Earnings Call Transcript - HWC Q4 2024

Operator, Operator

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. 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, 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, 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 ramped 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 stake and the Tampa-St. 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 7 of the Investor Day. We are also pleased to announce a multiyear 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 multiyear 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. Expressed as a return on average assets that continues to be a peer-leading 1.89%. Our NIM expanded 2 basis points to 3.41%, driving modest growth in NII. 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 brokered deposits matured during the quarter and were not replaced. 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 5 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 assumed three rate cuts in the second half of 2025. We did model the impact of one and zero rate cuts in 2025 with results that were modestly favorable. 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 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 of 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 remained 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, President and CEO

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

Operator, Operator

Thank you. The floor is now open for questions. Your first question comes from the line of Michael Rose of Raymond James. Your line is open.

Michael Rose, Analyst

Hi, 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. I know you guys have expressed 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 earn-back 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. I think 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. When we get to that point with the potential transaction, we've really put ourselves kind of then blackout. So the way we view buybacks going forward is, I think at the very least, we will 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. There is 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, Analyst

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 SNIC 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, President and CEO

Yes, Michael, this is John. Thank you for your question. I will begin, and Mike and Chris can add any additional details if they would like. You mentioned that one of the main factors boosting our confidence is that we no longer need to reduce $600 million as we adjust the SNIC concentration to 10% or below, which has been accomplished. As a result, we don't have the contract affecting the net growth numbers from the start. Moving forward, our focus is primarily on core conventional growth. Our mortgage business may be a slight setback as we shift towards secondary fee income. However, as interest rates increase for mortgages, we are looking at our balance sheet needs beyond just the fee income. If rates become appealing enough for high-quality deals, we might retain a bit more mortgage on the books than the 12% we had last quarter, where we sold 88 and kept 12% in dollars. The pipeline for business banking and small business remains robust, and customer sentiment in that sector is very positive. We anticipate being able to hire more business bankers throughout 2025, following our success in Q4. This should be a growth driver for the year. After several quarters of stagnation, we are advancing to the next sector, which we refer to as commercial banking. This segment, larger than small business but lower than middle market, had been relatively stable for a while. However, we've noticed improvements in the pipeline, and payoffs have decreased. We expect growth in this area as we progress through 2025, with an anticipated increase of 25% in the first quarter, which hasn't occurred in the past few years. Demand in the middle market and corporate banking is steady to strong, primarily driven by our decision not to impose paydowns this year. In addition, while we have experienced some pressure in the healthcare portfolio and in the commercial real estate sector, production levels in Q4 were strong, and we predict an uptick in the same areas through 2025, which will help make commercial real estate a growth engine in the latter half of the year. Equipment finance is also showing strong growth with reduced pressure from paydowns. The only downside in this situation, Michael, is competition from our peers. We are committed to maintaining our credit term expectations for these growth figures. However, in sectors like equipment finance and commercial real estate, the presence of numerous nonbank competitors could lead to some pressure on the yields of new business, which we did observe in Q4. Our confidence remains high for achieving this growth throughout the year. Even though we are primarily expecting an increase in the latter half of the year, we do anticipate some growth in Q1 and Q2, which should provide us with a clearer understanding of how we can reach that mid-single-digit growth level. If there is further disruption around us, it may create opportunities to hire bankers more quickly, which would also be beneficial. Do you need any more clarification?

Michael Rose, Analyst

No, certainly appreciate the color. 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? I 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

Yes, I appreciate that question, Michael. But again, as we kind of indicated in the deck itself, we are going to update our guidance to be inclusive of Sabal probably after the first quarter. So if you would 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. 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 threshold. I think, when we get around to talking about the results and the returns, it will be something that people will appreciate.

Michael Rose, Analyst

Perfect. Thanks for taking all my questions.

Mike Achary, CFO

You bet. Thanks, Michael.

Operator, Operator

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

Matt Olney, Analyst

Hi, 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 appreciate 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 are additional opportunities in wealth management with respect to M&A? Or is the Sabal deal more of a one-off?

John Hairston, President and CEO

I will start with the core wealth management questions, and then Mike can address the M&A part in more detail. First, we have been in the trust business for 100 years, so it is not a new area for us. Over the last decade, we have focused much more on it, and this emphasis has been ongoing for about ten years. In 2018, we announced the Capital One asset management transaction, which increased our overall wealth book by 50% or 60%. We brought in strong talent through that deal and subsequently. This helped us gain scale to pursue larger, more profitable clients with additional fee opportunities in other areas that positively impacted our bottom line. Our partnership with Sotera has broadened our exposure to more investment platforms and advisers nationwide, allowing us to compete more effectively, especially in larger opportunities in Texas and Florida. The acquisition of Sabal enables us to leverage about 30 years of their work in building an excellent organization. Being able to incorporate that into our largest wealth management state in Florida is a significant achievement. It aligns with our goal to have wealth management income represent at least one-third of our overall fee, and we have already reached that threshold. Sabal will further boost that figure. Moving forward, we have announced a robust growth plan focused on adding talent, specifically wealth management advisers whom we will hire organically. This is a crucial aspect of our organization, regardless of whether it's through organic or inorganic means. Mike, would you like to take over the discussion on the inorganic opportunities?

Mike Achary, CFO

Yes. Just a couple of thoughts, Matt. First off, we couldn't be more pleased with the transaction. We are thrilled for the addition and eager to get moving with the new addition to our company. 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, it is the perfect add-on to that. It is a tremendous acquisition of neighborhood of over 50 revenue producers on the trust side and a great base of our customers. 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. John mentioned on the opening comments, the potential to add banking locations that will be companions to Sabal’s locations. 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. We are 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. 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. We are open to all sorts of opportunities. I wouldn't say that strictly non-bank or trust. Certainly, we are open to depository institutions going forward as well.

Matt Olney, Analyst

Okay. Appreciate the commentary on that topic. And then on that organic growth strategy, you gave us the map there on Slide 8, as far as the footprint and kind of the planned hires, I see several green stars in Texas and planned hires in the states, also mentions of the new financial centers in Dallas in 2025, just update us on your current footings in Dallas or in Texas and leadership. And I guess, just remind us kind of what the growth strategy is. Is it going to be more middle market C&I or will it be something else within the state?

John Hairston, President and CEO

It is a great question, Matt. I mentioned adding wealth advisers earlier. 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. 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 system when they go through succession or liquidity moments. 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. 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. Frankly, it kind of surprised me because the fourth quarter is typically the hardest time to add business purpose bankers due to the way the incentive teams are structured. Typically, there is a big annual settlement that occurs in Q1 for the prior year, and so it is tough to add people during that time, but we were able to. 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. 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 are 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 '26. 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 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 complemented to where we have offices and leadership already deployed. Those five are not open yet, but we are 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. 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 will take good talent in all of our footprint. If disruption occurs, a place other than in where we are in Texas and Florida, then certainly, we would be deeply interested in moving teams or individual players that they would prefer to be with us and go through what they may go through elsewhere. 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, Analyst

No, that's great. Appreciate the commentary.

Mike Achary, CFO

You bet. Thank you.

Operator, Operator

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

Catherine Mealor, Analyst

Thanks, good afternoon, everyone.

Mike Achary, CFO

Hi, Catherine.

Catherine Mealor, Analyst

I wanted to ask about the increase in your credit size commercial loans. Can you just give us any color as to what type of loans these are, the size, just any kind of commentary about the potential risk in that increase this quarter? Thanks.

Chris Ziluca, Chief Credit Officer

Hi, Catherine, 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 of 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. 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 are 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 health care and related sectors. Those were some of the areas that probably gave a little bit away in the criticized migration during the quarter. 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 is really a situation that's affecting individual borrower that they just have to kind of work through. In others, it is really more of a softening of demand on the revenue side and in other areas, it is really just kind of the higher operating costs and being able to rationalize expenses. There is a variety of different factors at play. 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. At this point in time, we don't feel that there is 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 keeping in mind that we continue to operate at better than peer average in all of our AQ, even in the charge-off area.

John Hairston, President and CEO

Catherine, this is John. I appreciate the question, and I will add this. What you are 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 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'd be obviously very disappointed that, we built a very healthy loan loss reserve. We've got a war chest of capital and 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’re asking.

Catherine Mealor, Analyst

No, it does. And I think a follow-on that, you say in your 2025 guidance that you expect modest charge-offs and provision for '25 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 feel like in the past, you've talked about modest charge-offs and showed us have kind of covered around 20 basis points or so. Is that a fair assumption for what we should expect for '25?

Mike Achary, CFO

Yes, Catherine. This is Mike. And yes, 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, President and CEO

Catherine, I apologize for interrupting you. Please go ahead.

Catherine Mealor, Analyst

No, go ahead.

John Hairston, President and 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 is hard to do that, too. 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 in our NCOs. We really are a C&I bank. 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 seller 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. 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 and just like it has the last several years versus the pandemic.

Catherine Mealor, Analyst

Great. Very helpful. Thank you.

John Hairston, President and CEO

Okay. Thank you. Did you have another question?

Catherine Mealor, Analyst

No, good. I will step out of the queue.

John Hairston, President and CEO

Thanks, Catherine.

Operator, Operator

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

Ben Gerlinger, Analyst

Hi, good afternoon everyone. I know you have set ambitious goals for hiring and expanding financial centers and branches. John, as you mentioned, you are currently running with 25 bankers. Is that stable? When you consider deals, you theoretically have the capacity for organic growth similar to your peers who might have a higher valuation. What would it look like if you were focusing on mergers and acquisitions? Is it primarily about increasing deposits, or would that be additional to an improving growth forecast? I'm just curious about the decision to move away from the organic hiring plan.

Mike Achary, CFO

Yes, 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 to anything that we do on the inorganic side. Obviously, with the transaction we just announced with Sabal, that's a nod toward non-bank M&A that will complement our wealth management line of business. Any depository M&A, I think, will be an absolutely complementary way of growing that would be consistent with the organic growth plan and the new bankers that we are hiring. Nothing is certain in banking going forward. While I think we are signaling an openness to bank M&A, certainly with a preference towards growth markets like Texas, Florida as well as places like Tennessee, there is certainly no certainty that the right opportunity that fits the criteria that we hold near and dear to our hearts will come to pass. 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. Hopefully, that makes sense.

Ben Gerlinger, Analyst

Makes sense. Is there nothing to dig too deep into it? I know banks are sold, not bought. But is there like a relative size of balance sheet you're looking to partner with?

Mike Achary, CFO

Yes. Look, nothing is certain, but I think if we think about size parameters, something along the range of maybe one-third of our current size would be we think opportunity. However, having said that, if a smaller opportunity comes up that fits what we are looking to do, but 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, Analyst

All right. That's helpful color. Thank you.

Mike Achary, CFO

Thank you.

Operator, Operator

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

Brett Rabatin, Analyst

Hi, good afternoon everyone.

John Hairston, President and CEO

Hi, Brett.

Brett Rabatin, Analyst

I wanted to discuss the expense guidance. It's clear that expenses were somewhat lower in 2024. Could you elaborate on how much of the growth in 2025 will be a return to normal or linked to the incentive plan, in contrast to 2024? Also, do you have any insights on the incentive compensation in 2024 compared to 2025, considering the increase in expenses?

Mike Achary, CFO

Yes, great question, Brett. The way that I'll approach that is to just kind of remind you of the guidance that we are giving for '25 for expenses. So we're looking at this range of between 4% to 5%. Obviously, that's a step-up from let's call it basically the flat level that we experienced in '24 versus '23. 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. If we didn't have the organic growth plan, the expense guidance, I think, would be in the neighborhood of 3% to 4%. I hesitate to put an exact number on the incentive comp piece just because it is something that is earned and could certainly 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. Hopefully, what I've laid out gives you a little context around how we are thinking about the expense levels for next year.

Brett Rabatin, Analyst

Okay, that's helpful. I mentioned it was a bit lower, but actually, as you said, it's a bit higher. I wanted to discuss the betas in relation to the cycle and the expectations on Slide 19. When examining the total deposit betas and loan betas, are you noticing anything surprising regarding loans or deposits in relation to current rates? Would you characterize the market's behavior as expected in relation to the rates? It appeared that early on, some were attempting to shift market share. Do you have any thoughts on the speed of betas from here in either of those areas?

Mike Achary, CFO

Yes. On Slide 19, I think probably the most important part of that little table at the bottom is the guidance that we are giving around our expectations really for the entire cumulative cycle. So that's really how we kind of think about that. Quarter-by-quarter, I think a focus on the specific betas that happened in the quarter can be a little bit misleading, especially when you have rates that maybe move faster or slower than folks had anticipated. To answer your direct question, no, there is 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. It is certainly something that we find conducive actually to our strategy around what we are trying to do with deposit pricing. 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 is the better part of our entire CD book. As we look into 2025, we see that book potentially turning over maybe twice over the course of the year. Depending on what happens with rates, that could certainly be a big driver of our continued efforts to reduce our cost of deposits. I would certainly be remiss if I also did mention our DDA balances. For the first time in two years, we were actually able to increase those balances; we ended the year at 36%. Next year, we see an opportunity to grow that to maybe the 38% level or so. When we think about our margin expansion opportunities in '25, balance sheet growth is a big component of that, but continued repricing and continued attention on the deposit book is certainly a big component as well. That was probably a little bit more of an expansive answer than the question you asked, but hopefully, it was helpful.

Brett Rabatin, Analyst

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

Operator, Operator

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

Gary Tenner, Analyst

Hi, good afternoon. I wanted to follow up regarding the CD repricing. Mike, can you remind us of the CD maturities for the first quarter and what the current rate and expected renewal rate look like?

Mike Achary, CFO

Sure, I'd 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. For the year as a whole, I had mentioned that we see the CD book potentially turning over twice. 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, Analyst

Got it. Thank you for that. And then in terms of the bankers, if you think of the seven in the fourth quarter and the 28 that you're planning on hiring in 2025. Could 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, President and 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 and 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. They're at 90 days or 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 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. I think, I would suggest that the '26 impact will be bigger, and we can quantify that for you as we get to the '26 guidance, is what's coming from the team that we actually have hired. Is that helpful?

Gary Tenner, 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, President and CEO

About, let's see. In the business banking space, that would be probably about 15% increase in the total workforce over it. Adding to '26 plan into that number to give it. About 15% to 20% more business bankers by the end of 2026, about 10% wealth advisers and about 10% commercial bankers.

Gary Tenner, Analyst

Thank you very much.

John Hairston, President and CEO

You bet. So when 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. We typically have about an 80% success rate from the bankers that we hire.

Operator, Operator

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

Stephen Scouten, Analyst

Yeah. Thanks good afternoon. Just kind of follow up along that 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 in the SNIC portfolio and other dynamics that might precipitate growth?

John Hairston, President and CEO

Yes, very modest impact in the guidance that we gave for 2025. It would be important that we get to that level of hiring and have at least an 80% success rate for the hires to attain the CSO levels at the upper end of the boundaries that we gave by the end of 2026. Does that you follow me?

Stephen Scouten, Analyst

Yes. That makes perfect sense.

John Hairston, President and CEO

Yes. The guidance we are giving for this year really has all the negative of the expense carry and very little of the positive because it will take a little while for them to get their books up to target operating model level.

Stephen Scouten, Analyst

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, President and CEO

Sure. I think we received a question earlier about the challenges and opportunities we face. The lack of a significant SNIC runoff is certainly the biggest factor contributing to our growth. Our production over the past year was decent, but we experienced some leakage due to the SNIC takedown, which amounted to about $600 million. Additionally, we observed a considerable number of commercial real estate transaction payoffs, mainly from new non-bank entrants in that sector. While I don't expect CRE payoffs to disappear, I believe our current production levels and the size of our pipeline suggest that we can exceed those payoff levels as the year progresses. If I had to identify some promising areas, I would highlight commercial real estate, health care, equipment finance, and commercial banking, particularly in the below middle market sector. There is also a strong indication of growth in small business and business banking. However, the only area that remains weak, where we've struggled to gain traction, is in consumer loans, particularly those affected by interest rates, such as mortgages.

Stephen Scouten, Analyst

Got it. Extremely helpful. And then I think someone made the comment, maybe it was Michael Rose, that you guys kind of recognize that your stock has been maybe underappreciated over the last few years traded at a discount. What do you think 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, President and CEO

Yes, Stephen. This is John. I promise Mike, I would stop winding about the stock price not matching the performance of the company. So I'll defer him – I’ll defer the question to Mike.

Mike Achary, CFO

Instead of winding about what maybe the market isn't getting, I think the best way to have that discussion is to think about what we've accomplished, let's say, over the last four or five years. We are 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 derisking the balance sheet and derisking the loan book and building reserves, vowing to become more profitable and more profitable banking company, vowing to become a more efficient banking company, and then finally grow our capital levels. By the time we got to last year, we had demonstrated significant progress and excellence on all four of those fronts. '25 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. 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 an ambitious organic growth plan. Doing all of that at the same time while maintaining pretty good asset quality numbers. Certainly, there has been some normalization, but they're still extremely good from our perspective. Producing results in the neighborhood of an ROA of 140 basis points and keeping our efficiency ratio below 55%. To us, that seems like a pretty good banking company and one that certainly is worth consideration. John, anything to add?

John Hairston, President and CEO

Yeah, no. You did it well.

Stephen Scouten, Analyst

Appreciate that guys. Thanks so much.

John Hairston, President and CEO

You bet. Thanks for the question.

Operator, Operator

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

Christopher Marinac, Analyst

Thanks. Good evening. Wanted to ask Chris a question about C&I utilization. I'm 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

Yes, I will provide a brief overview, and then John can add any comments he might have. We have spent considerable time discussing our Commercial Real Estate (CRE) and Commercial and Industrial (C&I) portfolios. From the C&I perspective, there seems to be a bit more clarity regarding how companies are perceiving potential challenges, particularly in terms of their investment intentions. On the CRE side, customers are now eager to continue developing their projects. We have completed some projects and are looking at new ones that are set to start soon, and we are actively involved in those decisions with our clients. Much of this is influenced by the higher interest rates that led to some caution in 2024, as well as the uncertainty surrounding the election process. Ultimately, reaching a conclusion in this process is less important than understanding where investors feel secure enough to invest. This situation is likely to create additional opportunities in both the C&I and CRE sectors.

John Hairston, President and CEO

Chris, this is John. I want to expand on that. I wish the answer were as simple as the question. It’s a straightforward question, but Chris brought up the CRE impact on line utilization, which is important to consider in context. Last year, we produced several hundred million dollars worth of new CRE construction projects that are currently carrying nearly a zero utilization rate. This somewhat artificially lowers the reported line utilization because many projects have been completed and sold compared to new bookings that haven't yet tapped into their equity before reaching ours. As we move into Q2 and Q3, the volume booked last year will deplete their funds and start borrowing against their lines. This will naturally increase the CRE line utilization numbers and consequently raise the overall line utilizations for the loan book, which will be a positive development. Additionally, our C&I utilization levels, as you noted, have remained very stable. While we would love to see them increase, as it only costs us the liquidity for that to happen, higher line utilization is quite profitable. It also reflects the quality of the C&I book because our clients have enough liquidity not to utilize those lines as heavily as they typically would. There’s some seasonal line utilization from certain sugarcane and timber operators who temporarily increase then pay down, but overall, it has been a healthy and stable book, albeit about 700 basis points below pre-pandemic levels due to our available liquidity. This presents both positive and negative aspects. Part of the support for loan growth numbers is our expectation that some of the borrowing from last year's issued commitments will start appearing on the balance sheet in late Q2 and through the latter half of the year. Was that the detail you were looking for?

Christopher Marinac, Analyst

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 would that new loan rate that we see in the deck every quarter, would that actually stabilize if demand is getting stronger and the treasury markets backed up just a little bit this month?

John Hairston, President and CEO

You mean on the new money spreads?

Christopher Marinac, Analyst

Correct. Yes.

John Hairston, President and CEO

You want to stab with that?

Mike Achary, CFO

Yes, I think it would, Chris. Absolutely.

Christopher Marinac, Analyst

Very well. Thanks for the additional color. And we appreciate you hosting the call.

John Hairston, President and CEO

You bet. Thank you.

Operator, Operator

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

John Hairston, President and CEO

Thanks, Jay, for moderating the call. The only parting statement I want 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 and great earnings in the middle of a snowbound wind blowing sideways out of our window in New Orleans. It has 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, Operator

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