase as we go through 2025.
Speaker Change: So the CRE becomes a net growth engine toward the back half of the year. And then finally, equipment finance is exhibiting strong growth and less pressure for paydowns. The only negative in all that, Michael, is probably competition is fierce.
Speaker Change: So we're not compromising at all in the credit term expectations for any of those growth numbers. But as we get into areas like equipment finance and commercial real estate, there's so many non-bank players.
Speaker Change: to compete with these days, that we may see a little pressure on the yields of new business. And indeed, we saw that at Q4 in that same sort of environment.
Speaker Change: So our confidence is actually pretty good. I'd say very high to attain those levels of growth through the year. Obviously, even though we're leaning or tilting towards the back half of the year for net growth,
Speaker Change: The expectation is that we see some growth in Q1 and in Q2, and I think directionally that will help us understand the pathway to attaining that mid-single-digit level.
Michael Rose: If there's more disruption around us, Michael, that may afford opportunities to hire bankers at a faster clip, and that certainly wouldn't hurt either.
Any more clarity? Certainly.
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Michael Rose: No, no, certainly appreciate the call. Maybe just last one for me on the stable acquisition, just quickly.
Michael Rose: Can you give us a sense for, you know, maybe what the expense levels are, what the efficiency ratio was? You know, last year, I appreciate, you know, what the revenues were, but just trying to get a sense for what the net, you know, bottom line impact would be as we think about 2025. Thanks.
Michael Rose: Yeah, I appreciate that question, Michael. But again, as we kind of indicated,
Michael Rose: In the deck itself is, you know, we're going to update our guidance to be inclusive of SABL probably after the first quarter. So if you wouldn't mind saving that question until we get to that point.
Michael Rose: By then, we'll certainly, I think, have a little bit more certainty as to the exact closing date.
Michael Rose: But suffice to say, as we indicated in the release and in the slide, it certainly is a creative day one in terms of EPS.
Michael Rose: and exceeds all of our return thresholds. So I think when we get around to talking about the results and the returns, it will be something that people will appreciate.
Perfect. Thanks for taking all my questions.
You bet. Thanks, Michael.
Speaker Change: Your next question comes from the line of Matt Olney of Stevens. Your line is open.
Matt Olney: Hey, thanks guys. Good afternoon. We'd love to hear more about the wealth management segment there at the company and with Disabled Trust Acquisition. Just appreciate, you know, help us appreciate why is now the time to build out.
Matt Olney: that business and then I guess the other part of that is do you think there's additional opportunities in wealth management with respect to M&A or is it a more of a more of a one-off?
Thank you for watching!
Speaker Change: I'll start with that on the core wealth management questions, and then Mike can handle the M&A part that you addressed at the tail of the question. First off, we've been in the trust business for 100 years, so it's not a new business to us. The last 10, we've certainly focused a great deal more on it.
Speaker Change: That focus is in racing really it's been a pretty and he we've been eager to grow that sector for about a decade
Speaker Change: If you remember back in 2018, we announced the Capital One Asset Management transaction, which
group by 50 or 60 percent our overall
Speaker Change: Wealthbook. We hired a lot of good talent both in that deal and after it.
Speaker Change: I think it may have put us a bit more on the map in terms of having scale to go after larger, more profitable clients that actually had ancillary fee opportunities and other business lines that were very creative to the bottom line.
Speaker Change: Then we did the partnership with Satara, which exposed us to a lot more investment platforms.
and advisors across the country.
Speaker Change: So we began to be more notable in terms of being able to compete.
particularly in the larger opportunities in Texas and Florida.
Speaker Change: and then finally Sable allows us to cheat about 30 years of work.
Speaker Change: on to the overall book. I mean, Sable built a very fine organization over a little less than three decades. I mean, it takes hard work to do that, so to be able to pick it up.
Speaker Change: at one time, and turn that into our largest wealth management state in Florida, I think that's a pretty good accomplishment. It strategically fits our desire to create wealth management income as at least a third of our overall fee income.
Speaker Change: So we're there now. It's already about a third of our fee income.
Speaker Change: Sable will help that number go up a good bit more.
Thank you.
Speaker Change: We've announced a fairly aggressive growth plan in terms of adding talent.
Speaker Change: Several of those players are intended to be Wealth Management Advisors that we'll organically hire.
Mike Achary: So it's an important part of our organization moving forward, whether it's organic or inorganic. So Mike, do you want to handle the inorganic part of that? Yeah, and just a couple of thoughts, Matt.
Mike Achary: You know, first off, we couldn't be more pleased with the transaction. We're thrilled for the addition and eager to get moving with the new addition to our company.
Speaker Change: But it really does check a lot of boxes for us, so the first one is, John really hit on that when he talked about kind of the companion acquisition to what we did with Capital One back in 2018.
Speaker Change: With the Capital One transaction, we acquired a lot of infrastructure, a lot of expertise.
Speaker Change: laid a really good foundation to grow that business from that point on.
Sable is the perfect add-on to that.
Speaker Change: of a neighborhood of over 50 revenue producers on the trust side and a great base of customers. So it really is, I think, an ideal revenue play on top of what we did with Capital One.
Speaker Change: I think it also gives us some strategic growth in an area of the company that we would like to be bigger in. So in terms of Central Florida, you know, that's one of the areas of our geographic footprint, you know, that we've kind of earmarked for additional growth.
Speaker Change: So John mentioned on the opening comments the potential to add banking locations that will be companions to Sable's locations. So I think that's another important box to check.
Speaker Change: It's an all cash deal so it kind of checks that box in terms of
helping us proactively manage capital.
So we're thrilled with that.
Speaker Change: And it really does kind of put a little bit of an exclamation point on this notion of 2025 being a pivot year for the company to grow, both organic growth as well as now inorganic growth.
Speaker Change: And then finally, it really is kind of a signal that I think the company is open to inorganic growth opportunities, whether it be on the banking side or even the non-banking side.
Speaker Change: So, we're open to all sorts of opportunities. I wouldn't say that strictly non-bank, you know, or trust. Certainly, we're open to depository institutions going forward as well.
Speaker Change: Okay, appreciate the commentary on that topic. And then on that organic growth strategy, you give us the map there on slide eight as far as the footprint and kind of the planned hires.
I see several green stars in Texas.
Speaker Change: and planned hires in the state. Also mentions of the new financial centers in Dallas and 25. Just update us on your current footings in Dallas or in Texas and leadership. And I guess just remind us kind of what the growth strategy is. Is it going to be more middle market C&I or will it be something else within the state?
Speaker Change: It's a great question, Matt. I mentioned adding wealth advisors earlier. Our stated goal, and this is a lofty and aspirational goal, but we are
Speaker Change: Bank in the southern part of the U.S. for privately owned businesses.
Speaker Change: and we don't feel as if we can attain that goal without a strong wealth management offering.
Speaker Change: That way we can bank the business and we can bank the owners of the business and be prepared to assist them.
Speaker Change: when they go through succession or liquidity moments. And so as a result, you know, those are really companion offensive plays that we've invested a lot of time and money into the past 10 years or so. So when we look at the hires, you know, we didn't really give numbers last.
because we wanted to come out of the...
the gate this year with the overall organic strategy.
We hired seven.
Speaker Change: Net new bankers in Q4, that was the runway, the run rate.
Speaker Change: that we set as a goal, we actually hit it. And frankly, it kind of surprised me because fourth quarter is typically the hardest time.
Speaker Change: to add business purpose bankers because of the way the incentive teams are structured. Typically, there's a big annual settlement that occurs in Q1 for the prior year, and so it's tough to add people during that time, but we were able to, and I think we did it because
Speaker Change: The people interviewing with our folks saw a very aligned top line and credit risk appetite match. They interviewed both credit and risk.
Speaker Change: a lot of business leadership and found that they felt this would be a very comfortable place for them to spend their careers and so We got you know those seven in Q4 and I would expect to be on that same run rate through the rest of this year so around 35 over the five-quarter period
Speaker Change: We're not really planning to talk much about 2026 today, but unless the macro changes or something else changes, I would expect that run rate potentially to continue into 2026. It just depends on how the world looks when we get another 2 or 3 quarters under our belt.
Those bankers will not be limited.
Speaker Change: to the high growth markets. I appreciate you calling out the points in Texas.
We are busily working towards adding five new financial centers.
Speaker Change: and that's the northern areas of the Dallas MSA, which are complemented to where we have offices and leadership already deployed.
Speaker Change: So those five are, they're not open yet, but we're working hard to get them done. And I would be disappointed if we don't physically open the offices.
before the end of this year.
Speaker Change: Maybe on this call a quarter from now, we can draw a little bit more detail around what the Florida plans are. I'm talking a lot about Texas and Florida, but I don't want to mislead anyone. We'll take good talent in all of our footprint.
and if disruption occurs a place other than...
Speaker Change: and where we are in Texas and Florida, then certainly we would be.
are deeply interested in moving teams or individual players that
Speaker Change: may would prefer to be with us than go through what they may go through elsewhere. So I think at this point in time, our signal to potential partners or potential colleagues would be to don't be bashful about making a phone call and we'll see if we can work it out.
Any redirect you want on that Matt?
No, that's great. Appreciate the commentary.
You bet. Thank you.
Speaker Change: Your next question comes from the line of Kathryn Melor of KBW. Your line is open.
Thanks, good afternoon everyone. Hey Kathryn.
Kathryn Melor: I wanted to ask about the increase in your credit size commercial loans. Can you just give us any color as to what type of loans these are, the size, just any kind of commentary about the potential risk in that increase this quarter? Thanks.
Kathryn Melor: Hey Kathryn, it's Chris Aluca. Thanks for the question. First of all, I just want to remind folks that we really do continue to be very proud about our asset quality performance.
Kathryn Melor: You know, we started at a low base and we certainly have gone up over the past year, but...
kind of looking back and comparing it to our peers.
Kathryn Melor: For the most part, our increases are largely in line with peers. And obviously, we don't have Q4 data right now.
Kathryn Melor: We suspect that there will be a mixed bag in that regard.
Kathryn Melor: You know, over the past quarter, you know, we did see some improvement in some of our customers that were already in the criticized category. So we're seeing some, you know, hopeful signs that the customers that are already in criticized are stabilizing and resolving their issues.
Kathryn Melor: You know, this particular quarter, you know, we saw some customers in our consumer discretionary industries.
in our building products and services categories.
Kathryn Melor: some modest amount in hotel and in the healthcare and related sectors.
Kathryn Melor: So, those were some of the areas that probably gave a little bit away in the criticized migration during the quarter. But, you know, looking at the circumstances that really gave rise to us making the decision to downgrade them into those categories.
Kathryn Melor: The feeling is that it's really kind of transitory in many respects.
Kathryn Melor: In some situations, it's really a situation that's affecting, you know, individual borrower that they just have to kind of work through. In others, it's really more of a softening of demand on a revenue side. And in other areas, it's really just kind of the higher operating costs and being able to kind of rationalize expenses. So there's a variety of different factors at play. But you know, through the process, we did spend a lot of time looking at all of our
and even the ones that are in the criticized...
Kathryn Melor: This is John. I appreciate the question and I'll add this.
Kathryn Melor: And what you were directing towards is, is there a, I think, a sizable concentration of any particular sector or geography in those numbers? And I'd like to maybe direct an answer specifically to that.
Kathryn Melor: A few years ago we found ourselves with a larger criticized percentage.
Kathryn Melor: and it was a significant concentration in one sector and in one geography. And this is not a repeat of that. This is not a return to those days.
at all, and I would be obviously very disappointed that...
Kathryn Melor: We've built a very healthy loan loss reserve. We've got a war chest of capital. I would anticipate using that offensively, not to cover outsized NCOs. So I hope that answers your question. Glad to answer a more detailed one if you want to ask it.
Kathryn Melor: Yeah, it does. And I think, and to follow up on that, I mean, you say in your 25 guidance that you expect modest charge-offs and provision for 25, and so maybe that's...
Speaker Change: That echoes kind of what you're saying, John, but and can you give us.
Speaker Change: a range or kind of any more disclosure on what you mean by modest? I mean, I feel like in the past you've talked about modest charge-offs and charge-offs have kind of hovered around 20 base points or so. Is that a fair assumption for what we should expect for 25?
Speaker Change: Yeah, Kathryn, this is Mike. And yeah, I think that's right. So, you know, modest doesn't have a specific definition, but I think we consider that, you know, somewhere in the upper teens to the low 20s in terms of basis points of average loans. So I think that's a good barometer to use.
Speaker Change: Kathryn, it's hard to pick the perfect, sorry, I've stepped on Kathryn, I'm sorry, go ahead.
Speaker Change: No, go ahead. You're good. Go ahead. Sure. I was just going to add, you know, picking the perfect word sometimes is hard. Sometimes we spend more time trying to figure out the perfect word than to give a range because it's hard to do that, too. But when we say modest,
on the blog.
Speaker Change: You know, you could say modest, you could say moderate, use whatever word you like that basically suggests in line with peers. Inside our NCO losses, we actually have very little commercial real estate loss through the last several years, maybe a decade in our NCOs. I mean, we really are a C&I bank.
in terms of NCOs.
Speaker Change: On the C&I side, we will like any other C&I bank.
Speaker Change: have aberration quarters where we have a really low NCO number because we had a recovery or we had a larger NCO number because we had a charge, but as you look year in and year out, we would anticipate those numbers being relatively in line with peers, and we'd be disappointed if they weren't.
Speaker Change: Even though we keep a large loan loss preserve in the event that the macro environment changes and just like it has the last several years versus the pandemic.
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Great, very helpful. Thank you.
Okay, thank you. Did you have another question?
Speaker Change: No, I'm all good. I'll step out of the queue. Thanks, Kathryn.
Speaker Change: Your next question comes from the line of Ben Gerlinger of City. Your line is open.
Thank you, everyone.
out!
Speaker Change: I know you guys laid out a pretty expansive goal for not only hirings but adding some financial centers and branches across your footprint.
Speaker Change: I mean, I think John, as he said, there are roughly 25 bankers at a run rate.
Pretty solid. I mean, when you think about deals...
Speaker Change: You have the horsepower, or you theoretically would have the horsepower of organic growth that I think
Speaker Change: peers have the higher multiple. So what would it be if you're if you're really looking at
Speaker Change: Kind of an M&A, is it more so just deposits or would you add that be supplemental in addition to an improvement growth outlook? I'm just kind of curious why deviate from the organic hiring plan?
Speaker Change: Yeah, Ben, this is Mike, and I think you hit the nail on the head when you alluded to this being complementary. We absolutely view the organic growth plan and kind of what we've laid out in our markets to be complementary of anything that we do on the inorganic side.
Speaker Change: So, obviously with the transaction we just announced with Sable, that's a nod toward, you know, non-bank M&A. That will certainly complement our wealth management line of business.
Speaker Change: Any depository M&A, I think, will be an absolute complementary way of growing that would be consistent with the organic growth plan and the new bankers that we're hiring.
So, nothing is certain in banking going forward.
Speaker Change: while I think we are signaling an openness to Bank M&A.
You know, certainly with a preference toward...
Speaker Change: you know, growth markets like Texas, Florida, as well as places like Tennessee. There's certainly no certainty that the right opportunity that fits the criteria that we hold near and dear to our hearts will come to pass.
Speaker Change: So I think we've got to be able to approach this, you know, from a diverse point of view in terms of looking at opportunities to grow organically as well as inorganically.
So hopefully that makes sense.
That does, I mean, is there...
Speaker Change: Nothing to dig too deep into it. I know banks are sold, not bought, but is there like a relative size of balance sheet you're looking to partner with?
Speaker Change: Yeah, look, nothing is certain, but I think if we think about size, parameters...
Speaker Change: you know, something along the range of maybe a third of our current size would be, we think, opportune. However, having said that, if a smaller opportunity comes up that fits what we're looking to do, that's something certainly we would consider. I think the one thing that we probably can say that's off the table would be something along the lines of an MOE.
All right, that's something to cover. Thank you.
Thank you.
Speaker Change: Your next question comes from the line of Brett Rabotin of Hovde Group. Your line is open.
Hey, good afternoon everyone.
Speaker Change: Getting back to normal, as opposed to 24 maybe, or any thoughts on incentive comp in 24 versus 25 relative to the expense increase?
Speaker Change: Yeah, great question, Brett. And the way that I'll approach that is,
Speaker Change: To just kind of remind you of the the guidance that we're giving for 25 for expenses, so we're looking at
Speaker Change: you know this range of between four to five percent. So obviously that's a step up from what's called basically the flat level that we experienced in 24 versus 23.
Speaker Change: You know, it is something that is earned and certainly could be a lower number if we don't achieve our growth levels, but it certainly could be a higher number if we exceed those growth levels. So hopefully what I've laid out gives you a little context around how we're thinking about the expense levels for next year.
Speaker Change: okay no that's helpful and I said a little bit lower actually like you said a little bit higher
Speaker Change: Okay, and then I wanted just to talk about the betas so far, relative to, you know, the cycle and the expectations. And, you know, on slide 19, when you look at the...
Speaker Change: The total deposit betas and then the loan betas. Are you guys seeing anything that's either surprising you on either loans or deposits relative to rates where they are? Or would you kind of describe the market as behaving like it's supposed to relative to the rates?
Speaker Change: It seemed like on the first part of the way down there were people who were maybe trying to move market share. Just any thoughts on beta speed from here on either of those buckets?
Speaker Change: Yeah, so on slide 19, I think probably the most important part of that little table at the bottom is
Speaker Change: The guidance that we're giving around our expectations really for the entire cumulative cycle. So that's really how we kind of think about that. And quarter by quarter, I think a focus on the specific betas that happen in a quarter.
Speaker Change: rates that maybe move faster or slower than folks had anticipated. But to answer your direct question, no, there's nothing, I think, going on in our markets and our geographic footprint that really is a surprise to us or something that was beyond what we expected. I think the level of competition is what it is.
Speaker Change: It certainly is, I think, I'll call it well-behaved. And it's certainly something that, you know, we find conducive, actually, to our strategy around what we're trying to do with deposit pricing.
Speaker Change: And that strategy really is centered around, you know, repricing our maturing CDs, kind of keeping
Speaker Change: You know that balance of maturing CDs relatively short, you know, so 3.4 billion in the fourth quarter I mean, that's the better part of our entire CD book and as we look into 25 You know, we see that book potentially turning over maybe twice over the course of the year
Speaker Change: So depending on what happens with rates, you know, that certainly could be a big driver of our continued efforts to reduce our cost of deposits.
And I'd certainly be remiss if I also didn't mention...
Speaker Change: Our DDA balances, so you know for the first time in two years. We were actually able to increase those balances
Speaker Change: We ended the year at 36%, and as far as next year is concerned, we see an opportunity to grow that to maybe the 38% level or so.
Speaker Change: So certainly when we think about our margin expansion opportunities in 2025, balance sheet growth is a big component of that, but continued repricing and continued attention of the deposit book is certainly a big component as well.
Speaker Change: So that was probably a little bit more of an expansive answer than the question you asked, but hopefully it was helpful. No, that was very helpful. I appreciate it. Thanks so much, Mike.
Speaker Change: Your next question comes from the line of Jerry Tenner of DA Davidson. Your line is open.
Jerry Tenner: Good afternoon. I wanted to ask a bit of a follow-up in terms just of the CD repricing. Could you remind us, Mike, what the CD maturities are in the first quarter and kind of what that, you know, the rate and then expected reveal rate might look like today?
Jerry Tenner: Sure, be glad to Gary. So for the first quarter we have about two and a half billion of CDs maturing. Those are coming off at 434.
Jerry Tenner: And we think that they will go on at about 374 or so. We are stepping down just a little bit, the renewal rate, from what it's been the last couple of quarters in the mid-80s to probably something in the mid-70s to upper 70s.
Jerry Tenner: Now, for the year as a whole, I had mentioned that we see the CD book potentially turning over twice. So we have the better part of $8 billion of CD maturities in 2025. That book as a whole for the year will come off at about $3.79.
Jerry Tenner: And we're anticipating putting that back on at about 310 or so. And certainly that is, you know, very dependent upon the interest rate environment and what happens or not with the Fed resuming rate cuts at some point next year.
Jerry Tenner: So that's kind of how we're looking at the CD book next year.
Speaker Change: Got it. Thank you for that. And then in terms of the bankers, if you think of the 7 in the 4th quarter and the 28 that you're planning on hiring in 2025, can you put that in context of kind of what the...
Speaker Change: The production banker numbers were at September 30. In other words, what kind of increase is that relative to your existing production side of the business?
Speaker Change: Generally speaking, you would anticipate the difference that the team makes would be more impactful to 2026 than 2025.
Speaker Change: So largely, the guidance that Mike shared earlier is really driven by the team that's already in place. Now, if we are fortunate enough to pick up a few commercial real estate bankers, that could change because they typically pull through a higher percentage of deals.
Speaker Change: very quickly, in about 90 or 120 days, and they can become a creative.
Speaker Change: Normally, it's going to take about 12 months to get a creed, about 18 months to reach what Shane Loper, the president of the bank, had of revenue.
Speaker Change: calls the flywheel level where, you know, every day they're continuing to harvest more business.
Speaker Change: The expense levels don't really go up. So I think I would suggest that the 26 impact will be bigger, and we can quantify that for you as we get to the 26 guidance, is what's coming from the team that we actually have hired. Is that helpful? It is.
Speaker Change: You know, maybe I didn't ask it very clearly, but you know, 35 ads would be what percentage increase in bankers for Hancock.
Thank you for tuning in.
Oh, oh, about, let's see.
Speaker Change: In the business banking space, that would be probably about a 15% increase in the total workforce over it. Now, I'm adding a 26 plan into that number to give it. So about 15% to 20% more business bankers by the end of 26, about 10% wealth advisors, and about 10% commercial bankers.
Thank you very much.
Speaker Change: You bet. So, if you think about it, all rolled together it's about the size of a decent sized acquisition without having to issue any shares if they all hit plan and typically we have about an 80% success rate from the bankers that we hire.
Thank you.
Thank you.
Speaker Change: Your next question comes from the line of Stephen Skouten of Piper Sandler. Your line is open.
Stephen Skouten: Yeah, thanks. Good afternoon. Just kind of following up along that.
Stephen Skouten: Plenty of discussion around the new hires. How much of the kind of mid-single-digit loan growth expectation would be predicated on hitting that pace of new hires? And how much would be kind of more, you know, no longer the headwind of the SNCC portfolio and other dynamics that might precipitate growth?
Stephen Skouten: Yeah, very modest impact in the guidance that we gave for 2025. It would be important that we get to that level of hiring and have at least an 80% success rate for the hires to attain the CSO levels at the upper end of the boundaries that we gave by the end of 2026. Does that, you follow me?
Yeah, that makes perfect sense.
Stephen Skouten: Yeah, so CSOs are two years, so we've got them baked into that guidance on the upper end. The guidance we're giving for this year really, really has all the negative of the expense carry and very little of the positive because it'll take a little while for them to get their books up to target operating model level.
Speaker Change: Got it. And can you speak to any kind of green shoots, even if it's anecdotal, kind of around what you're seeing so far that gives you confidence around this kind of long growth trend reversal, you know, versus what we've seen kind of over the last five quarters?
Speaker Change: Sure, yeah, well, you know, I think we got a question earlier
about the headwinds and tailwinds and...
Speaker Change: I mean, certainly the absence of a big SNCC runoff is the single biggest advantage to hitting the growth. I mean, production this past year was certainly not bad. We just had a bit of a leaky backdoor because we had the takedown in SNCCs going on to a team of about 600 million.
And then we had a fairly...
Speaker Change: sizeable amount of commercial real estate transaction payoffs predominantly from non-bank new entrants to that space. So, I don't think CRE payoffs are going to go away, but I do believe our production levels that we're seeing right now on the scale of the pipeline would point to the ability to overcome that payoff level as we go through this year.
Speaker Change: So, the green shoots, if I had to pick sectors, I would say the green shoots are in commercial real estate, they're in healthcare, they're in equipment finance.
Speaker Change: They're in the commercial banking, which is the below middle market and the way we name our sectors. And then a dark green, you know, vivid green shoot in small business and business banking.
Speaker Change: The only area that's soft that we haven't seen to make a headway on deposit accounts, but not in loan volume, is really in consumer, which is highly sensitive to rates, especially mortgage.
Speaker Change: Got it. Extremely helpful. And then I think someone made the comment, maybe it was Michael Rose, that you guys.
Speaker Change: kind of recognized that your stock has been maybe underappreciated over the last few years, traded at a discount. What do you think, as the market looks at the Hancock-Whitney story, what do you think that's maybe underappreciated about the bank or the trajectory of the bank, if you were to try to toot your own horn a little bit?
John Hairston: Yes, Steve, this is John. I promised Mike I would stop whining about the stock price not matching the performance of the company, so I'll defer him, I'll defer the question to Mike.
John Hairston: So we're fond of kind of reminding folks that back in 2020, we established four pretty important strategic focus points, and not to belabor these, but they included de-risking the balance sheet and de-risking the loan book and building reserves.
John Hairston: vowing to become more profitable, a more profitable banking company, vowing to become a more efficient banking company, and then finally grow our capital levels.
John Hairston: And I think by the time we got to last year, we had demonstrated, I think, pretty significant progress and excellence on all four of those fronts.
John Hairston: And 25 becomes a year, as we've talked about many times.
John Hairston: where the pivot is to growing our balance sheet and considering organic balance sheet growth as well as inorganic balance sheet growth and then also this notion of kind of proactively managing the capital levels that we've worked so hard to build the last four or five years.
John Hairston: And on that front, we've increased the dividend last year. You know, certainly that's something I think we'll look at again this year.
John Hairston: We've demonstrated our commitment to potentially growing inorganically through the Sable transaction. We've put together, I think, an ambitious organic growth plan, and doing all of that at the same time, while maintaining pretty good asset quality numbers.
John Hairston: Certainly, there's been some normalization, but they're still extremely good from our perspective.
and then, you know, producing results.
John Hairston: in a neighborhood of a ROA of 140 basis points and keeping our efficiency ratio below 55%. So, to us, you know, that seems like a pretty good banking company and one that certainly, I think, is worth consideration.
John, anything to add to that? Yeah. Nope.
Speaker Change: Great, appreciate that guys. Thanks so much. Thanks for the question.
Speaker Change: Your last question comes from the line of Christopher McNack of Janey Montgomery Scott. Your line is open.
Speaker Change: Thanks, good evening. I wanted to ask Chris a question about C&I utilization and just curious if you see either net new C&I lines gaining steam this year as well as the existing line. Can that sort of very stable 41-42% number kind of break out this year?
Chris: I'll take a quick run at it. It's Chris Luca and then John can follow if he has any additional commentary. We spent a lot of time obviously talking about our CRE book and our C&I book.
from a C&I perspective.
Chris: You know, I think that there's maybe a little bit more certainty around how companies feel forward headwinds are, at least certainty around where they want to invest and the like.
on the CRE side of things, I think that
Chris: customers are getting to the point now where they want to continue to develop projects. So we have projects that are rolling off, obviously reaching completion, and then we have new projects that are looking to break ground.
Chris: and we are certainly part of that decision process on a regular basis.
Chris: with clients. So I think a lot of it has to do with...
Chris: the record of just the combination of the higher low interest rates that people were maybe a little cautious around in 2024 but also probably the uncertainty around how the election process was going to play through to the
Chris: and whoever got to the finish line probably didn't matter as much as getting to the finish line and then knowing where they were comfortable investing or not, and so I think that will create a little bit more of an opportunity in both sectors, C&I and CRE.
John Hairston: Chris, this is John. I'll add to that. You know, I wish that the answer was as simple as the question. It's a very straightforward question.
John Hairston: but Chris introduced the concept of the CRE impact on line utilization and it's important to kind of understand the backdrop of that. Last year we produced several hundred million dollars worth of new CRE construction projects.
John Hairston: that, in terms of commitment, that are today carrying virtually a zero utilization rate.
John Hairston: And so that somewhat artificially stimulates the reported line utilization down because so many projects completed and sold off.
John Hairston: relative to the projects that were new bookings but haven't yet burned through their equity before they get to ours.
So as we get to 2q and 3q
John Hairston: that volume that was booked last year will have gotten to the end of their money and start borrowing into their lines and so that will naturally push the CRE line utilization numbers upward and therefore the overall line utilizations for the loan book upward and that'll be a good thing.
John Hairston: The second thing to note is that on the C&I utilization level, as you pointed out, they've been very stable.
John Hairston: And, you know, while we would love to see them go higher because it's essentially, all it really costs us is the cost of liquidity.
John Hairston: for that to happen. It's quite profitable, see line utilization go up. It also is somewhat of an endorsement of the quality of the C&I book.
because the clients have enough liquidity on their own.
And so there's some seasonal line utilization in the book.
from a few sugar cane operators, some timbering people who
John Hairston: seasonally will go up and then pay it down. But largely, it's been a very healthy, very stable book that is unfortunately about 700 basis points below utilization compared to pre-pandemic, just based on the amount of liquidity we have. So it's kind of a good thing and a bad thing at the same time. So part of the support
John Hairston: For the loan growth numbers, we would anticipate some of the pull through to borrowing from the commitments that were issued last year to begin to come on the balance sheet in the late second quarter through the back half of the year.
Was that the detail you were looking for?
Speaker Change: No, it was great. I appreciate you both taking a stab at that. I guess just one related question, I mean, you know, seeing interest rates kind of bounce around week to week, I mean, with that new loan rate that we see in the deck every quarter, would that actually maybe stabilize if demand is getting stronger and the Treasury market's backed up just a little bit this month?
You mean on the new money branch? Correct, yep.
Yeah, I think it would, Chris. Absolutely.
Okay.
Speaker Change: Very well, thanks for the additional color and we appreciate you hosting the call.
Speaker Change: You bet. Thank you. That concludes our Q&A session. I will now turn the conference back over to John Hairston for closing remarks.
John Hairston: Thanks, J.L., for moderating the call, and I guess the only parting statement I would have after a long call with good questions is, you know, this is, we've announced deals before, and we've announced great earnings quarters before, but we've never announced a deal, great earnings, in the middle of a snowbound wind blowing sideways out of our window in New Orleans, so it's certainly been an interesting day. Thank you all for hanging in the call, and we look forward to seeing you on the road over the next several months.
Thank you. Bye-bye.
This concludes today's conference call. You may now disconnect.
Thanks for watching!