Hancock Whitney - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered solid profitability and operating discipline: diluted EPS $1.40, ROA 1.40%, NIM (TE) 3.41%, and efficiency ratio 54.46% as deposit costs fell and capital ratios climbed (CET1 14.14%).
• Non-GAAP items did not affect Q4; the prior-year Q4 2023 included $75.4M of supplemental items—adjusted EPS would have been $1.26—so year-over-year optics overstate growth versus “clean” comps.
• Balance sheet trends were mixed: loans contracted on CRE payoffs while deposits rose seasonally; asset quality normalized with higher criticized and nonaccruals but modest NCOs; reserve coverage edged up to 1.47%.
• 2025 guidance (ex-Sabal) points to mid-single-digit loan growth, low-single-digit deposit growth, NII (TE) up 3.5–4.5%, modest NIM expansion, and PPNR up 3–4%; buybacks expected to revert to ~300k shares/quarter; dividend raised to $0.45 in Jan-25.
• Catalysts: Sabal Trust acquisition (immediate EPS accretion, strengthens Florida wealth), multi-year banker hiring and Dallas expansion, deposit repricing tailwinds, and continued capital return.

What Went Well and What Went Wrong

• What Went Well

  • “We achieved an ROA of a notable 1.40%. We enjoy continued NIM expansion… efficiency ratio of 54.46%” (CEO).
  • Cost of funds fell 21 bps (to 1.73%); cost of deposits down 17 bps (to 1.85%) as CDs repriced and brokered deposits matured (CFO).
  • Capital strengthened: CET1 14.14% (+36 bps LQ), total risk-based ~15.93%, supporting ongoing buybacks and organic growth investments.

• What Went Wrong

  • Loans declined $156M LQ on elevated CRE payoffs despite strong production; loan yields fell 25 bps as variable-rate loans reset lower.
  • Criticized commercial loans and nonaccruals rose (criticized to $623M; nonaccruals to 0.42% of loans), reflecting normalization and borrower pressures in select sectors.
  • Fee income down 5% LQ on lower specialty/derivative/SBA income and softer secondary mortgage activity; PPNR slipped slightly LQ.

Transcript

Operator (participant)

Good day, ladies and gentlemen, and welcome to Hancock Whitney Corporation's Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. 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 (VP of Investor Relations Manager)

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 Form 10-K and Form 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 Form 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 (CEO)

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. We achieved an ROA of a notable 1.40%. We enjoy 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. Last quarter on this call, we shared our expectations for a pivot to growth and smartly deploying capital to create opportunity and value. On that note, we announced this morning our acquisition of Sabal Trust Company based in St. Petersburg, Florida. We are very proud to welcome Sabal's outstanding leadership, team, and clients to Hancock Whitney. Following the close, Florida will become our largest wealth management fee state, and the Tampa-St. Pete MSA.

Pete MSA will become our largest individual wealth management fee market. 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 seven of the investor deck. 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. We expect to announce additional locations in Florida as we near the completion of the Sabal transaction. 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.

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 Sabal Trust Company. Just a few more notes from Q4 before turning the call over to Mike. 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. 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. And finally, we were happy to post a modest reduction in operating expense for the quarter. Loans were down $156 million due to higher payoffs on commercial real estate loans, offsetting otherwise strong production.

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. Deposits were up $510 million despite the maturity of $183 million in broker deposits. This quarter, we had a very welcome increase in DDA balances, and our DDA mix is consistent at 36%. 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. During the quarter, we continued to return capital to investors by repurchasing 150,000 shares of common stock.

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 Tier 1 ratio of 14.14%. TCE declined slightly due to the impact of Treasury yields on AOCI, but ended the quarter at a strong 9.47%. 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 (CFO)

Thanks, John, and good afternoon, everyone. Fourth quarter's net income was $122 million or $1.40 per share, so up $6 million and $0.07 per share from last quarter. PPNR was down slightly, less than 1%, to $165.2 million. Hancock has a return on average assets that continues to be a peer-leading 1.89%. Our NIM expanded two basis points to 3.41%, driving modest growth in NII. And as 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. 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.

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. Our cost of deposits was down 17 basis points to 1.85%, reflecting CD maturities and renewals at lower rates and a reduction in pricing on interest-bearing transaction accounts. We had $3.4 billion of CD maturities that came off at 4.84% and renewed at 4.04%. Additionally, as John mentioned, most of our broker deposits matured during the quarter and were not replaced, and our DDA balances increased this quarter for the first time in almost two years. CDs will continue to reprice lower throughout 2025, given maturity volumes and three anticipated rate cuts in the second half of 2025.

Bond yields were up five 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%. 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%. 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.

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, and continued repricing of cash flows from the bond portfolio and fixed-rate loan portfolio. Offsetting these drivers will be lower loan yields on variable-rate loans. We assume 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. As mentioned, fee income was lower this quarter due to lower specialty income, which was elevated in the prior quarter. 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 Sabal Trust Company.

Expenses were down 1% this quarter as we continue to focus on controlling costs throughout the company. 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 the Sabal acquisition. Our PPNR guide is to be up between 3% and 4% from 2024's adjusted levels, and our efficiency ratio is expected to fall between 55% and 56% in 2025. Our credit quality metrics continue to normalize, with an increase in non-accrual and criticized commercial loans. 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. 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.

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. Even with the Sabal acquisition and planned organic balance sheet growth, we expect to continue our share repurchases in 2025. 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.

John Hairston (CEO)

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

Operator (participant)

Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you're 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. Your first question comes from the line of Michael Rose of Raymond James. Your line is open.

Michael Rose (Managing Director)

Hey, good afternoon, guys. Hope you're enjoying the snow down in New Orleans. Maybe, Mike, we could just start with just on what you had mentioned last on the buybacks. Certainly appreciate the CSOs. I think the only thing that's really changed since last January is the ROA range has been tightened to 140-150. I know you guys have expressed maybe some displeasure with where you guys trade versus peers. Just trying to get a sense of how aggressive you might be with the buyback, given that the earnback is still relatively attractive here. Thanks.

Mike Achary (CFO)

Sure, Michael. Thanks for the question. Look, as far as buybacks are concerned, we did step down a little bit in the fourth quarter from the levels that we had been at for both the second and third quarter, and I think that that simply just had to do with the fact that the stock had pushed up quite a bit post-election, and then we began working in earnest on the Sabal transaction. And when we get to that point with the potential transaction, we've really put ourselves kind of in blackout. So the way we view buybacks going forward is, I think at the very least, we'll revert back to the same levels that you saw us buy shares in the second and third quarter, so call it around 300,000 shares per quarter.

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.

Michael Rose (Managing Director)

Very helpful. And then maybe just separately, just on the loan growth outlook, I think that was 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 SNC 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 (CEO)

Yeah, Michael, this is John. Thanks for the question. I'll start it. If Mike and Chris want to add any more detail, they're welcome to. 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 Shared National Credits concentration down to 10% or below. So that's all achieved. So out of the gate, you sort of get the lack of a contract, so to speak, impacting the net growth numbers. Beyond that, it's really all about core conventional growth. 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, 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% that we did the last quarter. We sold 88%; we kept 12% in dollars. Our business banking and small business pipeline continues to be very strong. Sentiment among that sector of clients is extremely high, and it appears that we'll be successful adding firepower through additional business bankers through the course of 2025. We had good success there in Q4, so I think that's a net growth generator for the quarter or 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 than middle market but higher than small business. That book has been largely sideways for several quarters. The pipeline has improved.

Payoffs there have lessened. 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. Middle market and corporate banking demand is from decent to good there. The primary growth engine there is the lack of the paydowns that we applied to ourself this year. But even so, in the healthcare portfolio, in the commercial real estate specialty business, while we've had payoff pressure in CRE, the production level actually was quite strong in Q4, and we expect that to increase as we go through 2025 so that 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. 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 to compete with these days that we may see a little pressure on the yields of new business. And indeed, we saw that in Q4 in that same sort of environment. 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, the expectation is that we see some growth in Q1 and in Q2. And I think directing that will help us understand the pathway to attaining that mid-single digit level.

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 on the agenda?

Michael Rose (Managing Director)

I certainly appreciate the call. Maybe just last one for me on the Sabal acquisition, just quickly. Can you give us a sense for maybe what the expense levels are with the efficiency ratio was last year? Appreciate what the revenues were, but just trying to get a sense for what the net bottom line impact would be as we think about 2025. Thanks.

Mike Achary (CFO)

Yeah, I appreciate that question, Michael. But again, as we kind of indicated in the deck itself, we're going to update our guidance to be inclusive of Sabal probably after the first quarter. So if you wouldn't mind saving that question until we get to that point, by then we'll certainly, I think, have a little bit more certainty as to the exact closing date. But suffice to say, as we indicated in the release and in the slide, it certainly is accretive day one in terms of EPS and exceeds all of our return thresholds. So I think when we get around to talking about the results and the returns, it'll be something that people will appreciate.

Michael Rose (Managing Director)

Perfect. Thanks for taking all my questions.

John Hairston (CEO)

You bet. Thanks, Michael.

Operator (participant)

Your next question comes from the line of Matt Olney of Stephens. Your line is open.

Matt Olney (Managing Director)

Hey, thanks, guys. Good afternoon. We'd love to hear more about the wealth management segment there at the company and with the Sabal Trust acquisition. Just help us appreciate why is now the time to build out 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 the Sabal deal more of a one-off?

John Hairston (CEO)

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. That focus isn't recent. Really, it's been a pretty, we've been eager to grow that sector for about a decade. If you remember back in 2018, we announced the Capital One Asset Management transaction, which grew by 50% or 60% our overall wealth book. We hired a lot of good talent both in that deal and after it.

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 accretive to the bottom line. Then we did the partnership with Cetera, which exposed us to a lot more investment platforms and advisors across the country. So we began to be more notable in terms of being able to compete, particularly in the larger opportunities in Texas and Florida. And then finally, Sabal allows us to cheat about 30 years of work onto the overall book. I mean, Sabal 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 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. So we're there now. It's already about a third of our fee income. Sabal will help that number go up a good bit more. In terms of what our appetite is moving forward, organically, we've announced a fairly aggressive growth plan in terms of adding talent. Several of those players are intended to be wealth management advisors that we'll organically hire. So it's an important part of our organization moving forward, whether it's organic or inorganic. So Mike, you want to handle the inorganic part of that?

Mike Achary (CFO)

Yeah, and just a couple of thoughts, Matt. So 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, 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. With the Capital One transaction, we acquired a lot of infrastructure, a lot of expertise, laid a really good foundation to grow that business from that point on. With Sabal, Sabal is the perfect add-on to that. It is a tremendous acquisition of a network 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. 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, that's one of the areas of our geographic footprint that we've kind of earmarked for additional growth. So John mentioned on the opening comments the potential to add banking locations that will be companions to Sabal's locations. So I think that's another important box to check. 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.

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. 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. So we're open to all sorts of opportunities. I wouldn't say that strictly non-bank or trust. Certainly, we're open to depository institutions going forward as well.

Matt Olney (Managing Director)

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 and planned hires in the state. Also mentions of the new financial centers in Dallas in 2025. Just update us on your current footprint in Dallas and 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?

John Hairston (CEO)

It's a great question, Matt. I mentioned adding wealth advisors earlier. And our stated goal, and this is a lofty and aspirational goal, but we are moving smartly towards it, is to become the best bank in the southern part of the U.S. for privately owned businesses. And we don't feel as if we can attain that goal without a strong wealth management offering. That way, we can bank the business, and we can bank the owners of the business and be prepared to assist them when they go through succession or liquidity moments. And so as a result, 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, we didn't really give numbers last quarter because we wanted to come out of the gate this year with the overall organic strategy. We hired seven net new bankers in Q4. That was the run rate 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 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 the people interviewing with our folks saw a very aligned top line and credit risk appetite match.

They interviewed both credit and 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 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. 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 two or three quarters under our belt. Those bankers will not be limited to the high-growth markets. I mean, I appreciate you calling out the points in Texas. We are busily working towards adding five new financial centers.

And that's the northern areas of the Dallas MSA, which are complementary to where we have offices and leadership already deployed. So those five, 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. Mike mentioned potentially offering new offices in Florida as we get closer to the Sabal close. And let's just say that's second quarter or so, then 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.

If disruption occurs in a place other than where we are in Texas and Florida, then certainly we would be deeply interested in moving teams or individual players that may prefer to be with us than go through what they may go through elsewhere. I think at this point in time, our signal to potential partners or potential colleagues would be to don't be bashful about making the phone call, and we'll see if we can work it out. Any redirect you want on that, Matt?

Matt Olney (Managing Director)

No, that's great. Appreciate the commentary.

John Hairston (CEO)

You bet. Thank you.

Operator (participant)

Your next question comes from the line of Catherine Mealor of KBW. Your line is open.

Catherine Mealor (Managing Director of Equity Research)

Thanks. Good afternoon, everyone.

John Hairston (CEO)

Hey, Kathryn.

Catherine Mealor (Managing Director of Equity Research)

We've asked about the increase in your criticized 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.

Chris Ziluca (Chief Credit Officer)

Hey, Kathryn. It's Chris Ziluca. 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. 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, for the most part, our increases are largely in line with peers. And obviously, we don't have Q4 data right now, but we suspect that there will be a mixed bag in that regard. Over the past quarter, we did see some improvement in some of our customers that were already in the criticized category. So we're seeing some hopeful signs that the customers that are already in criticized are stabilizing and resolving their issues.

This particular quarter, we saw some customers in our consumer discretionary industries in our building products and services categories, some modest amount in hotel and in the healthcare and related sectors. So those were some of the areas that probably gave a little bit away in the criticized migration during the quarter. But looking at the circumstances that really gave rise to us making the decision to downgrade them into those categories, the feeling is that it's really kind of transitory in many respects. In some situations, it's really a situation that's affecting individual borrowers 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 through the process, we did spend a lot of time looking at all of our lower-rated credits, not even the ones that are in the criticized and lower categories, and really understand exactly what's impacting them and what the possible migration could be. And at this point in time, we don't feel that there's anything significant that we've identified. Obviously, what happens in the future is hard to know. But at this point in time, we feel pretty confident in what makes up our criticized book and keeping in mind that we continue to operate at better than peer average in most of our in all of our AQ, even in the charge-off area.

John Hairston (CEO)

Kathryn, this is John. I appreciate the question. And what you were directing towards is, is there, I think, a sizable concentration of any particular sector or geography in those numbers?

I'd like to maybe direct the answer specifically to that. A few years ago, we found ourselves with a larger criticized rate of percentage, and it was a significant concentration in one sector and in one geography. This is not a repeat of that. This is not a return to those days at all. I would be obviously very disappointed that we 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. I hope that answers your question. Glad to answer in more detail when you ask it.

Catherine Mealor (Managing Director of Equity Research)

No, it does. And I think, and to follow up on that, I mean, you say in your 2025 guidance that you expect modest charge-offs and provision for 2025. And so maybe that echoes kind of what you're saying, John. But can you give us 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 basis points or so. Is that a fair assumption for what we should expect for 2025?

Mike Achary (CFO)

Yeah, Kathryn, this is Mike. And yeah, I think that's right. So modest doesn't have a specific definition, but I think we consider that 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.

John Hairston (CEO)

Kathryn, it's hard to pick the perfect, sorry, I stepped on you, Kathryn. I'm sorry. Go ahead.

Catherine Mealor (Managing Director of Equity Research)

No, go ahead. You're good. Go ahead.

John Hairston (CEO)

Sure. I was just going to add, picking the perfect word sometimes is hard. And 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, 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. And our NCOs, I mean, we really are a C&I bank. And our CRE portfolio, while it's a smaller portion of our loans than most other mid-cap-sized banks, it typically performs from a stellar perspective or a stellar level in terms of NCOs.

On the C&I side, we will, like any other C&I bank, 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, even though we keep a large loan loss reserve in the event that the macro environment changes, just like it has the last several years versus the pandemic.

Catherine Mealor (Managing Director of Equity Research)

Great. Very helpful. Thank you.

John Hairston (CEO)

Okay. Thank you. Did you have another question?

Catherine Mealor (Managing Director of Equity Research)

No, I'm all good. I'll step out of the queue.

John Hairston (CEO)

Thanks, Kathryn.

Operator (participant)

Your next question comes from the line of Ben Gerlinger of Citi. Your line is open.

Ben Gerlinger (VP of Equity Research - Regional Banks)

Hey, good afternoon, everyone. I know you guys laid out a pretty expansive goal for not only just hiring but adding some financial centers and branches across your footprint. I mean, I think, John, as you said, roughly 25 bankers on a run rate. That's pretty solid. I mean, when you think about deals, you have the horsepower, or you theoretically would have the horsepower of organic growth that I think peers have that have the higher multiple. So what would it be if you're really looking at kind of an M&A? Is it more so just deposits, or would that be supplemental in addition to an improving growth outlook? I'm just kind of curious why deviate from the organic hiring plan.

Mike Achary (CFO)

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. So obviously, with the transaction we just announced with Sabal, that's a nod toward non-bank M&A that will certainly complement our wealth management line of business. 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.

While I think we are signaling an openness to bank M&A, certainly with a preference toward 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. So I think we've got to be able to approach this from a diverse point of view in terms of looking at opportunities to grow organically as well as inorganically. So hopefully that makes sense.

Ben Gerlinger (VP of Equity Research - Regional Banks)

It does. I mean, not to dig too deep into it, but I know banks are sold, not bought. But is there a relative size of balance sheet you're looking to partner with?

Mike Achary (CFO)

Yeah. Look, nothing is certain. But I think if we think about size parameters, something along the range of maybe a third of our current size would be what we think opportune. But 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.

Ben Gerlinger (VP of Equity Research - Regional Banks)

All right. That's helpful. Thank you.

Mike Achary (CFO)

Okay.

Ben Gerlinger (VP of Equity Research - Regional Banks)

Thank you.

Operator (participant)

Your next question comes from the line of Brett Rabatin of Hovde Group. Your line is open.

Brett Rabatin (Director of Research)

Hey, good afternoon, everyone.

John Hairston (CEO)

Hey, Brett.

Brett Rabatin (Director of Research)

Wanted to touch on the expense guidance. And obviously, expenses were slightly lower in 2024. Can you talk about how much of the growth in 2025 would be a reversion to or the incentive plan getting back to normal as opposed to 2024 maybe? Or any thoughts on incentive comp in 2024 versus 2025 relative to the expense increase?

Mike Achary (CFO)

Yeah. Great question, Brett. And the way that I'll approach that is to just kind of remind you of the guidance that we're giving for 2025 for expenses. So we're looking at this range of between 4% to 5%. So obviously, that's a step up from let's call it basically the flat level that we experienced in 2024 versus 2023. If we look at the component of that guidance that really relates to this notion of an organic growth plan, that's probably around 100 basis points or so.

So if we didn't have the organic growth plan, the expense guidance, I think, would be in the neighborhood of 3%-4%. So I hesitate to put an exact number on the incentive comp piece just because 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. Okay. No, that's helpful. And I said a little bit lower. Actually, like you said, a little bit higher. Yeah. Okay. And then wanted just to talk about the betas so far relative to the cycle and the expectations on slide 19 when you look at the total deposit betas and then the loan betas.

Brett Rabatin (Director of Research)

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? 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?

Mike Achary (CFO)

Yeah, so on slide 19, I think probably the most important part of that little table at the bottom is 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 can be a little bit misleading, especially when you have 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. It certainly is, I think I'll call it well-behaved. And it's certainly something that we find conducive, actually, to our strategy around what we're trying to do with deposit pricing. And that strategy really is centered around repricing our maturing CDs, kind of keeping that balance of maturing CDs relatively short.

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 2025, we see that book potentially turning over maybe twice over the course of the year. So depending on what happens with rates, 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 our DDA balances. So for the first time in two years, we were actually able to increase those balances. 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. 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. So that was probably a little bit more of an expansive answer than the question you asked, but hopefully it was helpful.

Brett Rabatin (Director of Research)

No, that was very helpful. I appreciate it. Thanks so much, Mike.

Mike Achary (CFO)

Brett.

Operator (participant)

Your next question comes from the line of Gary Tenner of D.A. Davidson. Your line is open.

Gary Tenner (Managing Director of Senior Research Analyst)

Hey, good afternoon. I wanted to ask a bit of a follow-up in terms of just the CD repricing. Can you remind us, Mike, what the CD maturities are in the first quarter and kind of what the rate and then expected original rate might look like today?

Mike Achary (CFO)

Sure. Be glad to, Gary. So for the first quarter, we have about $2.5 billion of CDs maturing. Those are coming off at 4.34%. And we think that they will go on at about 3.74%. 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. 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%. And we're anticipating putting that back on at about 3.10% or so.

Certainly, that is very dependent upon the interest rate environment and what happens or not with the Fed resuming rate cuts at some point next year. That's kind of how we're looking at the CD book next year.

Gary Tenner (Managing Director of Senior Research Analyst)

Got it. Thank you for that. And then in terms of the bankers, if you think of the second and the fourth quarter and the 28 that you're planning on hiring in 2025, can you put that in context of kind of what 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?

John Hairston (CEO)

That's a good question. I mean, it depends on the type of banker, certainly. Maybe the helpful color is given the pace of bankers, the time it takes to build a pipeline, the time for them to get to an accretive level. Generally speaking, you would anticipate the difference that the team makes would be more impactful to 2026 than 2025. 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 very quickly in that 90 days-120 days, and they can become accretive.

Normally, it's going to take about 12 months to get accretive, about 18 months to reach what Shane Loper, the President of the Bank and the Head of Revenue, calls the flywheel level where every day they're continuing to harvest more business, and the expense levels don't really go up. So I think I would suggest that the 2026 impact will be bigger, and we can quantify that for you as we get to the 2026 guidance is what's coming from the team that we actually have hired. Is that helpful?

Gary Tenner (Managing Director of Senior Research Analyst)

It is. I guess maybe I didn't ask it very clearly, but 35 adds would be what percentage increase in bankers for Hancock?

John Hairston (CEO)

In the business banking space, that would be probably about a 15% increase in the total workforce over the next, now I'm adding a 2026 plan into that number to give it. So about 15%-20% more business bankers by the end of 2026, about 10% wealth advisors, and about 10% commercial bankers.

Gary Tenner (Managing Director of Senior Research Analyst)

Thank you very much.

John Hairston (CEO)

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.

Operator (participant)

Your next question comes from line of Stephen Scouten of Piper Sandler. Your line is open.

Stephen Scouten (Managing Director)

Yeah. Thanks. Good afternoon. Just kind of following up along that line of discussion around the new hires, how much of the kind of mid-single-digit loan growth expectation will be predicated on hitting that pace of new hires? And how much would be kind of more no longer the headwind of the Shared National Credits and other dynamics that might precipitate growth?

John Hairston (CEO)

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. Do you follow me?

Stephen Scouten (Managing Director)

Yeah. That makes perfect sense.

John Hairston (CEO)

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 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.

Stephen Scouten (Managing Director)

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 loan growth trend reversal versus what we've seen kind of over the last five quarters?

John Hairston (CEO)

Sure. Yeah. Well, I think we got a question earlier about the headwinds and tailwinds. I mean, certainly, the absence of a big SNC 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 SNCs going on to the tune of about $600 million. Then we had a fairly sizable 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.

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. They're in the commercial banking, which is the below-middle market and the way we name our sectors. And then a dark green, vivid green shoot in small business and business banking. The only area that's soft that we haven't seemed to make a headway on in positive accounts, but not in loan volume, is really in consumer, which is highly sensitive to rates, especially mortgage.

Stephen Scouten (Managing Director)

Got it. Extremely helpful. And then I think someone made the comment, maybe it was Michael Rose, that you guys 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 (CEO)

Yes. Yeah. Stephen, 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 the question to Mike.

Mike Achary (CFO)

Instead of whining about what maybe the market isn't getting, I think the best way maybe to have that discussion is to think about what we've accomplished, let's say, over the last four or five years. 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 or de-risking the loan book and building reserves, 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. And then 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.

And 2025 becomes a year, as we've talked about many times, 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. And on that front, we've increased the dividend last year. Certainly, that's something I think we'll look at again this year. We've demonstrated our commitment to potentially growing inorganically through the Sabal 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. Certainly, there's been some normalization, but they're still extremely good from our perspective.

And then producing results in the neighborhood of a ROA of 140 basis points and keeping our efficiency ratio below 55%. So to us, that seems like a pretty good banking company and one that certainly, I think, is worth consideration. John, anything to add to that?

John Hairston (CEO)

Yeah. Nope. He did it well.

Stephen Scouten (Managing Director)

Great. Appreciate that, guys. Thanks so much.

John Hairston (CEO)

Thanks for the question.

Operator (participant)

Your last question comes from the line of Christopher Marinac of Janney Montgomery Scott. Your line is open.

Christopher Marinac (Director of Research)

Thanks. Good evening. 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 Ziluca (Chief Credit Officer)

Yeah. I'll take a quick run at it, Chris Ziluca, 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. And from a C&I perspective, 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 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. And we are certainly part of that decision process on a regular basis with clients.

I think a lot of it has to do with just the combination of the higher interest rates that people were maybe a little bit cautious about in 2024, but also probably the uncertainty around how the election process was going to play through. 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. So I think that will create a little bit more of an opportunity in both sectors, C&I and CRE.

John Hairston (CEO)

Yeah. Chris, this is John. I'll add to that. I wish that the answer was as simple as the question. It's a very straightforward question. 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 worth of new CRE construction projects in terms of commitment that are today carrying virtually a zero utilization rate, and so that somewhat artificially stimulates the reported line utilization down because so many projects completed and sold off relative to the projects that were new bookings that haven't yet burned through their equity before they get to ours, so as we get to 2Q and 3Q, 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. The second thing to note is that on the C&I utilization level, as you pointed out, they've been very stable.

While we would love to see them go higher because it's essentially all it really costs us is the cost of liquidity. For that to happen, it's quite profitable to 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 to not call on those lines as deeply as they normally would. So there's some seasonal line utilization in the book from a few sugarcane operators, some timbering people who seasonally will go up and then pay it down. 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 that we have. It's kind of a good thing and a bad thing at the same time.

Part of the support for the loan growth numbers is that we would anticipate some of the pull-through to borrowing from the commitments that were issued last year to beginning to come on the balance sheet in late second quarter and through the back half of the year. Was that the detail you were looking for?

Christopher Marinac (Director of Research)

No, it was great. I appreciate you both taking a stab at that. I guess just one related question. I mean, 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 markets backed up just a little bit this month?

John Hairston (CEO)

You mean on the new money rates?

Christopher Marinac (Director of Research)

Correct. Yeah.

John Hairston (CEO)

You want to stab at that?

Mike Achary (CFO)

Yeah, I think it would, Chris. Absolutely.

Christopher Marinac (Director of Research)

Okay. Very well. Thanks for the additional color, and we appreciate you hosting the call.

John Hairston (CEO)

You bet. Thank you.

Operator (participant)

That concludes our Q&A session. I will now turn the conference back over to John Hairston for closing remarks.

John Hairston (CEO)

Thanks, JL, for moderating the call. And I guess the only parting statement I would have after a long call with good questions is 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.

Operator (participant)

This concludes today's conference call. You may now disconnect.