Q4 2023 Hancock Whitney Corp Earnings Call
Participants
Kathryn Mistich; Vice President, Investor Relations Manager; Hancock Whitney Corp
John Hairston; President, Chief Executive Officer, Director; Hancock Whitney Corp
Michael Achary; Chief Financial Officer; Hancock Whitney Corp
Christopher Ziluca; Executive Vice President, Chief Credit Officer; Hancock Whitney Corp
Presentation
Operator
Good day, ladies and gentlemen, and welcome to Hancock Whitney's Corporation's Fourth Quarter 2023 earnings conference call. (Operator Instructions)
As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Kathryn Mistich, Investor Relations Manager. You may begin.
Kathryn Mistich
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
Thank you, Kathryn. Happy new year, everyone, and thank you all for joining us today. We're pleased to report a strong end to 2023 with a very solid fourth quarter. The results reflect our successful bond portfolio restructuring, remarkable growth in our capital ratios, hopefully an end to [NIM] compression, and improvement in PPNR fee income and expenses after adjusting for the significant items we previously discussed in the mid-quarter update.
We hope to carry this momentum into 2024, which will be a year to celebrate our 125-year legacy of commitment by our associates to clients and to the communities we serve. As anticipated, we have revised our three-year corporate strategic objectives or CSOs and provided updated guidance for 2024, both of which are detailed on slide 22 of the investor day. Starting with the balance sheet. Loan balances were relatively flat this quarter as loan demand, once again was tepid in Q4. Similar to the last several quarters. Under the surface. However, the team was successful at producing loans at a volume necessary to hold our own and overcome a more select credit appetite, continued focus on pricing and in replacing large credit-only relationships with Grainger relationships. Business banking continued to impress on both sides of the balance sheet and consumer lending volume has begun to cover the remnant of pandemic recovery paydowns. As we look forward into 2024, we expect loan demand will return after rates begin to soften midyear and therefore, much of our loan growth is anticipated in the second half of the year.
Credit quality metrics were flat quarter over quarter with criticized commercial and nonaccrual loans at very low levels. As mentioned in the mid-quarter update. Charge-offs began to normalize in Q4, but we still see no significant weakening in any portfolio sector. Despite impressive AQ ratios, we continue to be mindful of the current and potential macroeconomic environments. We are proactive in monitoring risks, and we continue to maintain a solid reserve of 1.41%.
Total deposits were down $630 million this quarter, driven primarily by the maturity of $567 million in broker deposits. We were able to use the proceeds from the bond portfolio restructuring to de-lever at these higher cost deposits. Aside from that, client deposits were roughly flat with prior quarter. Seasonal inflows of public funds did occur as expected, the DDA remix continued, but pleasantly at a slower pace. We ended the quarter with 37% of our deposits in DDAs and were pleased to finish Q4 at the top end of the range contemplated in the mid-quarter update. Retail time deposits grew an interest-bearing transaction and savings accounts were stable, thanks to the promotional pricing we offered on CDs and money market accounts. Our clients remain rate sensitive and we really don't expect a significant moderation until rates begin to decline in the second half of this year.
Mike will make a few comments in a moment regarding our future expectations for rates in 2024, we expect low single digit growth in our deposit balances year over year used to fund loan growth. Another bright spot for the quarter was growth in all of our capital ratios. Our TCE grew to over 8% due to lower longer-term yields and the benefits of our bond portfolio restructuring and our total risk-based capital ratio reached 14% this quarter, and we remain well capitalized, inclusive of all AOCI and unrealized losses. As we look back on 2023 and forward into 2024. We believe we have positioned ourselves to effectively navigate the operating environment this year. Our deposit base has been remarkably stable and we expect it will continue to support our funding needs. Our ACL is quite robust and our capital levels grew throughout the year, which we feel will help position us for success in 2024. And with that, I'll invite Mike to add additional comments.
Michael Achary
Thanks, Sean, and good afternoon, everyone. Both quarters reported net income was 51 million or $0.58 per share. Adjusting for the three significant items this quarter that were previously disclosed, net income would have been 110 million, $1.26 per share. That's up about $12 million or $0.14 per share from last quarter. Adjusted PPNR was 158 million, up 5 million from the prior quarter. Both N. and II. were flat with fees up and expenses down. So a good quarter in an otherwise challenging environment that drove a nice increase in PPNR over last quarter. As mentioned, we saw no name compression this quarter and our home was flat at 3.27%. This was better than our original guidance for the quarter of three to five basis points of compression.
As shown on slide 15, the investor deck. Our strong performance was driven by higher loan yields, approximately one month's impact from our bond portfolio restructuring transaction and continued slowing of our non-interest bearing deposit remix deposit costs for the Company were up 19 basis points to 1.93%. But we're pleased that the rate of growth in deposit cost has continued to level off this resulted in a total deposit beta of 36% cycle to date. We expect deposit betas will move up modestly in the first half of the year, but we will be proactive in reducing deposit costs when rates begin to come down, which have now we're expecting in the second half of 2024.
On the earning asset side, our loan yield improved to 6.11%, up 10 basis points from last quarter with the coupon rate on new loans at eight 15, so up 12 basis points from last quarter. As John mentioned, a continued point of emphasis is improving our loan yields going forward. The increase in our new loan rate slows slow somewhat this quarter and reflected the flattening of the Fed funds rate as well as lower long-term rates. In part due to the bond portfolio restructuring transaction, our securities yield was up 10 basis points to 2.47 for the quarter, while the yield for the month of December was 2.57.
As a reminder, we expect an annualized benefit to NIM of about 13 basis points from the restructuring transaction. As we think about our new in 2024, we believe modest net expansion is possible with single digit expansion in the first half of 2024 and potentially a bit more in the second half of the year as a basis for our guidance, we're assuming the Fed will cut rates three times at 25 basis points each beginning in June of 2024. We continue to expect some ongoing headwinds from the continued deposit remix, which has slowed, but we also see tailwinds as we move into 2024.
The projected rate cuts will allow us to reprice CD maturities lower in the second half of the year, and we expect higher loan and securities yields will help offset the impact have any deposit remix fee income adjusted for the significant items was up this quarter. The fourth consecutive quarter of fee income growth beginning with the fourth quarter of 2022. We benefited from strong activity and investment in annuity income this quarter, and we remain focused on finding opportunities to grow fee income. Our guide for fee income in 2020 for continued growth of between 3% and 4% from the adjusted noninterest income in 2023. Expenses, excluding the special FDIC assessment, were down this quarter, reflecting lower incentive expense. We expect expense growth of between 3% to 4%, which is a welcome decline from 2020 three's growth rate as we continue to work hard to control costs throughout the company. We have continued to reinvest back into the company will continue to do so, but at a bit slower pace as we allow technology and other investments to mature.
And finally, all aspects of our forward guidance, including our revised CSOs, are summarized on slide 22 of our earnings deck. I will now turn the call back to John.
John Hairston
Thanks, Mike. Let's open the call for questions.
Question and Answer Session
Operator
(Operator Instructions)
Michael Rose, Raymond James.
Hey, good afternoon. Thanks for taking my questions. Mike, I think you might have just answered this, but it looks like if I use kind of the midpoints of the ranges, the Bakken for the NII., it's about it's up about 0.5% year on year. If I'm doing my math right.
I just wanted to get a sense for if the US what the sensitivity is kind of per rate hikes since the forward curve is kind of baking in a little bit more. I appreciate that the sensitivity provided on what slide it was, but just wanted to kind of see what the puts and takes worth two to the NIMI outlook? Thanks.
Michael Achary
Yes, I think you're referring to the table at the bottom right of 17, Michael, and then also your numbers around how we're kind of thinking about NI for next year, I think are pretty spot on. So we have three rate hikes built into the forecast for next year, the first one in June then September.
And then lastly, in December. So those are three rate hikes of 25 basis points each. And as we think about our next year, we really think about modest expansion in the first half of the year, some first and second quarter, and then I think a bit more in the second half of the year. And some of that calculus is absolutely related to the prospect of lower rates in the second half of the year. And to that end, what we're trying to do is kind of Choreograph our CD maturities such that we have a fair amount of those maturities happening in the second half of next year, where obviously the rate environment will be a little bit a little bit lower. So on So the trajectory of our NI really would kind of follow the trajectory that I mentioned around noon. So that's how we kind of think about those aspects of NI and the growth for next year.
Very helpful on I think you made some rate cuts, not rate hikes. I think Ron Spair, our second, I guess at this point. So what we've got going on the rate hike, Brazil used to run about no worries about it.
Just as a follow-up, you mentioned for the loan growth outlook on the growth to be weighted kind of in the back half of the year. But I think I'm increasing number of management teams that I've spoken with talked about a mild recession. And I guess if you can kind of explain where that growth you would expect to come from? And if a mild recession is kind of the base case, I know you didn't move the factors and your credit waiting Q on Q, but just wanted to get some thoughts there.
Thanks.
Michael Achary
I mean we still have that built into kind of our macro economic assumptions that obviously for the ACL, but at this point, it looks like we may have achieved kind of that soft landing or as John says a plan.
John Hairston
Yes, Mike, this is John. Thanks for the question. I'll I'll start it. And then Chris and Mike, want to add any more color to it.
You're welcome to. But if we look at the at the fourth quarter and see reported AOP, this relatively flat. It somewhat discusses all the activity on the surface. And as mentioned on several calls, the past year or so, we've had a fairly acute focus on replacing credit-only relationships particularly larger ones with more granular relationships that bring liquidity and fee opportunities where right now, liquidity obviously is the most important and that happened in Q4. And so we had about I think about 200 million. I think the number I have in mind is one 96 and in snake balances that left in Q4 and were replaced nearly entirely Bob backed by core relationships. So there's a lot of productivity occurring. It just isn't in the same size chunks as some of the outbound activity. And I would expect to see that continue, although I don't expect the snick production to be at the pace it was before.
So if you think about in terms of puts and takes, if you think about another say three or CAD400 million of snake balances reduced offset somewhat evenly over the first half of the year and then more more than other round going out will be coming in and granular relationships the back half due to rate increases. That's really where you kind of get to the low single digit production of single-digit balance sheet growth for the overall year. So while it's weighted to the back half of the year, it's not like there's not a lot of activity that's already been successful and will continue to be successful in the first half of the year. Was that the kind of color you were looking for?
You?
Want to ask the second question.
I know that's that's very helpful. I appreciate that. Maybe just one final one for me. On TCE above 8%. You guys have the buyback in place through the end of this year. I know you guys haven't been in the market, but would you expect to be particularly if if the economic environment continues to cooperate or is it capital rules are changing for the largest banks? There's thought process that that could come down go? And are you looking to build capital here? Just trying to figure out how you guys are thinking about banks?
Michael Achary
So, Michael, we're extremely pleased with our ability to grow capital over the last couple of quarters. And certainly rates have kind of help with that, especially with TCE., but those rates and also kind of take some of that away. So we're cognizant of that. We're cognizant of the potential impact of any kind of economic slowdown, especially in the second half of this year. And I think for now, our stance related to managing capital will be to continue to build capital as we have the past couple of quarters. So right now, not really thinking about buybacks and that certainly could change, as you mentioned. And I think if it does become hard to kind of gauge when that might be, but it's probably something I think we might look at a little bit more intently in the second half of the year. But again, no plans right now.
Great. I appreciate you taking my questions. I'll step back from Steve and Michael, thank you for asking.
Operator
Catherine Mealor, KBW.
Good afternoon. Okay, one follow up on just the margin outlook in and thinking about how your margin will react in a scenario where we see rate cuts. Can you talk a little bit about the puts and takes interest loan yields. I would have thought with 60% of your loan book variable. We may see a period of time where your margin actually comes down first and then maybe as you kind of see growth improve the back book starting to reprice at a faster pace. And then you may see the net expansion, but that you guys have the variable rate loan book on it could have a near-term negative impact on the margin on. Is it just that the CD repricing is enough to offset that? Just kind of talk us through why that's not a bigger negative impact on do we make that we're making yourself?
Michael Achary
And this is my both start with that. And it's a great question. And I think as much as anything else, it really is all about time. So again, if you think about the way we have the rate cuts kind of choreographed out the first in June and then a couple of months later September.
And then finally in December. So as you think about 24, the rate drop in December really won't have much of an impact, obviously, a bit of an impact in the fourth quarter. But again, the way we're kind of thinking about the second half of the year and the way we're trying to choreograph, again, our CD maturities, we'd like to be in a position where certainly our rate cut of 25 basis points is impactful in terms of our variable loan grade. But again, our fixed rate loans continue to reprice higher. It's a solid 12 basis points per quarter for the past five or six quarters. And we see that continuing at least through the balance of 24. So that is a little bit of an offset to the impact of the variable rate impact from a lower rate environment. But again, the CD maturities we think will also be very helpful.
So I think net-net, if the rate drops are spaced out the way we think they could be spaced out that certainly I think will be helpful to avoid any kind of new potential name compression in the second half of the year.
And so I'll send it to them in a scenario where the forward curve is right. And I'm not saying it is I don't think it is, but if it were to stay the way it plays out, there could be more nimble compression if that if we do get fixed rate cuts this year that are coming at a faster pace, especially if they are bunched up together home or in an environment where the rate cuts or maybe more than 25 basis points on.
Michael Achary
So we'll say that again, the way we're thinking about it is kind of the way I described. So that's the way we have kind of planned out.
Yes, that makes perfect sense. And then my other question is just in the NI.com, any change to kind of size of the bond book asset of the ministers that restructure and how you're thinking about liquidity side, just trying to think about how you're thinking about size of average earning assets on as we look to that and I stressed earlier in terms really.
Michael Achary
Sure, sure. In terms of kind of managing the balance sheet next year on related to the bond portfolio, especially, I mean, obviously, it's down considerably because of the restructuring transaction that we effected in the fourth quarter. But as we think about next year, we're really going to be in the mode of kind of resuming reinvesting paydowns and maturities back into the bond book. So unless there's some other activity in the bond portfolio, we would expect that to be pretty flat from where it ended the year. And in terms of average earning assets, given the guidance we've given around the kind of loan growth we're expecting next year as well as the level of deposit growth again, what we were striving for is for loan growth to be funded kind of dollar for dollar or as close to that as possible on through deposit growth. And if you put all those dynamics together and including the bond book on balance compared to last year being down, we would envision a scenario where average earning assets year over year would be kind of flattish for the most part.
It makes sense. Thank you for the clarification. Thanks, guys.
Operator
Casey Haire, Jefferies.
Yes, great. Thanks. Good afternoon, everyone. So just another follow-up on them. So if I'm understanding this correctly, the modest net expansion that you guys are expecting this year is predicated on a little bit of deposits, beta pressure in the early going. And then proactive management of funding cost of deposits was down once you start to get fed cuts. I'm just just wanted to get some color. Is the velocity of the deposit beta in the first half? Is that is that pretty modest? And then it's going to be pretty more. It's going to be more velocity. You can be faster on the way down as you guys manage once you get better.
Michael Achary
Yes, I think I think on balance Casey?
That's right.
So we would expect the deposit beta impact to be pretty modest, if not kind of flattish from where it ended the year. We don't see a whole lot of change in terms of our cost of deposits, really in the first quarter, we ended the year at one 99 in terms of December were 93 for the quarter. And I think as we think about the first quarter, that could be up a handful of basis points, potentially even a little bit less of less than that. And again, a lot of this depends on our CD maturities that we have over the cross across the year, not only for the first half of the year, but the second half of the year and how that will line up with any potential rate cuts in the second half of the year. So I think overall what you said is pretty spot on.
Okay, great. And on the CD maturities, which is there any color you can provide on this on the maturity schedule in terms of balances and what the rate they're running off at us?
Michael Achary
Yes.
So in the first quarter, we have about $1.8 billion of maturities and they'll be running off at about four 77. That goes down by about half in the second quarter, the runoff rate is about the same. And then in the second half of the year, we have about 1.5 coming off and the runoff rate is just a bit higher right now. And again, the way we're thinking about those maturities lined up with the promotional rates that we have in place is that Dom, the plan really is to have a lot of the CD maturities that happened in the first quarter come back on or renew in relatively short maturities such that when those mature, we're in the second half of the year and potentially a lower rate environment. So that that's a little bit of color around how that's kind of choreographed.
Okay. That's helpful. And apologies if I missed this, what is the promotional rate versus that four four seven?
Michael Achary
We're in about five and a quarter now will be a relatively short maturity. We also have promo rates in the four, seven, five, four and a quarter range that stretch out those maturities just a little bit.
Okay. So that so the CD maturities basically don't benefit, don't start to benefit the NIM. until the back half when you when we get right now.
Okay, got you correct.
Okay. Sete Brasil resuming to June, have penetration rates going down, if that happened earlier. Obviously the benefits with the quantum.
Okay. All right. Great. And just last one, the bond book, is that can you give us the spot yield on that bond book at 1231. I know you gave it at two 57, but I was just wondering what the exit rate was that we could of better better pinpoint on as it was it was 57 for the month of December.
Michael Achary
Is that what you're asking?
Yes, I know activities. I saw that in the deck.
I was wondering what it was at 1231, but we were to 47 for the quarter to 57 for the month of December. And the way I'll share that information is for the first quarter, we're looking at to be looking at that yield to be just a couple of basis points lower than when it ended the month of December. So call it 55%.
Okay, got you. Thank you.
Operator
Brett Rabatin, Hovde Group.
Hey, good afternoon, everyone. And thanks for the questions. Wanted to as first on slide 28, you have the deposit account size and one of the variables. I'm not sure I'm clear on is the expectation for continued atrophy maybe in DDA from here. Are you guys thinking that DDA levels of almost half?
Or maybe give us some color given that the size relative to 1Q or I guess the 4Q 19 is still about 23% higher today?
Michael Achary
So obviously, one of the positives for the fourth quarter was the notion of our NIB. remix kind of leveling off. So in the prior quarter, we were at 38%. We finished the fourth quarter at 37.
And has we think about next year, Brett, we expect there to be continued remixing, but at a much, much slower pace. So potentially we could we could see ourselves at around 33, 34% or so by the fourth quarter of next year. And so that's that's obviously a big help and has been a big help and I think will continue to be helpful to this notion of potential expansion next year.
Christopher Ziluca
But Mike, to be clear, it sounds like you're not expecting the average balances to maybe go back to prior levels completely.
Michael Achary
Is that fair in your assessment yes, I think so.
John Hairston
Yes, I think I'll jump in and help. This is John. Of the consumer balances are a lot closer now to where they were pre-pandemic breadth of the wholesale balances because of the volume of operating accounts, we are adding and hoping to add on a faster clip this year, some have higher balances and that skews the total. If you would, on average a little bit higher. So there's more than just just the same volume of accounts from 2019 compared to now because the mix has changed some on the business deposit accounts from all the smaller end, we expect to hit pretty nice rate pre-pandemic in around June or so. That's the run rate extrapolate. So we'll see if the if the expectations around the rate environment, changes that any.
And then on the larger side, you're right on those average balances seem to have held, Tom, and it's somewhat curious because the balance sheet development more than cover the earnings analysis fees that we have on the treasury side. And we think that they would have flown back out to cover that. But I think just the absence of investment on the wholesale side, the last six months or so is tempered that outflow. If rates begin to go down and the environment gets a little bit more optimistic than I think we may turn more to those 2019 balances simply because people are spending the money and investing in things and want to use their money versus ours for the time being. Is that all makes sense?
Yes, that's really helpful. The other question I wanted to ask was just around the expense guidance 3% to 4%. And you've obviously made a lot of effort and results in getting more efficient in the past couple of years. But you've also talked about maybe some technology spending upcoming. Can you talk about what you're looking at in terms of spending for technology relative to that guidance? And then does that 3% to 4%, does that kind of exclude any potential pickup of talent of lenders in any markets, maybe a little more color around that guidance?
John Hairston
Okay. Thanks for the question. This is John. I'll start it and Mike can add color if he likes some, I wouldn't want to break three to four down between different sectors because it gets a little complex, but a great deal for us that on the technology side, the bulk of the increase in technology expenses, 24 over 23 is the carry cost to a large extent of all the technology we already completed and put it into service in the early part of the year. So when you get a full year of the amortization of the capital and the contracts have that impact on 24 carries over to the year-over-year comparisons. And so there's a good bit of tech expense that isn't really new. It's simply the full 12-month impact of all of that. And as Mike said, in his earlier comments, our expectation is that has that technology as the Company really matures and using that tax, then we get more efficient, more effective and to the degree more effective on the revenue-generating side, and we see a bit of a tailwind top line revenue as the environment improves. So that's the tech part.
In terms of additional spending, we really have done all the heavy lifting. I mean, what I'll call the big systems are all done. They're current. It's running well. We're very happy with the investments that we made in terms of just new stuff, we're really down to I guess I'll call them, dogs and cats. So our ability to compete with with a fewer number of larger banks, we believe is helpful to we believe it is helpful to continue spending more in our digital front office to continue to invest in fraud detection early to manage of any charges that we could have avoided by having good tools to help both our clients and our bankers and our risk professionals identify problems before it's too late to get the money back. And so I think a lot of that type. It was obvious what's left. So the preponderance of the big stuff is actually all the big stuff is done. And we're now I think bread, things that just enhance value for our clients in the future in terms of people and the average time it takes in terms of months for a banker to cover themselves got extended a bit during the degradation in spreads as rates began to go back up. But the investments that we made in SBA can in business banking continue to bear fruit and in fact, because of the liquidity coming in with those relationships, the time it takes to cover the cost of a new banker has held up. It's only maybe even get a little short quarter being more attractive on the business banking side. So we haven't set a number that we're ready to talk about in terms of adding those folks. But I can tell you that if there were an area, if I could create a little bit more room in expenses to add people, it would probably be in those areas because, frankly, the returns have been so good. The fourth quarter was the best quarter in our history in SBA, and it will also the best quarter in history for for annuities income from the superior investment we made back in 22. So overall, I think we would continue investing in those things that are working.
Brett, the other thing that's really helpful. The the only thing. I want to know how the thing is.
Yes.
The only other thing I would add to that is on we're not seeing a repeat. We're certainly not expecting a repeat of some of the things that drove our expense levels last year to the uncomfortable levels of around 8%. So it's things like gum or kind of other regulatory costs and some of the FTIC. increases outside of the special assessment, we don't see that repeating. We also had some increases related to our pension and other retirement plans that we don't see a repeat. And finally, we did have a pretty big increase in our insurance costs related to our own properties last year that we don't see at least right now repeat. And some of those increases were related to some of the storms that we had on the prior couple of years. So that that's also very helpful to have those things not repeat this year and puts us in a place where we feel comfortable about the guidance of between 3% and 4% for the year.
Okay. Pretty helpful. Thanks for the guidance given. Thank you.
Operator
Brandon King, Truist Securities.
Hey, good evening. Thanks for taking my questions. So following up on deposits, are there any deposit categories besides CDs that is a part of your strategy as far as managing costs lower on just how are you thinking about the deposit beta lag on the down side, excluding what you expect on the CD front?
Michael Achary
Yes. So as we said before, our brands and when rates start to come down, you know, our posture and plan, and this is the way we've kind of approached it in prior environments where rates were down is to be fairly proactive in reducing our deposit costs and the lead there would be on the CD side, especially as we tried to aggregate the CD maturities in an environment where rates are potentially lower than they are now so that that's probably the biggest driver of what we're trying to do. We're also very, very mindful of the rates on our money market accounts and start to come off of some of our promotional rates related to that category of deposits at the appropriate time. So that that's kind of how we think about that.
Okay. And are there any sort of customer segments that you envision you could be more proactive in Corning consumer versus commercial?
John Hairston
Brian, this is John. In terms of rate or just focus great on rate, I mean the segment that's enjoyed the best spread over year over year was in the segment we call business banking. So really it's the lower end of commercial. And the reason we are we feel pretty good about it is because even though they've enjoyed the highest growth in lending because we've added resources in some of our growth markets for that purpose is they've been very successful at covering on literally a par basis with incoming deposits that are carrying a cost well below our total cost of funds. So it's really been on both sides of the balance sheet sheet that the small business sector has been performing in terms of retail. And we define retail as consumer and micro businesses, all of which are handled inside our financial centers, our branches, those segments were really under siege from a paydown perspective through the excess liquidity portions of the pandemic recovery in Q4 and Q3 to begin to get better in Q4, particularly on the very small business side that again also dampened to the degree that we're actually expecting retail growth in 2024. It's modest, but it's growth. And it's really been in paydown or reduction really for the past three years or so during the pandemic. So on a year-to-year comparison, the absence of that vacuum is very helpful. And just as a reminder, the indirect portfolio, which had been amortizing, we shut that business down. That impact in 2024 is relatively immaterial, really for the first time on a year-to-year basis another.
And just lastly, on the CD strategy, how much flexibility do you have in adjusting at adjusting that strategy depending on the timing and potential magnitude of rate cuts as you look for this year?
Yes.
I think it's a pretty nimble strategy, Brandon, and I think we have lots of flexibility in how we think about adjusting our promotional rates to kind of deal with, you know, any differences that the rate environment may or may present us with versus what we're kind of assuming. So obviously, the CD maturities are in place and it's no flexibility related to those, but certainly are wrong. Our main way of dealing with that is going to be our promotional rates. Generally the rate the maturity that we attach to a specific rate. I think we have good flexibility to deal with whatever is kind of thrown at us.
Yes, Brandon, this is John. With that, what I'd add too much on now on CDs a little earlier. One of my answers to the question about the timing of CDs alluded to how high a concentration of those renewals are in the first half of the year and the expectation that we're that we are offering and a pretty good promotional rate to keep all that money and perhaps gather more but it's got a very short duration to the points that we would be repricing a lot more of that money in the second half of the year and a better rate environment. So one of the whether use flexible or nimble, as Mike said, whichever word you prefer, one of those items of flexibility is how much we're prepared to pay for how shorter duration to allow us to benefit of the repricing opportunity in the second half of the year. So that's why we feel pretty good about it because the book's already short and it has a pretty good likelihood it's going to get shorter in the first half of the years we were we reset.
That's really helpful.
Thanks for taking my questions.
Yes, thank you, Brent.
Operator
Matt Olney, Stephens.
It is yes, thanks, guys. Just a quick follow up on the credit front, the charge-offs, I think there were 16 million of charge-offs of which around 13 was commercial. Any more color on kind of what those commercial charge-offs were in the fourth quarter?
Yes.
Christopher Ziluca
Yes, Matt, as Chris will go on, really it was, you know, kind of a handful of accounts that done. We've been tracking for a while. So they weren't really kind of any sort of surprise for us on and many of them were really kind of post pandemic impacted and kind of had to get resolved. And as we kind of move forward in time. And it was compounded by the fact that I think I've mentioned this previously that we are experiencing low recoveries during on, you know, earlier periods we had a higher rate of charge-offs that allowed us an opportunity to generate greater recoveries. But at this point in time, we're down pretty substantially on the recovery front, which is a good news, bad news thing, more bad news and good news on the MCO side, but certainly on kind of supports the good performance that we had in that regard during the past couple of years.
Okay. Thanks for that, Chris. And I guess the second part of that would be those those charge-off tire in the fourth quarter, how much of that is just kind of an end-of-year cleanup or is this more that the normalization of the charge-offs that you've been talking about for a while is that what we saw in the fourth quarter?
And is this kind of, you know, 27 bps of charge-offs for the quarter? Is that something a reasonable assumption moving forward from here?
Yes.
Christopher Ziluca
I mean, there's no again, as Chris on, we don't really kind of handle cleanup in some respects. Obviously, we take charges when it's appropriate and necessary on. We did have probably a more as a result of kind of end of the year activity that occurs as people make decisions. Mostly our customers make decisions around what they're going to do in the way of you know, on selling parts of their business or selling themselves, that sort of thing on a lot of that stuff does kind of bunch up before the end of the year. So it's hopeful. I mean, we're never happy with on, you know, any sort of significant level of charge-offs. So we're hopeful that we can get below that number. But there is a normalization going on for sure.
John Hairston
Yes, Matt, this is John. The only thing I'd add to it, I think, Chris, that was accurate. What I would add to it is when we describe something is normalization. There is a certain chunk of NC. a level we're concluding as part of normal things that we just don't know about yet. And so we're trying to account in the guidance for the types of activity that occurs when the economy is performing the way it is right now where even though we may get a little rate relief in the back half of the year, it feels somewhat higher for longer relative to the last decade or so of debt service requirements. And so and we're presuming that the number of unanticipated charge offs that occur or a short degree of notice are inclusive in the guidance that we gave. So that's another way of saying that we're trying to factor in what we don't know, not just what we know about because we would otherwise give you a number that may be a little optimistic and this happened in economy.
Sure.
Okay. Thanks guys appreciate the commentary, of course, Nike.
Christopher Ziluca
Thanks for the question.
Operator
Christopher Marinac, Janney Montgomery Scott.
Hey, thanks.
Good afternoon. Mike, I wanted to go back to the AOCI. on change this quarter. Is there any way to either predict further gains in the next quarter or two or just anything just to explain the mechanics on why that was maybe punitive at nine 30 and quite a change this quarter?
Michael Achary
Well, I think the big driver, there was obviously lower rates. So the on the 10-year treasury was down with 70 basis points between nine 30 and 1231. And so certainly the impact of a restructuring transaction effect of the bond portfolio, it had the impact of reducing our unrealized loss on AFS pretty significantly. And when you combine that with the improvement on the HTM. side, on a pre-tax basis, it was somewhere in the neighborhood of 411 million or so. And so that had the impact of 77 basis points in our cheese on RTCE. from AOCI. and also was extremely helpful in improving our tangible book value per share. So that was up some 11, 12% kind of $0.04 going forward without the consideration of any transaction found similar to what we did in the fourth quarter.
More than anything else, you know, any kind of further improvement will depend on rates coming down a bit, you know, compared to where they were at 1231. So that's a bit of a crystal ball right now from where the 10-year stands right now, it's up a bit from where it was at year-end, something like eight or nine basis points. But so far it will depend on where rates go, I think, in the first quarter.
Got it.
Perfect.
And then I had a quick question for Chris. On the credit side, what is the time to the timeframe and impact of sort of just the annual review process of your accounts for on your both stress testing commercial borrowers in addition to just new appraisals that come through on the CRE side?
Christopher Ziluca
Yes, good question on obviously, the annual review cycle in general, obviously, we're trying to spread it out across the year. Some of it is driven by on the timing of getting our various financial statements from customers. You know, to the extent that they're audited or accounting prepared financial statements, they tend to be harder to know kind of in the middle of the second quarter on if they're tax tax return type statements, they tend to get pushed out a lot of people file extensions. So they come a little bit later in the year on. And if it were also relying upon kind of business prepared information around the performance, especially if you're talking about commercial real estate arm around end-of-year performance, which you know, will get spread throughout the first and second quarter of the year. And we regularly stress test our portfolio outside of just on getting the financial information in to be able to do that on and will on a lot of times, we're only getting updated appraisals if there's an issue that we're dealing with on or if there's a renewal situation that sort of thing. We're not getting appraisals per se on every loan on the commercial real estate book on unless we perceive an issue, we want to get our arms around it and get ahead of it a little bit. So it's kind of a mix of an answer for you there. But on we do update our stress testing our risk ratings and our view of individual credits spread throughout the year, but usually tends to kind of come in the middle of the year on unless there is an event that occurs.
Great.
That's helpful. Background. Thank you for sharing that.
And that concludes my questions.
Michael Achary
Thank you for good questions.
Operator
Stephen Scouten, Piper Sandler.
Thanks. Good afternoon, guys.
I'm wondering what you're seeing in terms of kind of customer acceptance of higher loan rates. I mean you guys laid out nicely on slide 16 of what your new loan rates have been and kind of you can see how that's affecting production. But I'm curious what you're seeing hearing from customers and if there's any sort of wait-and-see approach for many customers are saying, hey, we think rates might be lower in the future. So we might hold off for the time being just kind of how that affects overall demand? Thanks.
Michael Achary
Good question. I mean, certainly that's the case for for new real estate transactions, both consumer and investor CRE. There's very much of a I wouldn't call it tepid. I would, I would say, anemic demand and that type of activity, primarily because even though there's a tremendous housing demand for building multifamily and Reggie construction the cost right now to do that in addition to the debt cost are just really high. So I think investors are interested in waiting a couple of three months to see what's really going to happen now?
Yes, some of that hope was based on buying into the six rate decreases starting in March become activity, which we never really believed. And I'm afraid we're going to be proven, right? And so they may move forward in Q2 with that realization thinking that they'll renegotiate the deal when they can as rates begin to decline so on the real estate and mortgage side, that's absolutely the case. When we get into revolvers line utilization is as low now as it's ever been, both on the consumer and the business side, and that's simply just good money management on the part of our clients, both business and consumer where they preferred not to have any more than the revolvers. They can make they can they can manage and that's what they're doing. So as those attitudes change, we would expect one of the tailwinds to NI. will be line utilization actually going up. I'm surprised it hasn't happened already as average balances came down on the deposit side. But reality really hadn't estate went down low and every quarter, we think it's going to finally creep back up a bit. It stays flat or goes lower, and that was the case in Q4.
The other item is acquisition finances, obviously very low right now as people struggle with the appropriate valuation is for different businesses that could be available for sale for whatever reason. And I think that that's going to probably continue to occur until we get past the election and people understand what the tax posture might be in terms of those types of transactions and income get into 25 and 26.
Yes, that makes sense. That's a lot of good color. And then just one clarifying question for me, Mike, I think when you were answering Michael's question earlier, you were talking about the trajectory of NII should be fairly similar to what you expect that trajectory than him to do. Would that imply that and I could be kind of flat to down on a year over year basis, given the tough comp in the first part of the year? Or how would you kind of look at that from a year-over-year NOI growth perspective?
Michael Achary
Yes, great question.
And I think year over year, flat to slightly up would be would be the way to look at it. And I don't know that we'll have a core experience kind of a quarter-over-quarter decline, but certainly in the first half of the year, I think more flat than not if that makes sense.
It does very much. Thanks so much for clarifying project.
The time that you have budgeted.
Operator
Ben Gerlinger, Citi.
Good afternoon, everyone, and welcome to coverage. We appreciate your figure myself about his sticks. I'm curious if we can just take a quick second here. I'm trying to square circle to some extent, because I know that you guys have the three cuts and the forward curve is called six at this point. So the six is correct what I'm getting at or what I'm kind of coming up with a model that you have a flat margin for the full year and then your PPNR is probably a little bit more compression than the one to two. You gave guidance obviously your guidance is based off of a couple of three kind of layered throughout the back half of the year or starting in the middle and back half of the year so wanted to one just kind of confirming that thought process. But too, is there anything from an expense perspective that you could kind of push out a little bit further potentially towards the year ended 25 if that revenue is a little bit softer than expected?
Michael Achary
Yes, Ben, this is Mike. And in short, I think that what you're describing is more or less correct that if we do have more rate drops in there kind of bunched up the way the forward curve is that that would be a bit more negative than the way we think it's actually going to be panned out. So I think that trajectory of what you described is, again, more or less correct. And certainly from if we have shortfalls in expectations around revenue. We're not here to say specifically what kind of actions I think we would take on the expense side. But I do believe that we would obviously address that are those kind of conditions warrant, whatever action we might want to take in terms of further curtailing expense growth. So that's that's always something I think that we would consider those kinds of circumstances. Anything you want to add to that, John now agree, which says, okay, that's helpful.
Kind of 10,000 foot view color. And then the follow-up. I had was well along the lines of just lending in general. I guess from the first half of this year, you have some headwinds from just balance sheet items in general, but when you think about growth in the back half of the year, are there areas where you're just kind of avoiding in general that because the risk-adjusted spreads are not nearly as appealing in terms of a credit and then give that looking six months down. The road is probably pretty difficult at this point as the new starting point. But the nice thing about lending today. Are there areas where you're kind of, but tapping the brakes are just really not pressing the gas at all? I guess that there's some stronger areas in general that seem more appealing you've already referenced, but just just from a credit perspective that you're avoiding.
John Hairston
Yes, Dan, this is John. I'll start and Chris can add if he lives. I think and generally speaking, I'm almost regardless of the rate environment, barring a really significant macroeconomic downside where the writing rates collapse because of concern Following that, I think are using your analogy of what have we tapped the brakes on, what are we hitting the gas on? I think it's going to be the same all year almost regardless of whether we have six adjustments, three adjustments or no adjustments, the sectors that we're very interested and grow in a rather granular. And I think the the only one that might change a bit would be investor CRE, but it wouldn't be because of a fear of the rates would be because they're just probably won't be that much demand if the environment was worse. But things that we're focused on right now. I think short of a really significant macro event will lead to things that we're focused on. Even as rates began to get better, it will just be more of it. So that would probably stimulate more growth given where our footprint is and given the investments we've made into and growth markets, did I answer your question I wish you hadn't done a different run.
No, no, that is helpful. I was going to say if you could throw in a geography, but you just did, but it is helpful.
John Hairston
Yes, they are the markets we're in that we have pretty high density. And when things get better, we get a really good lift in those markets because the brands very well known. It's very much appreciated as it's kind of a hometown bank in those core markets. And so we'll always get more than our fair share of the business. We want to win yet when the environment looks brighter and the growth markets, it's taken us a while, I think to have to flesh out the teams that we want, we're very proud and happy with the folks that have joined the Company in those areas. But we're operating with a lesser number of locations and footprint than optimal. And so a better environment makes a little bit bigger of a hunting ground, if you will, for our bankers to compete with those people who have a better financial center coverage numbers than we have. But so a more optimistic. Macro is probably going to reward us a little better than it did the last time we went from a downside to an upside that could because we've added all those new markets that are really terrific growth opportunities.
That's helpful color.
Thanks
Operator
And thank you for the question and welcome to coverage may have no further questions in our queue at this time. I will now turn the call back over to John Hairston for closing remarks.
John Hairston
Thanks, Chris. Appreciate you moderating the call. Thank you, everyone, for your interest in Hancock Whitney, and we'll see you on the road soon.
Operator
And this concludes today's conference call. Thank you for your participation and you may now disconnect.
