Hancock Whitney - Earnings Call - Q1 2025

Executive Summary

• EPS beat alongside modest NIM expansion; diluted EPS of $1.38 vs Wall Street consensus $1.29 (+7.0% beat), while consensus revenue was missed as SPGI “revenue” printed below estimates despite strong GAAP revenue and fee growth. Estimates from S&P Global: EPS $1.289*, Revenue $367.962M*; Actual EPS $1.38, Revenue $353.166M*.
• Balance sheet re-mix and funding cost control lifted NIM to 3.43% (+2 bps q/q), with deposit costs down 15 bps to 1.70% and bond portfolio yields up 7 bps; NII down modestly on two fewer accrual days and lower average earning assets.
• Guidance updated: loans now expected to grow low-single digits in 2025 (from mid-single digits previously), NII up 3–4%, adjusted PPNR up 6–7%, noninterest income up 9–10%; expense guidance maintained at +4–5%, efficiency ratio targeted 54–56%.
• Capital return remains a catalyst: CET1 14.51% and TCE 10.01%, with 350k shares repurchased (avg $59.25) and dividend raised to $0.45 (50% y/y increase).

What Went Well and What Went Wrong

• What Went Well

  • NIM expansion and lower funding costs: “Our NIM expanded 2 basis points to 3.43%, … cost of deposits decreased 15 bps to 1.70%”; deposit mix stable with DDA at 36%.
  • Fee income strength across categories, including derivatives, SBIC, and SBA: noninterest income up $3.6M q/q (+4%).
  • Capital build with continued shareholder returns: CET1 14.51%, TCE 10.01%; buybacks and dividend lift while ratios climbed. CEO: “A very strong start to 2025… capital growth… ROA 1.41%”.

• What Went Wrong

  • Loan balances dipped ($201M LQA decline) amid large healthcare and C&I payoffs; loan yield fell 18 bps to 5.84%.
  • Deposits down $298M LQA on seasonal public funds outflows and lower retail time deposits; total EOP deposits $29.2B.
  • Revenue miss vs SPGI consensus despite solid GAAP revenue, reflecting definition differences and accrual-day impact on NII*.

Transcript

Operator (participant)

Good day, ladies and gentlemen, and welcome to Hancock Whitney Corporation's First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Kathryn Mistich, Investor Relations Manager. You may begin.

Kathryn Mistich (Head of Investor Relations)

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 or 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. Participating in today's call are John Hairston, President and CEO; Mike Achary, CFO; and Chris Ziluca, Chief Credit Officer.

I will now turn the call over to John Hairston.

John Hairston (President and CEO)

Thank you, Kathryn, and thanks to everyone for joining us this afternoon. We are pleased to report another quarter of high-performing profitability and continued capital growth, a very strong start to 2025. We achieved an impressive 1.41% ROA, grew fee income, enjoyed continued NIM expansion, and ended the quarter with total risk-based capital of 16.39%. NIM expanded as we were able to control funding costs and mix that more than offset the impact of lower loan yields and lower average earning assets. We had another quarter of strong fee income with growth across most categories. Expenses remained well controlled with only a 1% increase this quarter. We've updated our guidance to reflect the impact of the Sabal Trust transaction and now anticipate fee income to be up between 9-10% year-over-year.

Our expectations for expense growth remain unchanged, between 4% and 5% higher year-over-year. Loans were down $201 million due to higher payoffs on large healthcare and commercial non-real estate loans offsetting strong production. We have updated our guidance this quarter and expect loans will grow low single digits in 2025, with most of the growth coming in the second half of the year. The change in guidance accounts for uncertainty reflected in current client sentiment. We remain focused on more granular, full relationship loans with the goal of achieving more favorable loan yields and relationship revenue. Deposits were down $298 million, driven primarily by the seasonal public funds outflows. For the second quarter in a row, our DDA balance has actually increased, and our DDA mix is stable at 36%.

Interest-bearing transaction accounts increased due to our competitive product offerings, and retail CDs declined due to the reduction of promo rates, which help control deposit costs. We continued to return capital to investors by repurchasing 350,000 shares of common stock this quarter. We also increased our common stock dividend to $0.45 per share, a cumulative increase of 50% from this time last year. Even after returning capital, we had strong growth in all of our regulatory capital metrics due to excellent profitability, ending the quarter with a Common Equity 1 ratio of 14.51% and tangible Common Equity ratio of 10.01%. Last quarter on our call, we shared our plan to pivot to growth both organically and inorganically through the acquisition of Sabal Trust Company.

We continue to execute hiring plans with four additional bankers and have selected four new locations of five planned in the northern area of the Dallas MSA. The Sabal transaction is expected to close on May the 2nd. We look forward to welcoming Sabal clients and associates to Hancock Whitney and for the opportunity to expand our best-in-class regional banking services in the greater Tampa and Orlando areas. Despite current market volatility, we remain optimistic for our growth prospects, particularly in the second half of the year. We are closely monitoring macroeconomic trends and indicators, including both nationally and within our own footprint. While the environment remains dynamic, our ample liquidity, solid allowance for credit losses of 1.49%, and strong capital keep us well positioned to navigate challenges and support our clients in any economy. With that, I'll invite Mike to add additional comments.

Michael Achary (CFO)

Thanks, John. Good afternoon. As John said at the onset, the company's performance in the first quarter was outstanding. Our net income for the quarter was $120 million or $1.38 per share, compared to $122 million or $1.40 per share in the fourth quarter. Earnings were up 10% compared to the same quarter a year ago, while EPS was up 11%. PPNR was down slightly from last quarter to $162.4 million, but up $9.5 million or 6% compared to the first quarter of last year. Our NIM expanded two basis points to 3.43%, but NII was down due to two fewer accrual days and our lower level of average earning assets. As mentioned, our fee-income businesses had another outstanding quarter, and expenses continued to be well controlled.

The NIM expansion was driven by lower deposit costs, higher yields on the bond portfolio, and a favorable mix of borrowed funds, partly offset by lower loan yields, as shown on slide 16 of the investor deck. Our overall cost of funds was down 14 basis points to 1.59% due to a lower cost of deposits and a better funding mix, as we ended the quarter with no Home Loan borrowings. The downward trend in our cost of deposits continued this quarter, with a decrease of 15 basis points to 1.70% in the first quarter. The drivers here were CD maturities and renewals at lower rates and a reduction of pricing on interest-bearing transaction accounts. For the quarter, we had $2.7 billion of CD maturities, which repriced from 4.33% to 3.72%, with an 86% renewal rate.

Additionally, we ended the quarter with no brokered deposits, and our DDA balances increased $18 million. Our NIB mix was stable at 36%. CDs will continue to reprice lower throughout 2025, given maturity volumes and three anticipated rate cuts over the remainder of 2025. Total EOP deposits were down $298 million, but that includes $320 million of seasonal public fund runoff. Bond yields for the company were up seven basis points to 2.78%. We had $165 million of principal cash flow at 3.05% that was reinvested at 5.04%. Additionally, $164 million of our fair value hedges became effective and contributed four basis points to the overall yield pickup of seven basis points. Next quarter, we expect about $236 million of principal cash flow at 3.19% that will be reinvested at higher yields.

For the remainder of 2025, an additional $85 million of our fair value hedges will become effective, providing additional yield. Our loan yield for the quarter was down 18 basis points to 5.84% and was impacted by lower average loan balances and lower yields on our variable-rate loan portfolio. We updated our guidance this quarter to reflect the Sabal transaction and our updated expectations for loan growth, as well as a few other items. We believe we can continue to achieve modest NIM expansion and NII growth of between three-4% in 2025, driven primarily by the impact of lower deposit rates, lower single-digit loan growth, and continued repricing of cash flows from both the bond and fixed-rate loan portfolios. Our guidance assumes three rate cuts of 25 basis points each in June, July, and October.

Our updated PPNR guide is we expect to be up between 6% and 7% from 2024's adjusted levels, and our efficiency ratio will fall somewhere between 54% and 56% in 2025. As John mentioned, we did receive regulatory approval for Sabal and expect that transaction to close on May 2nd. Including Sabal, we expect non-interest income will be up between 9% and 10% from 2024. Our expense guidance did not change, as we continue to expect expenses will be up between 4% and 5% for the year, not including any one-time cost associated with the Sabal transaction. Our criticized commercial loans decreased during the quarter, and non-accrual loans increased, albeit at a slower pace than in the prior quarter. Net charge-offs were down this quarter and came in at 18 basis points.

Our loan portfolio is diverse, and we see no significant weakening in any specific portfolio sectors or geography. Our loan reserves are solid at 1.49% of loans, up two basis points from last quarter. We continue to expect modest charge-offs and provisioning levels for 2025. Lastly, a comment on capital. Our capital ratios remain remarkably strong. We increased our quarterly common dividend and modestly increased our share repurchases in the quarter. We expect share repurchases will continue at this level or a bit higher throughout 2025. Changes in the growth dynamics of our balance sheet, economic conditions, and share valuation could impact that view. I will now turn the call back to John.

John Hairston (President and CEO)

Thanks, Mike. Let's open the call for questions.

Operator (participant)

Thank you, sir. Everyone, if you would like to ask a question, please press star one on your telephone keypad. Again, that is star one to ask a question. We'll go first to Michael Rose, Raymond James.

Michael Rose (Managing Director and Equity Research)

Hey, good morning, guys. Or, good afternoon, everyone. Thanks for.

Michael Achary (CFO)

Good long day.

Michael Rose (Managing Director and Equity Research)

Good long day, Mike. It's only going to get worse. Thanks for reporting early. Yeah, just on that last comment around the buyback, just given the capital accretion this quarter and a slower kind of loan growth outlook as we move forward, which I totally understand, why not lean in a little bit more into the buyback, just given where the stock trades, the earned back on the buyback, and what I see as a fairly robust case for positive operating? All the good stuff that you guys have worked so hard to achieve, why not lean in a little bit harder here? Thanks.

Michael Achary (CFO)

Hey, Michael, it's Mike. Absolutely, I think we're doing that. The comment was around at least the same level that we did last quarter and potentially a bit higher. That is a pretty healthy increase compared to last quarter. I know I just described that as modest, but it probably is a little bit better than modest. Certainly, if you look at the level we bought back all of last year, if we buy back at current levels and a little bit higher consistently through the year, that's a pretty nice increase year-over-year. I think one of the caveats certainly is the external environment, the dislocation of share prices, and just what happens in that external environment. All things equal, the intent is that we'll buy back again at current levels, if not a bit higher, consistently through the year.

Hopefully that makes sense.

Michael Rose (Managing Director and Equity Research)

Yeah, it does. Really appreciate it. Just as a follow-up, certainly understand how credit is performed so well. You guys have done a really good job bringing down the SNC balances. I think it's probably too early to completely understand what's going to happen with tariffs. I know you guys have made bigger inroads into small business in your markets, and that's an area of concern, I think, for investors the longer this situation takes to play out. What are you guys working on currently to kind of better assess what the credit impacts could be, assuming tariffs go through at some sort of elevated level? Thanks.

Christopher Ziluca (Chief Credit Officer)

Yeah, hi. This is Chris Ziluca. We've done our best to just basically understand all the different sectors that could be impacted. The reality is you don't know what really will be the outcome of what target areas, the duration of all of those actions. Certainly, because of even the noise that's going on, it is creating a little bit of consternation in the markets and in the individual customers. I think most of them are really taking a position of a little bit of wait and see. I think the ones that are much more organized are assessing where the risks might lie and making kind of plans for a plan A and a plan B and a plan C in the event that it's more significant or longer duration type of an impact.

We have certainly looked at the various NAICS codes that are likely subject areas and done some evaluation on the risk profiles so that we can prepare to kind of engage with the customers as needed when it becomes more certain.

John Hairston (President and CEO)

Michael, this is John. I'll add to that. It wasn't exactly your question, but I think it's somewhat tangential to Chris's answer. At this point in time, client sentiment, while it shows some of the apprehension that Chris mentioned, the customer behavior doesn't really line up with a very near and present fear of an impending recession, particularly one that might be worse than moderate and longer. We typically will see a lot of line draws occur during that time as people pad the balance sheet with excess liquidity, securing whatever forms of capital they have to for a near-term amount of pressure. I mean, that kind of comment goes through yesterday, so into second quarter.

I think the mindset of our clients somewhat mirrors the mindset of the banks, not just ours, but others, where the general sentiment is a little too early to tell. Hopefully, the shock at all of the first week of the quarter will give way to individual skirmishes with particular countries or sectors, and the overall impact will be a lot less pronounced than maybe we all feared on April the 2nd. I do not know if that is helpful, but that would be, I guess, my added contribution.

Michael Rose (Managing Director and Equity Research)

No, I appreciate it. Maybe I could just squeeze one more in. Just on the increase in the PPNR guide, certainly understand that includes Sabal Trust. How much of the increase in the PPNR guide is related to that versus core? Because you guys did better on expenses than I think most of us were anticipating. Thanks.

Michael Achary (CFO)

Yeah, great question, Michael. I think that if you look at the change that we made in fees, up 9%-10%, that's a bit more than certainly Sabal is expected to bring for this calendar year. I think we can certainly count on some continued growth in our various fee income lines of businesses. That's been an extreme strength of the company the last couple of years, and we anticipate those businesses to continue contributing to the bottom line. I think that, as well as on the expense side, you'll note that we actually kept the guidance the same, so up to 4%-5%. Certainly, that includes Sabal, so that infers that we're saving expenses elsewhere throughout the company for the balance of the year.

I think those two combined, the better performance in terms of fees, the addition of Sabal, and then continued expense control really account for the entirety of the increase in guidance around PPNR.

Michael Rose (Managing Director and Equity Research)

Great. Thanks for taking my questions. I'll step back.

Michael Achary (CFO)

Thank you, Michael.

Operator (participant)

The next question today is from Catherine Mealor, KBW.

Catherine Mealor (Managing Director and Equity Research)

Thanks. Good afternoon.

Michael Achary (CFO)

Hi, Cath.

Catherine Mealor (Managing Director and Equity Research)

Can you just give us an update on the hiring process and kind of the number of lenders and revenue producers that you've hired so far and kind of your plans for the next couple of quarters? Just how that translates into your growth outlook. It seems like your growth feels like it's a little bit slower, and it's pushed back to the back half of the year, although I know you've always said it's more back and loaded. Just kind of curious, as we think about how successful the hiring process has been or if this volatility has delayed any of that as well. Thanks.

John Hairston (President and CEO)

Sure. Thanks for the questions. I'll try to answer both at the same time, but if you need to give me a second question to make sure I'm clear, don't be bothered by it. First, on the hiring, I think we shared the deck that we've added four in Q1. We added seven, I believe, in Q4. Our run rate for the year should be around, let's call it 20-30. I think 24 was the number that we actually shared on the call back in January for the year, and I would expect to hit that. Q1 is typically a little easier time to move folks, but our friends on the other side aren't giving up good talented bankers very easily. So our pull-through rate for offers is running about 50%. For the type of talent we're trying to attract, I think that's a pretty good number.

The volatility in the macro does not affect our desire to add offensive players and add offices in growth markets that are highly successful. If we look back over our Texas performance, the last five-year compounded annual growth rate is somewhere in the neighborhood of around 16%, with South Texas coming on very strong in Q1, and North Texas has been strong for really the better part of several years. It makes no sense whatsoever to let the current volatility get in the way of that plan. We will continue, if not enhance it, to make sure that we come out, whatever the other side of this dust-up in tariffs is, with a good strong hand. The sectors that we grew in in Q1 were driven a good bit by the new hires, particularly in equipment finance.

That is, I guess, the earlier hires, and the cycle to add business from a new hire in equipment finance is a little shorter. We are showing good progress there, and I look forward to that being replicated throughout some of the other loan generation sectors. Talking about sort of the guidance we gave a quarter ago for the year, typically we are giving loan guidance on an annual basis, right? We do not get into quarters, but now that the first quarter is behind us, I really expected a push in total loans for Q1. Headed into the end of the quarter, it looks like we very much may get there and then have the payoffs that occurred, both in healthcare and even though the CRE number is up, it would have been up a good bit more had we not had some payoffs toward the end of the quarter.

As the 10-year note began to subside, we saw a pretty big mismatch between revolving rates and perm rates. We had some unplanned payoffs right there at the end. As we go into the second quarter, Catherine, the production levels are good. The pipelines look better than they looked a quarter ago. I think the only potential interruption is if the somewhat pause that we're seeing from larger organizations and medium-sized organizations due to the tariff concerns lasts all through the quarter, that could push some of the production we're planning to Q3. At this point in time, we're really not seeing any deals come out of the pipeline. We're just seeing the closing that shift back a matter of days or weeks. We remain hopeful to be able to present. I would be disappointed if we don't show growth in Q2.

Catherine Mealor (Managing Director and Equity Research)

Okay. Great.

Michael Achary (CFO)

Is that helpful?

Catherine Mealor (Managing Director and Equity Research)

Yes, that's great. Yeah, the pipeline was actually my next question, so you answered that, which was great. Maybe my follow-up, then I'll move over to M&A. I know you've talked in previous calls about wanting to participate in M&A, but of course, your stock price is back to evaluation. That makes that more challenging. Just kind of curious your updated thoughts on M&A versus organic growth versus I know you talked about buybacks earlier as well. Is this just a period where we see more buyback from you and then a push for organic growth, and M&A maybe comes at a later date once the stock rebounds?

Michael Achary (CFO)

Yeah, Catherine, thanks for that. I think you pretty much answered the question. That's really how we think about it now. I'll keep it simple. I mean, for right now, M&A is just not something that we're focused on. Certainly, the disruption in the external environment and the impact on our valuation are factors. That may change or will change at some point down the road. I think right now, in terms of capital priorities, it really is what we've done more recently, and that is return capital to shareholders via dividend increases, and then more recently, an uptick in our buyback. I certainly think that we'll continue to lean into those two ways of managing capital and focus on our organic growth plan as we continue to do so. M&A, I think, is something simply for another day down the road.

Catherine Mealor (Managing Director and Equity Research)

Makes sense. Great. Thank you.

John Hairston (President and CEO)

You bet. Thanks for the questions.

Operator (participant)

Next, we'll take a question from Stephen Scouten, Piper Sandler.

Stephen Scouten (Managing Director)

Yeah, good afternoon, everyone. I just wanted to follow back around a little bit on the upside in the PPNR. And Mike, I know you gave some color on Michael's question about Sabal and the benefit there. I think the detail we have in the deck was that in 2024, they added like 22, they had about $22 million in revenue. What's kind of the expense base of that business that's coming over? Just trying to think about where there are other reductions are kind of within that overall guide.

Michael Achary (CFO)

Yeah, Stephen, we haven't disclosed that specifically. I think we'll hold on to that right now until after we get past the actual closing and have a quarter or two kind of under our belts. We have kind of disclosed that we believe the impact of Sabal as a whole on this year will be about $0.02 per share. Certainly, the revenue side of that is somewhere around $14 million-$15 million, somewhere in that neighborhood. Once we get Sabal completely converted, along with another conversion that we have going on to our legacy trust business, we're really looking for 2027 to see the full impact of the acquisition. We're kind of calling that out at about $0.08-$0.10 per share for 2027. Certainly, we'll build on that in future years. That's the disclosures we're giving today on Sabal.

Once we get the transaction closed, I think we'll share a little bit more detail.

Stephen Scouten (Managing Director)

Yeah, that makes sense. That makes sense. I know your NIM guide, I think you said it assumes those three cuts, June, July, October. Can you give us some color on maybe sensitizing that one way or the other? I mean, these expectations seemingly change daily. If we were to get zero cuts, kind of what you would think about? If we got more than three, just kind of how we would think about the directional shifts with other scenarios?

Michael Achary (CFO)

Sure. I'd be glad to. We've kept our treasury and financial planning teams busy modeling different rate scenarios. Our profit plan for this year started off with the three rate cuts, and that became part of our guidance. We've taken a couple of twists and turns over the past couple of weeks, as you might expect, and have landed pretty much back where we started with the three rate cuts, really centered over the summer and then one into the fall. The other disclosure that we provided in the earnings deck really was a piggyback off the same disclosure we did in the first quarter. That's this notion that really any way you cut it, whether we have three rate cuts, two, one, or none, it really isn't going to have an appreciable impact on our NII for this year.

It's certainly going to move the numbers around a couple of million in either direction, but certainly nothing that would be considered material or significant. The big things that really move it would be loan growth. We have the updated guidance around low single-digit loan growth. That's impacted the numbers on NII a bit, and that resulted in us reducing that guidance a little bit to reflect the reality of loan growth maybe being a little bit less than we had thought it would be at the onset of the year. If you look at our NIM and NII growth components as we think about the next three quarters, it really is the things that have driven that in the past couple of quarters. We've been able to kind of expand our NIM by around two or three basis points pretty consistently quarter-over-quarter.

Really, we think under almost any scenario, we'll be able to continue to do that for the balance of this year. We continue to have opportunities to reprice CDs. We continue to have opportunities to reprice cash flow coming off the bond portfolio, as well as opportunities to reprice our fixed-rate loan portfolio. Those have really been the three main drivers. Certainly, our ability to maintain our NIB mix at current levels, potentially grow that a bit by year-end. Those are the things that really is the recipe for us to be able to produce the kind of NII levels that's part of the guidance, as well as the potential NIM expansion over the course of the year. I know that was probably a lot, but hopefully that was helpful.

Stephen Scouten (Managing Director)

That's extremely helpful, Mike. Appreciate that. Maybe last thing for me. I mean, obviously, the stock continues to trade at kind of a discounted multiple to peers, and the profitability is phenomenal. The excess capital is attractive. Deposits are great. I mean, it feels like loan growth continues to be the only maybe piece of the puzzle that's not hitting where you'd want it to be. Obviously, the uncertainty, and I know you mentioned some healthcare credits and other things that were impeding growth this quarter, but lowering that guide down, what really needs to happen apart from maybe the environment getting better and getting these hires on board to be able to hit on all cylinders on growth and maybe surprise to the upside as opposed to having to revise down at some point along the way?

John Hairston (President and CEO)

That's a terrific question. This is John. I'll take it. The new hires to come in and be in the markets that we're trying to grow in, because our growth rate in those markets is absolutely terrific, but it has to offset some slower growth areas that we have some concentration in. The upside surprise will come from the 10-year staying up in even the low to mid-fours, just not below four. At that point in time, we begin to see a lot more payoffs. If the 10-year will stay up long enough to get the new hires in place, and if we can pull forward some of the hires planned for the fourth quarter into the second, third quarter, that would drive us towards an upside.

We have not given up on the initial guidance, but we are trying to be prudent and transparent that in the environment we are in, and the last week of March when rumors of pretty significant tariffs began to chill some of the sentiment, we are trying to be respectful of not over-promising and be honest about what those headwinds could be. The lowering of the guide was not because of a lack of appetite for growth or any lack of expected success in hiring where we want to hire. It is kind of hard to outrun the fact that there are so many people looking to deploy credit and just not enough demand to satisfy everyone. The deals getting won right now are on price structure, turnaround time on decisions, and certainty of execution. We can compete well in all those areas.

We just need more offensive players in markets that there's more deals to take.

Stephen Scouten (Managing Director)

That's fantastic, color. Thank you, guys, for all the time. Appreciate it.

John Hairston (President and CEO)

You bet. Thanks for the great question.

Operator (participant)

Brett Rabatin of Hovde Group has the next question.

Brett Rabatin (Managing Director and Head of Equity Research)

Hey, good afternoon, everyone. Wanted to go back to fee income for a second. Just with the increase in the guidance, it seems like a lot of that is Sabal. Are there other pieces that would be, you think, repeatable from here or that would drive some of the growth, derivative income, syndication fees, SBA, mortgage banking? Is there anything in particular that's helping that guide for the year?

Michael Achary (CFO)

Yeah. I'll get started, Brett. As we kind of mentioned before, if you look at what the new guidance kind of translates into in terms of dollars, really about two-thirds of that is the introduction of Sabal into the company's financials. The other one-third or so is increases that we're expecting in other fee income lines of business. You kind of hit already on our specialty lines, which have really, I think, over-contributed in the last couple of quarters, and we expect that to continue to do so. Examples of that are BOLI, syndication fees. You mentioned that. Our SBIC fees have been real strong of late. We expect some of that to continue at certain levels. SBA fees is another category. Wealth management outside of Sabal.

We have also had some pretty nice increases in our ability to originate and sell some mortgage loans. Those are all categories that will kind of pick up that difference in addition to what Sabal will bring. John, if there is anything you want to add.

John Hairston (President and CEO)

Sure. I'll add to that. Mike shared the Sabal contribution, but that shows up in the wealth management forecast. Even net of Sabal, we had a really great quarter. It has been a long time since we did not have a really great quarter with wealth management fees. That is in trust. It is in investment management. It is in annuity production out of the retail shop. It shows up in wealth management, but the retail folks originate a great deal of it. All those teams really do hit on all eight cylinders. We had another great quarter. The other area that is, I'll use your word, repeatable is our density in our business accounts for operating accounts that we offer treasury services. That density continues to improve in terms of wallet share.

Some of the new hires we've talked about are on the treasury side to ensure that that density continues to improve. That is real money on the fee income side. That is improving. It has a bit of a tailwind just as balance has normalized from the pandemic. You mentioned mortgage. With rates going up, I think they were correct at 7% yesterday. It is kind of hard to believe we will see application improvement that generates a lot of fee income. Our share of all the mortgages that do happen should continue to improve as we deploy our direct channel origination sources through the rest of the year. I do not know that mortgage secondary fees are going to light the board up for everybody. For us, given our relative performance and our relative attractiveness as an originator, it is going to continue to improve.

We might outpunch our weight a bit in terms of improvement there. Finally, the specialty fees that Mike mentioned, the syndication fees related to that is sort of a stated desire. I've talked about it on several calls. Our participation as a smaller player in very large transactions is getting replaced by leading smaller transactions that we can very well perform in. We get a bigger slice of that fee. That allows us to create both more granular portfolio, get more operating deposits, and get a fee contribution that otherwise we would just be getting rewarded as a piece of somebody else's credit relationship. We won't certainly get out of the SNC business at all, but I think we pulled it down about 300 basis points in the last seven or eight quarters.

Replacing all that has been, I think, the secret sauce to seeing some of the benefit on both the DDA side and the fee income side. Is that the clarity you were looking for?

Stephen Scouten (Managing Director)

Yeah. That's really helpful from both of you. You just mentioned shared national credits. The other question I had was just around that bucket continued atrophy a little bit this quarter. You talked about the payoffs in healthcare and other potential credits just based on rates, etc. How much of the revised guidance, or does the revised guidance kind of assume that those trends continue? How should we think about the headwinds that you faced relative to the revised 2025 outlook?

Michael Achary (CFO)

I think if I kind of draw a box around healthcare, that may be the most digestible way to answer it. The diminishment we saw this quarter were from three syndicated, well, two were syndications. Two were leveraged, and one was a syndication that we had a share in that were recast in the quarter a little bit ahead of when the suggested or the maturity would have suggested them to be recast. We opted out of to use that liquidity for other purposes, specifically loan growth in the back half of the year. That contributed nearly all of the diminishment in the SNC density. I think we reported 9.4. It was in the mid-9s. I'm trying to bring the number back to my memory. I don't think we will get north of 10, but we're not really intentionally running it down.

It's really just more of a replacement of participations and other credits with leading our own that are smaller. I didn't expect that to be as big a headwind in Q1 as it was because we didn't expect to see those payoffs. I'm not going to cry over having that happen because I have confidence we'll redeploy that toward the back half of the year. I think that was the entire impact on SNCs other than people just doing paydowns on their lines.

Stephen Scouten (Managing Director)

Okay. Great. That's really helpful. Appreciate all the call, guys.

Michael Achary (CFO)

You bet. Thank you.

Operator (participant)

Next up, we'll hear from Casey Haire, Autonomous Research.

Casey Haire (Senior Research Analyst)

Thanks. Good afternoon, everyone. Follow-up on capital, two-parter. First, Sabal, what kind of CET1 impact will that transaction have? Then, any thoughts? I know you guys did a bond book restructuring in maybe 2023 or so, but just wondering if that's another way to use some of the excess capital given the bond book yield is still a little light.

Michael Achary (CFO)

Yeah. Thanks, Casey. This is Mike. And related to Sabal, again, we're not disclosing the purchase price for that entity, but I will share that the impact on Common Tier 1 is going to be modest. It's not going to be a huge dent there by any stretch. Your other question related to a restructuring, I mean, look, that's something that we consider really every quarter. I mean, we model those kinds of things on a pretty regular basis, and we'll continue to do so. I think to actually pull the trigger on something like that, we'll need a little bit more stability, especially in the bond markets, or a little bit of confidence that the bond markets will remain stable if they get there. Hopefully, we have that kind of confidence and stability, and we'll be able to consider those kinds of things.

I think right now, there's probably just a little bit too much going on to, on a practical basis, consider a bond restructuring right now.

Casey Haire (Senior Research Analyst)

Yeah. Fair enough. Okay. Just on the expense guide, I appreciate you guys are not going to lay out what the Sabal impact is. I guess, where did you find these cost saves to keep the expense guide flat, given that Sabal will be additive, obviously, to the expense base? Where are the cost saves coming from?

Michael Achary (CFO)

Sure. I'll provide some color on that. Part of it, admittedly, is we think our incentive comp load this year will probably be a little bit lighter than what we thought coming into the year. There's some savings there. The rest of it is really kind of across the board and continues to be centered on our ability to control costs. Again, thinking about the way that this year has really begun with so much uncertainty and issues with the potential trade war and everything related to that, we're cognizant of what we need to do to continue to control costs and save costs. I think it's just a little bit more a heads-down effort to make sure that we're spending money the way we need to and saving where we need to as well.

That has put us in a position, I think, to be able to handle the onloading of the Sabal expense base without changing the guidance.

Casey Haire (Senior Research Analyst)

Gotcha. Thank you.

Operator (participant)

Okay. The next question is from Gary Tenner, D.A. Davidson.

Gary Tenner (Managing Director and Senior Research Analyst)

Thanks. Good afternoon. Most of my questions were answered, including that follow-up on the expenses. Mike, I wonder if you could just give us the expected CD maturities and kind of expected rate benefit or pickup in the second quarter.

Michael Achary (CFO)

Yeah. I'll start off with what that benefit is for the year. We'd look to have about $5.5 billion of CD maturities over the next three quarters. Those CDs will come off at about 3.7%, and we think they'll be repriced at somewhere near 3%. Again, that's for the remaining three quarters of the year. That assumes a 75% renewal. That's kind of the headline story. By quarter, you asked about the second quarter. We're looking at about $2.3 billion of CD maturities coming off at 3.88%, going back on at around 3.50% or a bit lower with about a 78% renewal. Those are the numbers for the year as well as the second quarter.

Gary Tenner (Managing Director and Senior Research Analyst)

Okay. Great. I guess maybe just a follow-up to that, Mike. In terms of the end-of-period deposit expectation to be up low single digits over the course of the year, does that kind of—that's net of some amount of CDs that will not renew? That should shift a little bit?

Michael Achary (CFO)

Yeah. It'll continue to shift as we kind of described. No changes in that guidance around the outlook for deposits that come in at low single digits. That certainly accounts for the seasonal inflows and outflows of our public fund books. Again, for this past quarter, deposits were actually down right about $300 million. If you back out the impact of the public fund outflows, which of course are seasonal, we actually would have grown deposits by about $20-$25 million. All of those factors are considered and part of the guidance.

Gary Tenner (Managing Director and Senior Research Analyst)

Thank you. Appreciate it.

Michael Achary (CFO)

Okay.

Operator (participant)

The next question is Matt Olney, Stephens.

John Hairston (President and CEO)

Hi, Matt.

Matt Olney (Managing Director)

Hey, guys. Good afternoon. Going back to the commentary around loan growth being stronger in the back half of the year, just remind us how much of this growth would be from new hires that you made over the last year or so. Secondly, just any color you can give us as far as loan pipelines that can just get us more comfortable with the loan growth in the back half of the year.

Michael Achary (CFO)

Sure. I'll go ahead.

Yeah. I'll start now with the first question. If you look at the overall loan growth that we're expecting for the year, it's somewhere around 15% that we're expecting from new revenue hires. Those would have been primarily folks that we would have hired, let's say, in the fourth quarter of last year, maybe a little bit into the first quarter of this year. On the expense number, the impact of the new hires on our expense guidance is about 100 basis points or so. Those numbers are largely unchanged from the disclosures that I think we gave last quarter.

John Hairston (President and CEO)

Yeah. Matt, this is John. The percentages change a bit depending on which of the new hires are loaded in a little earlier. I gave the example in equipment finance where a single new hire in that group can make a pretty big difference pretty rapidly because the time to decision and book a loan, particularly in the Capital Markets side of equipment finance, is a good bit more rapid than, say, a commercial banker adding that's going to take 120-150 days to really begin getting their pipeline flushed out once they get comfortable and kind of understand the tech, the policies, and the people. The more of the middle market equipment finance and CRE hires and healthcare hires we can get loaded to the front of the year, the more of an impact above the 15 it can be. That's our goal.

We did not build that into the plan to make it maybe overdue when it is kind of balanced out based on what our past has been. That said, one of the earlier questions around the importance of an upside to loan growth on our valuation, certainly we are motivated to do that if we can find the talent.

Matt Olney (Managing Director)

John, to follow up on the comment you made, I think that you're targeting between, what, 20 and 30 new producer hires this year. Is there a target mix you have of the type of producer, whether it's real estate or commercial or capital mortgage, just any color on the mix?

John Hairston (President and CEO)

Sure. I think to average it out, there's a couple in each of the specialty lines. We'd like to add CRE folks in Florida, in Texas, and specifically in Nashville. We'd like to add additional equipment finance folks. They'll be based out of New Orleans, but it'll be focused on areas around our footprint. Probably half the numbers in business are commercial bankers. There's four, I think, planned for financial advisors in the wealth management group to help augment our new investment in Florida and Central Florida via Sabal. To be honest, if talent or teams come available to us because of disruption around us, we would not hesitate to add more than the 20-30 that I outlined. Like I said, the number in the plan is 24, but if we could get 30 or more, that would be just fine with me.

Wherever there's talent in markets we're trying to grow in, particularly high annual organic growth rate options, those are very much in demand to us.

Matt Olney (Managing Director)

Okay. Great. Thank you, guys.

John Hairston (President and CEO)

You bet. Thank you.

Operator (participant)

Next, we'll take a question from Ben Gerlinger, Citi.

Ben Gerlinger (VP Equity Research)

Hey. Good afternoon.

John Hairston (President and CEO)

Hey there.

Ben Gerlinger (VP Equity Research)

I just wanted to follow up quickly on kind of the M&A conversation. Mike, you said there's really not a lot of appetite. Is that in relation to depositories, i.e., loans and deposits, or is that all M&A? That would also include not interested in fee-income generated business.

Michael Achary (CFO)

Yeah. It's great. Great question, Ben, and great clarification. The question was really directed, I think, at depositories. Certainly, we're in the midst of closing on Sabal, so we'd like to get that one closed and get some good work done on getting that integrated. Probably would be a little bit more open to those kinds of transactions and depositories in the current environment. Thanks for that clarification.

Ben Gerlinger (VP Equity Research)

I appreciate everything else you've been asked and answered. Thanks, Chris.

John Hairston (President and CEO)

You bet.

Operator (participant)

Our last question today comes from Christopher Marinac, Janney Montgomery Scott.

Christopher Marinac (Director of Research)

Hey. Good afternoon. I wanted to ask Chris about the growth and the unfunded commitment reserve. Was that related to just volume there or risk or any more color there?

John Hairston (President and CEO)

Yeah. Good question. Really, it's just the change in our outlook for fundings, likely that there's going to be potentially more fundings just converting over from unfunded to funded. Therefore, it'll just kind of move over from that perspective.

Christopher Marinac (Director of Research)

Okay. As some of the factors qualitatively in your modeling for reserves in general, do you have any visibility that that would lead to any significant reserve build in the second or third quarter, or is it simply too early to comment?

John Hairston (President and CEO)

It's probably too early to comment, but the qualitative factors are there because of how we built our models, and they don't always take into consideration all of the variables that are going on at the loan level. The qualitative factors are there to kind of enhance that in many respects.

Christopher Marinac (Director of Research)

The idea of having a higher recession scenario, is that already in the numbers that you had as a year-end or as of March 31?

Michael Achary (CFO)

Yeah. Chris, this is Mike. If we look at the scenarios that we're using, and of course, we use Moody's like many of the mid-cap banks. We're split between the baseline scenario as well as the slower growth scenario. The baseline scenario that we're using does not have the impact of a recession, but certainly, the slower growth one does. There is a third scenario out there that includes a moderate recession that, as we go through this year and the next quarter or two, we'll make judgment calls around how we might change or alter the mix of the scenarios that we're using. Certainly, where we are today, it's too soon to make a call as to where we'll be really at the end of this quarter given the potential for changes in the external environment.

John Hairston (President and CEO)

I might also add that the scenarios in general have gotten a little bit more pessimistic in many respects. Even the baseline tends to move. I want to just kind of keep in mind the fact that the baseline, ultimately, if it's working correctly, will kind of follow where we are in the cycle. From last quarter to this quarter, there's more components within there that kind of sound like higher recession risk.

Christopher Marinac (Director of Research)

Okay. Great. That's good background. Thank you both. I appreciate it.

John Hairston (President and CEO)

You bet. Thanks for the question.

Operator (participant)

That does conclude our question and answer session. I would like to hand the call back to Mr. John Hairston for any additional or closing remarks.

John Hairston (President and CEO)

Yeah. Thanks, Lisa. Thanks for moderating today. Thanks everyone for attending a late call. Look forward to seeing you on the road soon.

Operator (participant)

Once again, everyone, that does conclude today's conference. Thank you for your participation. You may now disconnect.