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Hancock Whitney Corporation (HWC) Q1 2019 Earnings Call Transcript

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Hancock Whitney Corporation  (NASDAQ: HWC)
Q1 2019 Earnings Call
April 17, 2019, 9:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Hancock Whitney Corporation's First Quarter 2019 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. (Operator Instructions) As a reminder, this call may be recorded.

I would now like to introduce your host for today's conference, Trisha Carlson, Investor Relations Manager. You may begin.

Trisha Carlson -- Manager of Investor Relations

Thank you and good morning. During today's call, we may make forward-looking statements. We would like to remind everyone to review the Safe Harbor language that was published with yesterday's release and presentation and in the Company's most recent 10-K, including the risks and uncertainties identified therein. 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 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.

In addition, some of the remarks this morning 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 M. Hairston -- President and Chief Executive Officer

Thanks, Trisha, and thanks, everyone for joining us today. As noted in yesterday's press release, we are pleased with results for the first quarter. And what can typically be a seasonally low quarter, our bottom line was only slightly down from the fourth quarter after take into consideration unusual items in both periods.

On a reported basis, EPS for Q1 was $0.91, down $0.19 compared to $1.10 in Q4. The majority of that $0.19 difference was due to the $0.11 favorable impact of certain tax reform strategies we executed last quarter. Then in the next quarter, we added $10 million or $0.09 per share to the provision for loan losses for the alleged fraud associated with the DC Solar lease. In January, we communicated our updated corporate strategic objectives or CSOs and have been discussing how we plan to achieve those goals. We have noted two key areas of focus for 2019, narrowing the gap to peers on net interest margin, and improving asset quality metrics, specifically criticized loan and NPL ratios at least to peer levels. During Q1, we made progress on both fronts.

Criticized commercial loans declined $41 million or 7% linked quarter, with a $15 million reduction in energy criticized and a $26 million reduction in non-energy criticized credits. While we won't have 1Q '19 peer results for a few weeks, the gap has narrowed significantly as shown on Slide 9. We are nearing the Q4 peer average for commercial criticized as a percent of commercial loans and remain focused on narrowing the gap further. Non-performing loans were also down in the quarter, about $4 million. Reductions of $15 million in energy NPLs was partially offset by an $11 million increase in non-energy NPLs, comprised of one credit downgrade is part of a recent SNC exam.

On Slide 11, you can see that approximately one third of our NPLs are accruing TDRs, with most of them energy credits that endure challenges during the energy cycle. Today we are working hard to reduce this level of performing non-performers. The balance sheet was relatively stable in Q1, with a small shift in the mix of earning assets out of securities and into loans. Net loans grew $86 million in the first quarter, lower than our initial guidance of between $200 million and $250 million. Higher than anticipated payoffs and paydowns, loan charge offs and a sale of mortgage loans were primary drivers of the shortfall. On a year-over-year basis however, it may be important to note that total loan production for the first quarter was up 7% compared to the same quarter a year ago, with an approved pipeline of 19% for the same periods.

We are guiding for net growth of between $75 million and $125 million for Q2, as we remain diligently focused in the near term on peer relative NIM improvement at a slightly higher priority than net growth. Our guidance for the year on average remains at mid single digit improvement. Last quarter we indicated that energy cycle was for the most part behind us. We did continue efforts to change the mix within the portfolio, while keeping the concentration level at around 5% of total loans.

If you note Slide 7, you will see today a different mix of credits compared to the end of 2014 when the cycle began. We were then at 44% RBL and midstream compared to 56% energy services. Today, we are just the opposite. 54% RBL and midstream, and 46% services, with an ultimate goal of attaining and remaining at about 60%/40%.

The second focus point for 2019 is NIM. For Q1, NIM is up 7 basis points to 3.46%. While a portion of the increase was related to the restructuring last quarter, we also saw a core improvement in yields and remain focused on adding more granular credits at a higher yield to continue narrowing the NIM gap to peers. Today, new loans are being booked approximately 100 basis points higher than one year ago, with loans renewing approximately 70 basis points higher. We are relentlessly focused on returning NIM and asset quality metrics to at least peer averages and we'll work vigorously to continue progress toward achieving these goals and our CSOs, despite recent headwinds such as the aforementioned payoffs and an inverted yield curve.

I'll now turn the call over to Mike for a few additional comments and details.

Michael M. Achary -- Chief Financial Officer

Thanks, John and good morning, everyone. Operating income totaled $87 million for the quarter, down $10.6 million from last quarter. Operating EPS was $1 compared to $1.12 in the fourth quarter. As we noted in the release, we took a $10.1 million charge through the provision for the previously disclosed alleged fraud on the DC Solar equipment lease. We have that noted in our tables as a non-operating item for the quarter.

The quarter-over-quarter reduction in operating results was related to the $10 million or $0.11 per share benefit of certain tax reform strategies implemented in the fourth quarter. PPNR of $118 million was down just $600,000 on a linked-quarter basis. John concluded his comments on NIM. So let me start there.

The chart on the bottom right of Slide 13 details the drivers of our 7 basis point increase from last quarter in our NIM. The margin expansion was mostly related to the full quarter impact of the portfolio restructuring we executed late in the fourth quarter. We had said the restructuring would add 7 basis points to our NIM spread over two quarters. So, 2 basis points last quarter and 5 basis points this quarter. In addition to the restructuring, the December rate hike helped increase the overall NIM by approximately 3 basis points, with 9 basis points of loan yield improvement, offset by about 6 basis points of higher funding costs. A change in the funding mix compressed the NIM 2 basis points, while the change in the mix of earning assets John noted earlier helped improve the NIM by 1 basis point. We expect our NIM to be flat to slightly down in the second quarter, as headwinds from the recent yield curve shift and the potential seasonal change in our deposit mix offset the positives related to our ongoing efforts to improve our loan yield through focus and pricing discipline.

Deposits were up $230 million in the quarter, with increases in interest bearing transaction, time deposits and public funds. These increases were related to new and enhanced business relationships, with some normal movement out of DDA to interest bearing deposits. These changes along with last quarter's rate hike drove most of the increase of 11 basis points in our cost of deposits.

We've already talked about the non-operating item in the provision this quarter and as we noted in the slide deck, there is a potential for some amount of recovery on that credit. Outside of that noise, provision and allowance were stable quarter-to-quarter with the reduction in the overall energy allowance funding an increase into non-energy component of the reserve. Our expectation for the second quarter provision is unchanged at $8 million to $9 million. First quarter seasonality and market conditions are the primary drivers of a lower level of fee income this quarter. Seasonality in fewer days impacted service charges and bank card ATM fees, while trust fees are still being impacted by overall market volatility.

The decline in other is related to a variety of items, with the largest linked-quarter change at $400,000. Our guidance for the year remains unchanged and we expect fees in the second quarter to remain flat, with growth in the back half of 2019. We were very happy to report a decline in operating expense in the first quarter. The typical first quarter seasonality impacts from personnel resets were offset by a shorter quarter. The move of our regional headquarters in New Orleans impacted occupancy expense. Regulatory fees, professional services, advertising and other miscellaneous items positively impacted total expense for the first quarter.

Our guidance for 2019 expense levels remains unchanged and we expect to see a higher level of expense in the second quarter due to annual merit increases. The second half of 2019 will see some increased expense levels related to new technology projects currently under way. Last quarter, we crossed the 8% mark on the TCE. Internal capital generation and a change in OCI helped drive a 34 basis point increase in TCE from 8.02% at year end to 8.36% at March 31. Our priorities for deploying any excess capital remain unchanged and we'll be opportunistic on buybacks and M&A. Overall, it was a stable quarter without a lot of noise. We do have some challenges facing us today, but we remain focused on opportunities to improve upon these results, with the ultimate goal of meeting our CSOs.

I'll now turn the call back to John for Q&A.

John M. Hairston -- President and Chief Executive Officer

Thanks, Mike. And with those comments, let's open the call for questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from Michael Rose with Raymond James. Your line is open.

Michael Rose -- Raymond James -- Analyst

Hey, guys. Good morning. How are you?

Michael M. Achary -- Chief Financial Officer

Hey, good morning, Michael.

Michael Rose -- Raymond James -- Analyst

Hey. Just wanted to dig into the fees a little bit. I understand that you're going to be expecting a big pickup in the back half of the year. I assume a lot of that's going to come in the trust business, given the acquisition. But if you could just give us some color on where you expect to really see the ramp? I mean is it kind of across the board? Just, just want to get comfort with the guidance that you guys reiterated. Thanks.

Michael M. Achary -- Chief Financial Officer

Yes, Michael. I'll go ahead and get started. So as you know, we're expecting for the full year 5% to 7% growth year-over-year and that year-over-year guidance hasn't changed. For the second quarter, we think it'll be flattish. So certainly a ramp for the second half of the year and you're right we -- we will be converting the Capital One trust and asset management acquisition at the end of May. So, that will certainly be helpful in the back half. But really when we look at the areas that we're counting on, certainly wealth management and I think card fees are the areas that we're looking to kind of help carry that load in the second half of the year.

Michael Rose -- Raymond James -- Analyst

Okay. That's helpful. And then I'll let somebody ask the loan growth question, but maybe if we could just switch to capital. So, you guys have talked about potentially getting back into buybacks in the back half of the year once capital rebuild, obviously a nice build. This quarter looks like it should continue to build from here. Can you just remind us again of your capital priorities and if they've changed in light of the BB&T/SunTrust deal in terms of potentially looking at deals or organic growth opportunities? Thanks.

John M. Hairston -- President and Chief Executive Officer

No. No change at all in the way we think about deploying capital and at the end of the quarter, TCE did get up to 8.36%. So that was up 34 basis points. Obviously, we're very pleased with that level of capital build. But in terms of our priorities, having capital ready to deploy to help us with organic growth is number one, really by far and then looking at potentially to continue to be opportunistic with buybacks, potentially shifting that to a strategic focus around buybacks, maybe in the second half of this year and then, also potentially looking at the dividend. So really no change in how we think about deploying capital or those priorities.

Michael Rose -- Raymond James -- Analyst

Okay. And then, I guess as a follow up to that, I think your share buyback expires at the end of the year. I think it equates to somewhere around 4 million shares if I remember correctly. Any thoughts on -- I know it's hard to predict that, but would you expect to -- given where your stock is, would you expect to use just about all that before it expires? Thanks.

Michael M. Achary -- Chief Financial Officer

Again, that's something we'll consider in the back half. And when we talk about strategic buybacks, it would be in the -- in the realm of potentially using up that authority. But again we're not here to signal that. That's something that's in the cards for the second half of the year. The buyback does expire at the end of the year and all things equal, I would expect us to renew it and always have a buyback of some sort in place.

Michael Rose -- Raymond James -- Analyst

Very helpful. Thanks for the color, guys.

John M. Hairston -- President and Chief Executive Officer

Thanks, Michael.

Operator

Thank you. Our next question comes from Catherine Mealor with KBW. Your line is open.

Catherine Mealor -- Keefe Bruyette & Woods Inc. -- Analyst

Thanks. Good morning.

John M. Hairston -- President and Chief Executive Officer

Cath, good morning.

Catherine Mealor -- Keefe Bruyette & Woods Inc. -- Analyst

Want to talk a little bit about the margin and really do you think about that in your path to the CSO goal? So can you help us kind of walk through what other leverage you may have within your profitability outlook or you could still reach that 1.04 (ph) CSO goal by the end of next year even if the margin remains kind of flat or do you feel like you have to have margin expansion really to be able to achieve that goal? Thanks.

John M. Hairston -- President and Chief Executive Officer

Catherine, this is John. To hit that ROA (ph) target margin expansion is a big part of that goal. The yield curve's shape that it's in right now and the amount of pressure that puts on us from a LIBOR perspective is not something we anticipate hanging around in that shape for another six or seven quarters. We don't have any better of a crystal ball than anyone else does. So it's hard to predict, but the -- all of the pressure are in substantive portion of the pressure on our NIM guidance for Q2. It's really coming from that LIBOR pressure and its impact on our variable book. We don't think that's going to stay that way, at least we hope it doesn't. And is that repairs itself the ability to take the granular improvements in the loan portfolio with dampening some of the more skinnier portions of loan portfolio simultaneously should lead to some healthy expansions.

Obviously, the second quarter guidance is not something we're excited about, but that's just simply the shape of the curve's impact on the LIBOR book. Just in terms of that granular production, without getting too far into the weeds and it's just some portions that may be encouraging. If we just look at the same quarter of the previous year 1Q '18 to '19, that granular loan production improvement is real and it's tangible. Our micro business banking group production is up 22% over the same period. Small business banking up 8%, commercial banking up 13%. And while those numbers can be overwhelmed by the exits of very large pay downs particularly in energy, they add up over the time as you go through four, six, eight perpetual quarters. And so the improvement that we should see in loan yield over time combined with some normalization of the yield curve hopefully would lead to that expansion.

Mike, you have anything else you want to add to that?

Michael M. Achary -- Chief Financial Officer

Yeah. Just to kind of reiterate and when we think about the CSOs going forward and kind of our plan or pathway to hit those targets and certainly, as John indicated, NIM is a big part of that and we achieve that through the NIM by growing loans in the segments that offer us the biggest yield pickup or potential. We also will control our deposit costs going forward. So those two parts of our plan or pathway really do focus kind of on the NIM. But it's just not completely about NIM. We also are counting on kind of outsize fee income growth, again in areas like wealth management and in cards and has always will do our diligent best to control expenses and I think you saw a little bit of that in what we were able to do in the first quarter. So we'll continue to control expenses, but at the same time, invest in additional digital capabilities. So those are really kind of the things that constitute our plan or pathway to hit those CSOs.

Catherine Mealor -- Keefe Bruyette & Woods Inc. -- Analyst

Okay. That's really helpful. Thank you. And one follow up on the deposit side. How much of the DDA outflows this quarter were just seasonal versus kind of a change in customer behavior? And how should we -- can you remind us, kind of seasonality of that, when we should except in terms of DDA balances for the rest of the year?

Michael M. Achary -- Chief Financial Officer

Sure, we'd be glad to, Catherine. So again, typically when we think about deposits, fourth quarter of each calendar year is usually the quarter where we see kind of those seasonal inflows of DDA deposits and then, also the seasonal inflows of public fund deposits as well. And when we get to the first quarter, you begin to see the DDA deposits that really kind of move out a little bit. There's usually another outflow in the second quarter primarily related to tax payments, that occurs. So we do expect to see some additional outflow of DDAs in the second quarter for that reason. I don't know that a lot of it was really related to folks moving money out of non-interest bearing and into interest bearing. Certainly that, there was probably some of that occurring. But I would not consider that to be a big factor.

The other thing that was -- I think a little bit unique and different about the first quarter is that on the public fund front, you actually saw us increase our public fund deposits instead of beginning to see those trail off. And that was related to a couple of new relationships that we brought into the bank, that enabled us to actually grow that category of deposits. So that's something certainly that we're excited about.

Catherine Mealor -- Keefe Bruyette & Woods Inc. -- Analyst

Great. All right. Thank you.

Operator

Thank you. Our next question comes from Ebrahim Poonawala with Bank of America Merrill Lynch. Your line is open.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Good morning, guys.

John M. Hairston -- President and Chief Executive Officer

Good morning, Ebrahim.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

I just had a question, John with the CSOs and the targets to improve the margin higher -- I mean that, I'm sure you've been asked this before and I apologize if you had to repeat this but, could you just talk through the logic of trying to get higher yielding loans right now like why are we not now -- like should we be as investors, be worried about the credit risk that you're taking on when you are pursuing these higher yield loans especially given where we are in the economic cycle, just talk to us in terms of why higher margin, higher yields don't translate into higher credit risk?

John M. Hairston -- President and Chief Executive Officer

Good question. And inside the loan balance sheet, the shift in overall loan yield is not coming from enhanced credit risk appetite. It's coming from a mix change, as well as perhaps a little bit better discipline and technology to follow the methodology of our pricing both from renewal and from investments. So there's no credit risk change built into those yield expectations. It's being a little bit more effective in terms of pricing our deals upon renewal and new business coming in the bank, coupled with a healthy dose of mix change. And the portfolio production improvements that I mentioned in my earlier answer, I shared that just to provide some tangible numbers around the improvement there.

So essentially a larger, skinnier transactions being replaced by more granular credits that we really don't expect to have any corresponding decay in asset quality. And keep in mind, the bulk -- the vast bulk, a very, very high percentage of both our criticized and our nonperforming loan book are in those very single large skinnier -- not necessarily skinnier now, but energy credits. So as that goes down and the asset quality overall improves, at the same time, we're having growing yield. So it produces for a year or two the interesting phenomena of improving asset quality, but higher yields. So, I know that isn't normal and it's not something that will be around forever. But as we improve the overall mix of the book, that will happen in the next year or two.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

And just tied to that, you mentioned I think 70 basis points between origination versus what's running off in terms of the loan book today. Do you expect that 70 basis points to kind of hold in a world where rates are not going high if we remain in kind of a static rate environment over the next few quarters or do you see that 70 basis points compressing, just thought process around that?

John M. Hairston -- President and Chief Executive Officer

I would -- I wouldn't venture, I guess much further than a quarter or two, it's just hard to tell given the shape of the curve. And as I mentioned before, we don't think we will be sitting on an inverted yield curve forever. But in the near term, I would expect that pricing improvement to continue in the near term.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Understood. Understood. Thanks for taking my questions.

John M. Hairston -- President and Chief Executive Officer

Thank you. Thanks for asking, very much (ph) .

Operator

Thank you. Our next question comes from Brad Milsaps with Sandler O'Neill. Your line is open.

Brad Milsaps -- Sandler O'Neill Partners Holdings, LLC -- Analyst

Hey, good morning.

John M. Hairston -- President and Chief Executive Officer

Good morning.

Brad Milsaps -- Sandler O'Neill Partners Holdings, LLC -- Analyst

John, I've just got a few, if you can maybe just add any more color. I think, I heard you mentioned a larger SNC credit that was added, you have a lot of pluses and minuses in the non-accrual, but just any color on that one if there was any specific industry or otherwise that if you could give us additional color on?

John M. Hairston -- President and Chief Executive Officer

Chris, would you like to handle that question?

Christopher S. Ziluca -- Chief Credit Officer

Yeah. We already had the account in a classified loan status. So it was really more of the SNC exam process viewing prospects of that credit, maybe a little bit more conservatively during this period. It was not in an area that we typically do a lot of business in and it certainly wasn't in the energy sector.

Brad Milsaps -- Sandler O'Neill Partners Holdings, LLC -- Analyst

Okay. Great. And I know it's not like an explicit part of your guidance, but just curious if you guys had any sort of loose goals on kind of where you wanted to see the NPL, TDR numbers? And by the end of 2019, I know it's -- there's a lot of moving parts, but just kind of curious kind of what you guys were thinking in that regard?

John M. Hairston -- President and Chief Executive Officer

Well, obviously the right answer is down, improving to -- continue to improve each quarter. I think we're at four or five straight quarters of improving criticized commercial credits. And I'd be disappointed if that didn't continue throughout the remainder of this year. If you just do and I'll -- I don't want to get into quarter-by-quarter guidance on that type of a number, but directionally, if you plot the rate of improvement and the size of the book, and you look at Page 9 of the investor deck, the shape of that curve would indicate an intersection out somewhere around the end of the year or first half of '20. Obviously, it becomes somewhat asymptotic as you approach the median of the peer group and become somewhat irrelevant as a gap. So I'd love to say it will happen every quarter, and that's certainly what we expect to see. But it should approach our peer levels if you just extrapolate that curve here in about a year. If there's anything we can do to accelerate that, obviously we will.

Brad Milsaps -- Sandler O'Neill Partners Holdings, LLC -- Analyst

Great, that's helpful. And Mike, just to kind of follow up, the housekeeping question on fee revenues. With your trust business, are those typically invoice-based on sort of beginning of quarter equity values or is it kind of invoiced throughout the quarter? Just trying to get a sense of how the movement in the equity market ultimately reflects revenues. In other words, do you have a little bit of a head start going into second quarter given the kind of the market up at the end of the quarter?

Michael M. Achary -- Chief Financial Officer

Yeah, Brad. It's mostly based on averages. So, obviously there was a bit of a hit from the volatility that took place in the fourth quarter of last year and certainly some of that's continuing to this year. But assuming that the equity markets continue to recover and we have less volatility, then those results should improve accordingly.

Brad Milsaps -- Sandler O'Neill Partners Holdings, LLC -- Analyst

Great. Thank you, guys.

Michael M. Achary -- Chief Financial Officer

Okay.

Operator

Thank you. Our next question comes from Jennifer Demba with SunTrust. Your line is open.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Thank you. Good morning.

John M. Hairston -- President and Chief Executive Officer

Good morning, Jennifer.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Question on the technology investments you mentioned you're making this year mostly in the second half. Could you just give us some details on those investments and what kind of dollar amount we're talking about and are there any expense reduction levers that can help pay for those?

John M. Hairston -- President and Chief Executive Officer

Thank you. Good question and I think I've mentioned on several calls or webcasts when we've been on road that we've been making some pretty sizable investments in technology for some time now. The ones we talked the most about are the digital ones simply because that's where the primary interest has been. And that will continue. The lion's share of that investment in digital has heretofore been into servicing, which was essentially an account retention activity. This year that begins to convert over more toward account acquisition and eventually in market credit acquisition. Just to make more competitive our value proposition for those more granular credit, specifically consumer.

So that -- probably the big story in technology for the remainder of this year will be automation and improvement and effectiveness improvement in the more granular credit areas of the company coupled with digital account offerings and then, the expense reductions that offset portions that cost will be more inside next year. The expense guidance that we've given for this year and the CSOs for next year encapsulate all of that investment.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Okay. Thank you very much.

John M. Hairston -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Matt Olney with Stephens. Your line is open.

Matt Olney -- Stephens, Inc. -- Analyst

Hey, great. Thanks. Good morning guys.

John M. Hairston -- President and Chief Executive Officer

Hey, Matt. Good morning.

Matt Olney -- Stephens, Inc. -- Analyst

Want to circle back on the fee income discussion and Mike, you had mentioned that card fees and wealth management could ramp the second half of the year and are also a big part of achieving the CSOs in 2020. On the other hand, it also looks like the service charges are under pressure. I think they're down about 5% year-over-year. Any more details you can give us as far as service charges -- do you expect these to recover as well the back half of the year?

Michael M. Achary -- Chief Financial Officer

I think there will be some recovery around service charges. But again some of the dynamics that impacted us in the first quarter, first and foremost, you have kind of the normal seasonality, and then you have the shorter quarter. So for us, that resulted in about four fewer processing days. So, that absolutely makes an impact and that part of the dynamic that drives growth certainly will improve in the second quarter a bit. We did experience in the first quarter and have begun to experience some migration of customers moving to accounts that do offer us a little bit of a less chance of securing service charges. So we do have that dynamic, but again, we have good retention of customers and good growth. So putting customers in the right account is something that's good for everyone; both our customers as well as us.

John M. Hairston -- President and Chief Executive Officer

There was also -- this is John. If you look at Q1 '18 versus '19, the deposit picture on the volume of deposits in commercial accounts that yield earnings credit service charges and that's where that accounts in the P&L and the -- they were more in larger balances this time than last quarter. And that did erode some of the earnings credit fee income that we get. It wasn't a big piece of it, it was just something unusual, but added to the processing days (inaudible). And I think we'll see a better fee income picture in the back half of the year than the first half.

Matt Olney -- Stephens, Inc. -- Analyst

Okay. Very, very helpful guys. And then going to deposit pricing, I'm curious how the deposit pricing pressure progressed during the first quarter. Did you see any signs of that pricing pressure easing over the course of 1Q or was it pretty same throughout? And then secondly, I guess in that same token, I think you paid down some borrowings in the first quarter. How much of that was seasonal versus a strategic move?

John M. Hairston -- President and Chief Executive Officer

Yes. So some of the borrowings that were paid down, if you look at the averages, our advances on average were down about $700 million. And part of that math was related to the restructuring that we did in the fourth quarter. Also our public fund, I'm sorry, our broken CD balances were pretty much flat quarter-over-quarter. So in terms of reliance in wholesale funds, all things equal, again down about $700 million or so. Now as far as competitive pressure on deposit pricing, I think what we're seeing in our markets and I think you're hearing kind of the same narrative from most banks is really kind of the lag effect on deposits from the tightening campaign that the Fed just completed. So we do expect to see some lessening of that impact as we move into the second half of the year. I think toward the end of the first quarter, certainly we began to see a little bit in the -- in terms of the lessening of those competitive pressures. But they're still out there. But all things equal again, I think we'll see that lag effect lessen we move into the second half of the year.

Matt Olney -- Stephens, Inc. -- Analyst

Thank you.

Michael M. Achary -- Chief Financial Officer

Okay.

Operator

Thank you. Our next question comes from Casey Haire with Jefferies. Your line is open.

Casey Haire -- Jefferies & Company , Inc. -- Analyst

Thanks. Good morning, guys. Just wanted to touch on, on the loan growth. It looks like it's going to be weighted toward the back half of the year. Just curious what's giving you the -- what's the -- what visibility do you have that's giving you comfort that it'll ramp, especially given that, that paydown seem to be a bit of a headwind here in the near-term?

John M. Hairston -- President and Chief Executive Officer

Well -- this is John. Good question. The first half of the year was a -- so the first quarter and our anticipated second quarter, I'll call that first half and total is a little unusual and that we have two things happening that we don't expect to happen in the second half of the year. One of those are sales in the jumbo mortgage portfolio which is related entirely to our desire to deploy liquidity into higher yielding instruments and the interest income proposition from that jumbo product is not as attractive as we'd like it to be in order to close that NIM gap. So, we have been opportunistically selling chunks of that portfolio and I think that number was $41 million, $42 million in Q1. And if the market is right, we'll anticipate a similar amount, maybe just a little bit bigger in the second quarter. That is part of that loan growth guidance for Q2.

The second driver for first half versus second half is CRE paydowns. And if we go way back to the 4Q conversation, we gave guidance for loan growth for the fourth quarter handily outperformed it and some of that outperformance was the absence of the CRE paydowns that we did anticipate toward the end of Q4. Those paydowns are happening or at least they may happen in the first half of this year. A portion happened in the first quarter and we expect another portion a little larger to happen in the second quarter. That number is about 150 million. So when you couple the jumbo portfolio sales which are NIM accretive and the CRE paydowns that are anticipated, but not definite, then that leads to the somewhat muted first half number guidance. And I've made no secret in our efforts to be transparent that I'm a little bit more interested in NIM as a priority and necessarily loan growth for the time being. That posture won't stay forever as we begin to see tangible progress toward closing that gap.

Q1 was a really good month at least, but we'll wait and see what the earning season yields, but we anticipate it will see some gap closure from our Q1 efforts. Q2 is a little hard to predict, just given the shape of the curve and how much variance in sensitivity each bank may have. But we'll see our hand after Q1 and when all the different earnings releases are out and then, we'll talk more about that gap closure after the second quarter is done.

So in short, our confidence in the second half as we expect production which is already better than this quarter, previous year ago to continue to improve moderation and paydowns. The lack of large pressure on energy balance sheet reductions giving way to remix energy portfolio versus outright reductions and that should all things being equal, yield to a little bit more exciting second half loan growth number. So, that's the way the math works out for the guidance.

Casey Haire -- Jefferies & Company , Inc. -- Analyst

Got it. Thanks. So -- and then just switching to capital management front, the opportunistic infill M&A. Is that a robust opportunity for you guys right now? And how do you weigh that with the SunTrust/BB&T merger? Obviously, in your footprint and there could be some opportunities off of that. So how do you -- I mean does the -- is the bar for M&A that much higher given the potential disruption benefits coming from a big transaction in your footprint?

Michael M. Achary -- Chief Financial Officer

Casey, this is Mike. So when we think about the SunTrust/BB&T deal again, in the markets that we're in, we don't have a whole lot of overlap. We do have some opportunity in some of our Florida markets and then, maybe along the Florida Panhandle as well and into Southern Alabama, but that's not a big opportunity for us in terms of taking advantage of that potential disruption. As far as our overall M&A strategy, really nothing is changed from our perspective. We really have no interest in large banks or strategic deals right now. Certainly nothing transformational. We are open to this notion of opportunistic infill deals. So, that's something that's out there. As far as the potential for those kinds of transactions, there's not a lot of those kinds of opportunities, but certainly there potentially is a few out there.

Casey Haire -- Jefferies & Company , Inc. -- Analyst

Got it. Thank you. And just last one for me. The purchase accounting, how much was it in the quarter? I didn't see it in the release.

Michael M. Achary -- Chief Financial Officer

Yes. So for the quarter, we had accretion at -- right at about $5 million and that was virtually unchanged from last quarter.

Casey Haire -- Jefferies & Company , Inc. -- Analyst

Great. Thank you.

Michael M. Achary -- Chief Financial Officer

Thanks, Casey.

Operator

Thank you. Our next question comes from Christopher Marinac with FIG Partners. Your line is open.

Christopher Marinac -- FIG Partners LLC -- Analyst

Thanks. Good morning. I may have missed it, if you had mentioned it earlier, but when you take out the charge off for DC Solar and look at the kind of core charge offs, how does this quarter correspond with kind of where you think the CSOs for charge-offs specifically will kind of unfold the next year or two?

John M. Hairston -- President and Chief Executive Officer

So, when we take out DC Solar, Chris, the charge offs for the quarter, we're right at about $7.9 million and that's roughly the amount that we provided. So we cover those charge offs. But in terms of going forward and hitting the CSOs, that's probably a good run rate for us to use or for our folks to use in terms of the assumptions related to credit. We've given forward guidance around our provision of -- to remain kind of in that $7 million to $9 million range. So that's the way we're looking it right now.

Christopher Marinac -- FIG Partners LLC -- Analyst

Okay. Great. Just wanted to reinforce the charge offs itself. And I know you talked about DDAs with an earlier question. But with the Fed pausing, to what extent does that impact kind of how DDAs play out? I mean, when you take the seasonality out of it and just kind of look at it in general, I mean -- will you still have that big chunk of DDAs to help kind of offset deposit costs and kind of restrain any further increases on funding costs?

John M. Hairston -- President and Chief Executive Officer

Well, we certainly believe that we will. So we have as a percentage of our total deposits, DDA still standing at 35%, 36% and that's been a mix that has really done extremely well through kind of this notion of a rapidly rising interest rate environment. So certainly, we have no reason to believe that, that would change in any real way shape or form with the Fed on the sidelines now.

Christopher Marinac -- FIG Partners LLC -- Analyst

Okay. I was just curious if that would actually help you retain a bigger number over time than you otherwise would if rates were rising. Thanks guys for the questions.

John M. Hairston -- President and Chief Executive Officer

Okay. Thank you.

Michael M. Achary -- Chief Financial Officer

You bet.

Operator

Thank you and I'm showing no further questions at this time. I'd like to turn the call back over to John Hairston for closing remarks.

John M. Hairston -- President and Chief Executive Officer

Thank you, Shannon. And thanks to everyone for your interest in Hancock Whitney. Have a great day. We look forward to visiting (ph) with you soon.

Operator

Ladies and gentlemen, this concludes today's conference. Thanks for your participation. Have a wonderful day.

Duration: 42 minutes

Call participants:

Trisha Carlson -- Manager of Investor Relations

John M. Hairston -- President and Chief Executive Officer

Michael M. Achary -- Chief Financial Officer

Michael Rose -- Raymond James -- Analyst

Catherine Mealor -- Keefe Bruyette & Woods Inc. -- Analyst

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Brad Milsaps -- Sandler O'Neill Partners Holdings, LLC -- Analyst

Christopher S. Ziluca -- Chief Credit Officer

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Matt Olney -- Stephens, Inc. -- Analyst

Casey Haire -- Jefferies & Company , Inc. -- Analyst

Christopher Marinac -- FIG Partners LLC -- Analyst

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