Earnings Call Transcript - HWC Q4 2022

Operator, Operator

Good day, ladies and gentlemen, and welcome to Hancock Whitney Corporation’s Fourth Quarter 2022 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 pass the call over to your host for today’s conference, Trisha Carlson, Investor Relations Manager. You may begin.

Trisha Carlson, 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 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, Trisha, and good afternoon and Happy New Year to everyone. Thanks for joining us on what I know is a very busy day. While we look forward to the start of a new year, we also want to celebrate a successful Q4 and a strong conclusion to 2022. We are exceptionally proud of the Hancock Whitney team and the Company’s overall performance during a remarkable year of volatility. The results revealed not only progress made in 2022 but also the culmination of decisions made the last several years to better position the Company. With year-over-year earnings up $61 million, PPNR up nearly $104 million, net loan growth up $2 billion, NIM up 31 basis points and an efficiency ratio in the low-50s, we view 2022 as a very successful year. We see another year of potential macro environment changes coming in 2023 and expect the bulk of investor interest to be more about the future. As such and as promised, we have updated our three-year corporate strategic objectives or CSOs, and we provide 2023 guidance on slide 18. Our guidance for 2023 shouldn’t be a surprise or a trend much different from what you may hear from others in our industry. Loan growth in the low to mid-single digits reflects the recognition of a likely slowdown in the economy, and we are mindful of managing risk in such an environment. We expect continued hurdles with funding loan growth with deposits and are guiding to an environment where core deposit growth will be available, but perhaps a little more rate sensitive. Our intense focus will be on core relationship lending with accompanying deposit relationships, which create meaningful value in our balance sheet through the cycle. This focus will have the impact of a slowing loan growth in 2023, but a better chance of funding lending with deposits. We fell short of that goal in Q4 as loans outperformed and the timing of seasonal deposit inflows and outflows was different than we expected. We said for the last couple of years that line utilization would begin returning to pre-pandemic normal, at the same time, excess commercial deposits are spent, and that trend was evident in the last several quarters, including Q4. But with that said, we intend to grow deposits in 2023 in the low single digits with a downside case of flat where we use cash flow from the bond portfolio to fund any shortfall in deposits. To the extent deposits outperform, we will adjust to reinvesting in bonds or deploying into loans dependent upon the environment at the time. The rate environment, while beneficial to net interest income negatively impacted fee income with secondary mortgage being the hardest hit. With trending strong performance in wealth and card fees, though, we believe we can grow total noninterest income 3% to 4% in 2023, including covering the replacement of $10 million to $11 million of lost income from the elimination of certain NSF/OD fees beginning in December of 2022. Inflation pressure, pension expense, and notable increases in FDIC assessments are a few of the drivers guiding to a 6% to 7% increase in 2023 noninterest expense. Backing out the pension and FDIC increases, we project a 4% to 5% increase compared to 2022. Our efforts over the past three years in reducing expenses have put us in a position to better adjust to these increases and still maintain an efficiency ratio in the very low-50s. And finally, as it relates to guidance, we believe today’s results for both the quarter and the year reflect the Company positioned well for today’s economic environment. Credit metrics are at historically low levels. Initiatives executed in 2020 to 2022 helped drive an efficiency ratio below 50% in the fourth quarter. New bankers hired over the past 18 months should help attract and enhance relationships in growth markets. We’ve proven our ability to proactively manage expenses and are introducing technology focused on scalability and effectiveness. Capital remains solid, our reserve is solid and our balance sheet is derisked and positioned well. So with those comments, I’ll turn the call over to Mike for further comments.

Mike Achary, CFO

Thanks, John, and good afternoon, everyone. We ended 2022 with fourth quarter EPS of $1.65, up $0.10 linked quarter. Net income of $144 million was up $8.4 million from the third quarter. PPNR was up $10.3 million. And finally, our efficiency ratio came in below 50% at 49.81%, certainly, a nice way to end a very solid 2022. Loan growth came in stronger than expected during the quarter at $528.5 million or up 9% annualized from last quarter. Line utilization continues improving and is trending back to pre-pandemic levels, while our residential onetime close product drove a sizable increase in mortgage loans. Deposit growth for the Company came in lighter than expected at $119 million or 2% annualized from last quarter. Typical seasonality in public funds contributed $494 million, while time deposits were up $493 million due to a CD promotion during the quarter. DDA and interest-bearing transaction deposits were down $692 million and $176 million, respectively. We recognize that deposit growth will be a challenge in 2023 for both our company as well as the industry. Commercial clients are deploying excess liquidity into working capital, while consumers are becoming more rate sensitive. You can see on slides 13 and 14 in the earnings deck that while we were successful in holding deposit betas relatively low for most of this year, we did see a pivot up in our deposit beta to around 21% in the fourth quarter. Excluding the seasonal increase in public funds, that deposit beta was closer to 14%. We still believe that when the current rate cycle is done, that our cumulative total deposit beta should be no worse than around 25%, so about the same as the last up cycle. Our fourth quarter NIM at 3.68%, was up 14 basis points linked quarter. So, while that level of widening is impressive on its own, admittedly, it did not move up as much as we expected coming into the quarter. The yield on new loans jumped 134 basis points to 6.27%, and the bond portfolio increased 12 basis points, adding 51 basis points to our earning asset yield compared to last quarter. Funding costs were higher this quarter as expected, mostly due to promotional pricing on a successful CD offering that did result in higher deposit costs and a shift in our funding mix. We still believe our NIM has room to expand with future rate hikes, but it will be small and very dependent on the level, mix, and cost of deposits. Concluding my comments with credit, our metrics trended to historically low levels in 2022 and remain there. Negative provisions ended as future CECL scenarios call for a potential slowdown in possible recessionary environment. Our provisioning has been modest and charge-offs remain low, and we believe we’re positioned well with an ACL of 148 basis points. So, while that ratio did decline by 2 basis points linked quarter, we actually added $1.5 million to the reserve at year-end. With that, I’ll turn the call back to John.

John Hairston, President and CEO

Thank you, Mike. Okay. Let’s open the call for questions.

Operator, Operator

The first question comes from the line of Brad Milsaps with Piper Sandler.

Brad Milsaps, Analyst

I appreciate all the guidance in the slide deck. I did maybe want to jump in maybe the fee income guidance first. Obviously, a lot of moving parts this quarter. You note some of the specialty items may be lower than they have been. Typically, you’ve got the headwind with the NSF fees of about $10 million to $11 million. Is really the swing factor some of those specialty items coming back, or John, are there other segments or endeavors that you have out there that you feel like are going to be able to kind of push that number up higher towards your guidance?

John Hairston, President and CEO

Yes. Good question, Brad. This is John. I’ll start off and Mike is welcome, too. You gave a quick inventory of exactly the right things to point to. The NSF/OD income, we forecasted, I think we talked about that maybe 3 or 4 quarters ago, that to be a $10 million to $11 million annualized hit that started in December of 2022. So first quarter 2023 will bear the full blunt of that run rate. But as balances in consumer business accounts continue easing down to pre-pandemic level, we anticipate that overall service charges from the deposit book and deposit accounts will keep going up throughout the year. We also anticipate a very strong performance from our wealth management group. Fourth quarter was very promising as we anticipated. And we think we’ll go into 2023 with an awful lot of momentum. And then finally, all things card-related continue to outperform, and we expect that to also be a very good performance for the year. So, all in all, the 3% to 4% guide is inclusive of covering the downside from the NSF/OD fee changes. You mentioned the other income bucket, and there’s a lot of cats and dogs in that bucket. And for the fourth quarter, it was unusual and that virtually every one of those categories was at a lower run rate level or lower level than we typically experienced in the run rate. And we do expect that to bounce back to something more closely to overall 2022 performance or maybe a little bit better. So, all of those factors are rolled into the 3% to 4% guide for the year. The only area that we’re not counting on, Brad, is a secondary fee income for mortgage. It does appear after about a 54% reduction in deal flow quarter four 2021 to quarter four 2022. We think we’re at or pretty near the bottom on that particular fee income source. So, while we’re not counting on any benefit through 2023, any beneficial movement in 30-year rates would obviously be an unexpected benefit. So, we don’t have that expected at all in our numbers, but that would be a little bit more of an upside or a tailwind. Did I answer your question, okay?

Brad Milsaps, Analyst

Yes, John, that was very helpful. As a follow-up to Mike, regarding the CSOs, I noticed you provided a framework for your assumptions about Fed funds for the next three years. I understand that rates are increasing, and initially, you anticipated 4 to 6 basis points of NIM expansion with each 25 basis-point rise. Would we expect a similar level of contraction if rates decrease? I realize this might be a challenging question due to all the variables involved. I'm just curious about how to approach this, especially since it's surprising to be discussing rate cuts at this point, but I'm interested in how we should consider this in relation to NIM.

Mike Achary, CFO

I'm happy to address that, Brad. To wrap up the question regarding fee income, John is correct. It's been a long time since we've seen every component of specialty income decline quarter-over-quarter. Both BOLI and derivatives dropped to nearly $2 million each, and our SBIC income also decreased by just over $1 million. Therefore, it seems unlikely we will have another quarter where all these categories decrease simultaneously. We expect this area to rebound in 2023. Regarding our CSOs, those are our goals set for three years ahead, which we consider in the context of the fourth quarter of 2025. We have taken a thoughtful approach to projecting the rate environment going forward. While none of us can predict the future, this seems to be a reasonable outlook regarding rates. On your question about NIM, it's indeed a challenging one. As rates begin to decrease, it becomes more difficult for us to keep NIM stable due to our asset sensitivity. However, we have made significant efforts over the last couple of years to extend the duration of our assets. I believe that when rates decline, we will perform better in this cycle compared to previous rate cycles, mainly due to the actions we've taken to extend our asset duration. We'll see how that plays out when we reach that environment.

Operator, Operator

The next question comes from the line of Kevin Fitzsimmons with D.A. Davison.

Kevin Fitzsimmons, Analyst

Mike, I believe you mentioned earlier that the margin had increased, but not to the extent you anticipated. If that's the case, could you clarify what the driving factors were? I understand that funding costs rose, which you were likely prepared for, and you may have factored in the CD promotion, or perhaps you didn't. That could explain why the margin wasn't as high as expected. Could you elaborate on this? Thank you.

Mike Achary, CFO

Yes, Kevin, if you look back at our guidance from the third quarter, it might have suggested a net interest margin that was around 5 basis points higher than what we achieved. We are pleased with our result of 3.68%. It’s a significant achievement to increase our net interest margin by 14 basis points in one quarter. While that isn’t as remarkable as the 50 basis points increase from the previous quarter, it is still a solid gain. The main reason it didn’t rise as much as we anticipated this quarter relates to the decline we saw in demand deposit account balances, which decreased by about $700 million between the last quarter and this one. Those deposits are very influential on our balance sheet. Additionally, factors like the 4% nine-month certificate of deposit and the need to adjust our overall deposit costs upwards contributed to the net interest margin not reaching the levels we expected for this quarter.

Kevin Fitzsimmons, Analyst

Thank you for your comments. I appreciate your insights on our expectations for deposit growth and the role of our bond portfolio. Currently, our balance sheet remains very liquid, with a loan-to-deposit ratio around 80% or slightly below. When considering whether to increase that ratio, it's important to weigh the strategies of pursuing more deposits versus being proactive. Some banks have faced margin pressures recently by front-loading their deposit beta, but our liquidity position might suggest a different approach. Could you elaborate on how you perceive the loan-to-deposit ratio dynamics and whether you anticipate deposit growth in each quarter, or if that depends on the circumstances?

Mike Achary, CFO

Yes. I’ll start, Kevin, and I’ll pivot over to John after to let him talk a little bit about our strategy to grow DDA deposits from core customers. But certainly, the way we’re looking at 2023 is really to be in a position where between the runoff from the bond portfolio that we’ll use to fund loan growth, between that and any difference really coming from deposit growth, that would really be kind of the most optimum way that we’d like to manage the balance sheet from a loan deposit perspective. And I think that we’re certainly doing some proactive things to ensure that we kind of get a jump on that. We talked about the 9-month CD at 4% that we did last quarter. And even right now, we have a 4.5% nine-month CD that we think will be very helpful in terms of adding some liquidity to the balance sheet. We’re not really willing to give up a lot in NIM on the front end, certainly not a significant amount of it to kind of warehouse liquidity. But we do think that what we’re doing is a good mix between some proactive actions and then certainly some ability to maintain a little bit higher NIM going forward. So hopefully, that makes sense. So John, if you want to talk a little bit about DDA?

John Hairston, President and CEO

Sure. I have a few points to add. Regarding your earlier question about fourth quarter net interest margin, we've previously indicated that as commercial line utilization starts to return to pre-pandemic levels, we still have quite a ways to go. As this occurs, we typically observe some of the available funds from those relationships being spent. While there is some disintermediation of available funds to interest-bearing accounts, the primary reason for this is not account loss; rather, it involves customers just spending their money, which can actually be positive for the economy. The line utilization increased by approximately 106 basis points this quarter, one of the largest increases in the past three to four quarters. Although the fourth quarter usually sees some decrease, the increase was substantial. Much of this decrease reflects the behavior and oversight decisions of commercial clients as they manage their balance sheets. With available funds out and variable funds being utilized as part of this line utilization rise, the spread won’t be as appealing as when those funds are still on our balance sheet. That's just another point to consider. Looking ahead, we had very limited digital capabilities for gathering deposit accounts a year ago, but we’ve made considerable tech advancements in the last 12 months. As this development comes to completion, we expect to gather more client accounts digitally. Additionally, our treasury services team remains competitive with large organizations, and we are continually adding professionals to that team, including one yesterday focused specifically on payment cards. Consequently, I anticipate an increase in operating accounts. In areas of our business experiencing disruptions, as integrations progress, we’ll be actively working to move clients onto our books, which should help counterbalance any outflow. One detail that might be too specific for this call is our incentive plans, which are designed to be flexible. A year ago, liquidity deployment was a major priority, and it remains crucial for gathering deposits. There will already be a noticeable shift to deposit campaigns driving our bankers' compensation, which typically produces strong results. The company's capacity to gather deposits and loans exceeds the guidance we’re providing, but this guidance is mainly based on the expectation that the quality of our portfolio will prove more valuable than mere growth. Therefore, our focus for 2023, and possibly into 2024 depending on economic conditions, is on stability and earnings, positive credit results, effective sales teams, and maintaining strong profitability relative to our peers as we navigate this cycle. This aligns with the expectations around the recessionary period. That may be more detail than you were seeking, but I wanted to make sure we addressed your question thoroughly.

Kevin Fitzsimmons, Analyst

No. very helpful. Yes. Very helpful, John. One quick follow-up to what Brad had asked about before, the impact to the margin when rates start going down. But you guided in here on the margin that the margin peaks when the Fed is done or after the Fed is done. But if we don’t have a pivot right away to cutting rates, when we’re just stable like that, can you and would you expect to be able to keep the margin stable, or is it more likely that we have some grinding lower, just given the lag of funded costs going higher?

Mike Achary, CFO

Yes. Kevin, this is Mike again. Certainly, our intention and the way we look at managing the balance sheet and the Company would be in that environment to maintain a stable NIM. Now, stable NIM could mean that we could have a quarter where it could be up 1 basis point or 2 or down 1 basis point or 2. And so, other than things like loan growth and what we’re able to do in terms of expanding customer relationships, probably the biggest determinant of really what happens when the Fed stops is what happens to our deposit balances, namely DDAs. And so, again, you can appreciate the focus that we have on that component of our customer relationships and a desire to continue to build on that.

Operator, Operator

The next question comes from the line of Jennifer Demba with Truist Securities.

Jennifer Demba, Analyst

Just curious as to you made some comments in your forward guidance on loan loss reserve and provisioning and net charge-offs. I’m wondering, John, how you’re feeling about the loan portfolio right now? And what pockets you feel are most vulnerable in a higher rate environment? And some companies have pointed out they’re worried about office down the road. I’m curious how you guys would characterize your office exposure at this point.

John Hairston, President and CEO

Thanks. Great question, Jennifer. I’m going to let Chris take the first whack at that one and then I’ll follow up.

Chris Ziluca, Chief Credit Officer

Yes. Hi. So, as it relates to kind of segments of the portfolio that might be more vulnerable, and your comment about office, obviously, those customers that are probably in a floating rate environment and are maybe a little bit more levered are things that we’ve been looking at. And we’ve stress tested those loans in our portfolio and feel confident that they could largely withstand the current environment and maybe the rate rises that are anticipated in early 2023. But we continue to watch that and think about the impact there as well as, obviously, those customers that are impacted by some of the rising costs that are being incurred, especially ones that are more labor-intensive with labor costs going up, just really keeping an eye on that, but no specific worries or concerns in that regard. And then, as it relates to kind of our office portfolio, I think one of the things that we’ve been stressing for a long time now, even before I got here almost five years ago, is that we’ve been shifting our focus away from traditional office to more medical office, which I think has helped us a lot. And a lot of our office tends to be kind of mid-rise type office, not necessarily the high-rise type buildings that rely upon large tenants to take large amounts of space or the re-tenanting risk. It’s not to say that there may be some risk in office in general, but we feel fairly confident that in the markets that we operate in as well as the type of office that we’ve done and the more focus around medical office that we’re probably less worried than some would be.

Operator, Operator

The next question comes from the line of Brett Rabatin with Hovde Group.

Brett Rabatin, Analyst

I wanted to ask about the expense guide, 6% to 7% and 4% to 5%, excluding the FDIC and pension. You look at the past two years, and you’ve been able to manage expenses flat, and I noticed you took out slide 28 that showed the hires. Can you maybe walk through and give us some color on what things you’re going to have higher expenses on in the coming year, maybe any initiatives that might be taking place that might also benefit the longer-term profitability of the Company.

Mike Achary, CFO

Yes, Brett, this is Mike. We provided guidance in two ways. One of them includes the higher pension and FDIC expenses. Those amounts are significant, with pension expenses differing by $11 million and FDIC by about $5.5 million. These are important factors that increase the expense base. When we adjust for these amounts, we anticipate expenses will rise by 4% to 5%. This comes after a year where expenses actually decreased by 1% between 2021 and 2022. The main driver of this increase will be personnel expenses, including the normal raises expected for 2023, projected at around 4%. Additionally, some technology investments will continue as we invest in the Company. We plan to make some new hires next year, though probably not as many new bankers in 2023 compared to 2022. Overall, we remain opportunistic about these opportunities. Therefore, when we look at expenses in 2023, it reflects a normalization of our expense base moving forward, excluding the significant increases in pension and FDIC.

Brett Rabatin, Analyst

Mike, I'm sorry, please continue.

John Hairston, President and CEO

That's okay. What I wanted to add was that when you consider the two biggest items, which are pension and FDIC, it's clear that you can't recover the FDIC expense. On the pension side, there is a chance that market changes this year or next year might reverse some of the current trends. Although it’s challenging to deal with these expenses this year, they should turn around and become more beneficial. We expect this to have a positive impact either next year or the following year. Regarding your point about new investments, we have indeed been allocating significant funds toward technology. These are not just catch-up efforts; they involve forward-looking upgrades that enhance our efficiency and scalability, enabling our bankers to expedite operations. Much of this implementation is ongoing and should be completed early this year, leading to efficiencies that could positively affect our expenses as we approach the year's end. While I wouldn’t call it a bubble, the pension factors somewhat inflated the numbers, with the rest being genuine investments in our future. In terms of hiring new bankers, we're planning to add around 10 to 20. The key difference lies in the types of professionals we expect to recruit next year. Previously, with excess liquidity, we focused on middle market and specialty bankers to help us enter new markets. However, in 2023, we will emphasize sectors involving full relationships, leaning towards hiring more small business bankers, commercial bankers, and treasury sales staff. This represents a shift in our approach, but we remain committed to attracting top talent that aligns with our values and credit standards. I'm optimistic that we will secure some excellent candidates as we enter 2023.

Brett Rabatin, Analyst

Okay. Yes. That’s great color. And obviously, you’ve managed the efficiency ratio well here in the past two years, downward. I wanted to maybe take the deposit question in a different way. I was just thinking about the DDA and non-interest bearing DDA and that being hard to predict. Would you happen to have handy balances for commercial or retail pre-, during and maybe post-pandemic current quarter in terms of the size as maybe a way to see how much liquidity like customers have drained out of their accounts.

Mike Achary, CFO

I don’t have that per se, Brett. But, what I can share in the way of color is, if you look at our deposit book and kind of think about it in DDA deposits and then basically everything else. When you look at DDA, about 70% of our DDA deposits are commercial in nature. So, 30% consumer. When you look at everything else, it flips a little bit, and it’s about 60% consumer and about 40% commercial. So, if you think about the pandemic impacts and you think about things like surge deposits, and if you assume that most of that came from the commercial side, then yes, we probably had our fair share of that. And certainly, that was helpful in increasing our mix of DDA deposits to nearly half. And certainly, that’s come down a little bit. We’re at around 47% or so at the end of the quarter. And we certainly have guided to that number probably continuing to trail down a little bit as we go through an environment where rates kind of stabilize at a higher level. So, not a direct answer to your question, but hopefully, that’s some helpful information.

Operator, Operator

The next question comes from the line of Michael Rose with Raymond James.

Michael Rose, Analyst

I wanted to ask about slide 7. I understand that growth is expected to slow next year, but there has been some positive momentum from mortgages, which you mentioned in the slide. What are the expectations on that front? Additionally, can you elaborate on the specific areas where you are limiting commercial real estate growth and what the challenges are? I'm looking for insights into the factors affecting this. You also mentioned that continued line utilization growth is one of the tailwinds. How much of that will come from reducing some lines versus your customers actually drawing down funds, considering the current economic environment? Thank you.

John Hairston, President and CEO

You can start with mortgage and I’ll get back to the rest.

Mike Achary, CFO

Yes. So on more mortgage, Mike, you can see that we’re up about $250 million or so this quarter. And really, about two-thirds of that is really attributable to our onetime close product, again, on the mortgage loan side. We’ll have those kinds of impacts. In fact, they will probably increase a little bit related to that product in the first quarter and second quarter, and then really kind of begin to trail down. So, the components of our overall growth attributable to mortgage and that onetime product will be rather significant for the next quarter or two, and then again kind of trail off.

John Hairston, President and CEO

I’ll begin with line utilization. I do not expect a significant drop in overall line availability as we adjust the limits on a customer-by-customer basis during renewals or in cases of covenant issues. This has not been a problem so far and I believe it will not be an issue in the future, apart from occasional minor situations. Looking at page 7 in the top right, pre-pandemic utilization was just over 48%. The trends in 2021 and 2022 appear positive and are likely to remain stable. Depending on the quarter, we can expect an increase in line utilization of between 50 and 150 basis points, unless there is a substantial negative shift, which we do not foresee. Therefore, we expect to have a supportive trend over the next three years to return utilization to previous levels. Additionally, our business banking and commercial banking segments are expected to keep growing. Our middle-market team will focus on accounts that usually bring their operating accounts with them. The core business of the company, which creates opportunities for full-service relationships, will continue to expand. We are concentrating on this due to the anticipated need for liquidity in the coming years to support loan growth. Sectors that may face challenges this year are those that do not have excess liquidity. Assuming there is no significant economic downturn to affect our outlook, I expect to see commercial real estate, healthcare, and the capital markets segment of equipment finance remain relatively stable this year. These sectors have enjoyed solid growth over recent years when liquidity was affordable, but conditions have changed. Even though the yields in these areas remain attractive, raising liquidity at less favorable prices will compress net interest margin as interest rates rise and stabilize. Our slower growth is not due to a lack of capacity. Instead, it is about ensuring profitability, earnings efficiency, and net interest margins are protected during periods of volatility. We may be overly cautious, and if we manage to attract deposits more effectively than we expect, loan growth could exceed our current projections. However, given the uncertainty about the economy, it’s challenging to set any guidance beyond what we consider reasonable for 2023. Should conditions allow, we may see deposit growth that exceeds our current estimates, leading to a faster growing balance sheet than we initially anticipated.

Michael Rose, Analyst

Maybe just one quick follow-up. It looks like you guys benefited from some storm-related gains this quarter on the expenses. Do you have a sense for what the dollar impact of that was? Thanks.

Mike Achary, CFO

Yes, Michael. So, for this quarter, that was right around $3 million, and that was related to Hurricane Laura. And as a reminder, it seems like these days, we pretty much have those kinds of recoveries almost every year. Now, we had one last year in the fourth quarter related to Hurricane Michael, and we’re likely to have another one at the end of this year related to Hurricane Ida. So hopefully, that’s helpful.

John Hairston, President and CEO

Not part of the core business model we intend to have, but it does tend to happen frequently.

Operator, Operator

That concludes today’s call. Thank you. You may now disconnect your line.