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Hancock Whitney Corporation (HWC 0.33%)
Q4Â 2018 Earnings Conference Call
Jan. 17, 2019, 9:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Operator
Good day, ladies and gentlemen, and welcome to the Hancock Whitney Corporation's Fourth Quarter 2018 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 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 Sam Kendricks, Chief Credit Risk 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 we begin 2019 we are pleased to end the previous year with solid fourth quarter results and significantly improved performance for 2018 as a whole. For the full year 2018, on an operating basis, net income was up almost $100 million or 38%, earnings per share increased $1.10 to just under $4 per share and ROA was up 29 basis points to 1.25%.
Loans grew approximately $1 billion or 5% from the end of 2017. Commercial criticized loans declined $451 million or 42% during the year. And we achieved our goal of reducing our energy exposure to approximately 5%. The year ended with TCE back above 8% and improved operating leverage of $38 million.
We consolidated our two brands mid-year and closed two transactions; the consumer finance divestiture in early March and the trust and asset management acquisition in early July. During the fourth quarter, loans increased almost $500 million, exceeding our initial expectations and surpassing $20 billion in total. This net growth includes the sale of $116 million in lower yielding municipal loans, which Mike will discuss shortly.
Our performance in loan growth occurred primarily due to new opportunities generated that were not in the pipeline in early October and expected fourth quarter payoffs on certain credits to move to the first quarter of 2019.
You can see from the chart on slide eight that the growth was spread evenly across our footprint with each region exceeding $100 million in net growth. Another driver of the quarter's growth was related to our efforts to rebalance the energy portfolio. As discussed in previous quarters, we intend to maintain an approximate 5% concentration in total energy loans, but with a targeted shift in our energy portfolio that emphasizes the upstream and midstream business sectors. Our goal is to shift our energy portfolio, so it is approximately one-third energy services and two-thirds upstream and midstream business sectors.
This quarter marks the first time that energy services is less than one half of our overall energy portfolio, falling to 47% of the total. We expect our overall energy balances to remain at 5% of total loans or thereabouts. We'll continue to shift the mix throughout 2019. The chart on slide nine details progress related to energy portfolio mix thus far.
Criticized and non-performing loans improved again this quarter. Criticized commercial loans were down just over $200 million or 25% linked quarter and non-performing loans were down just under $40 million or 10% from September 30.
We would be disappointed if improvement in asset quality metrics failed to continue and we expect to approach peer levels over the next several quarters. We did have one large energy services-related charge-off this quarter at $16 million, which was previously reserved for. While we certainly don't want to see losses in any level, we believe we have addressed the last sizable issue in the portfolio of credits we stressed at the beginning of the cycle and are pleased that our estimates proved to be generally reliable.
We would be disappointed if any additional energy charge-offs resulted in a material impact on provision. That doesn't mean there is any guarantee of zero charge-offs or zero recoveries. It means we believe we have reached the normal course of business due to the waning energy cycle. For the time being, we will maintain our current ample energy reserve until remaining criticized energy credit percentages normalize. The remaining $12 million in charge-offs were unremarkable with a $5 million loss on a single non-energy C&I credit, which like the energy services credit was previously reserved for. This charge does not represent anything systemic and was a unique event. The EPS, ROA and ROTCE results allowed us to achieve our important 2019 corporate strategic objectives a year early and we adopted new objectives for fourth quarter 2020 that are detailed on slide 20. These updated CSOs reflect our expectations of continued performance and profitability improvement in the future.
I will 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 to everyone. As John said, it was a solid quarter. Fourth quarter EPS was $1.10 with net income up 15% from last quarter. On an operating basis, EPS was $1.12, so up $0.11 per share from last quarter. Non-operating expense items for the quarter totaled $2.5 million and were partially offset by a $600,000 net gain on the sale of securities related to a portfolio restructuring we executed in the fourth quarter. So in late fourth quarter, we sold 192,000 shares of our VISA-B stock for a net gain of $33.2 million. That gain offset losses totaling $32.7 million associated with the sale of $481 million of lower yielding bonds at 1.97% and $116 million of lower yielding municipal loans at 2.02%.
Proceeds from the sales were used to purchase $260 million of higher yielding bonds at 3.59% and to pay down $346 million of advances at 2.37%. The VISA-B trade and related restructuring improves the Company's yields on investment securities and loans, while also improving our funding mix in 2019. We expect our net interest margin to benefit by a total of 7 basis points as a result of these trades and to boost EPS by $0.05 per share, annualized. Please see a summary of the restructuring transactions on slide seven of our earnings deck.
Last quarter we talked about opportunities to expand our NIM going forward. So for the fourth quarter, we were able to expand our NIM by 3 basis points to 3.39%. The chart on the bottom right of slide 13 shows the drivers of that expansion. There were no net interest recoveries or reversals in the fourth quarter, compared to 2 basis points of net recoveries in the third quarter. That brought the start point for the fourth quarter NIM down to 3.34%. So overall, we were able to expand our NIM by 5 basis points this quarter.
The portfolio restructuring, I mentioned earlier, was completed late in the quarter, but did add 2 basis points of NIM improvement in the fourth quarter, with an additional 5 basis points expected in the first quarter of next year. Favorable changes in our funding mix, due to seasonal deposit growth, added 2 basis points, as did the favorable earning asset mix from run off of bonds to fund loan growth. As we move into the first quarter '19, we expect the NIM will expand by approximately 4 basis points to 6 basis points. How our funding mix performance in the first quarter will likely determine what end of that range the NIM comes in at.
Fourth quarter seasonality drove a nice increase in deposits, which resulted in a favorable funding mix for the quarter and helped us report a bit lower deposit beta. Total deposits were up $732 million linked quarter with most of that growth in DDA and public funds. In addition, there was a shift from brokered to retail CDs. A reminder that the growth related to public funds is seasonal and therefore, we do expect a portion will begin to run off in the first quarter. This will change our funding mix once again and could lead to a higher cost of funds in the first quarter.
Seasonality also positively impacted bank card and ATM fees this quarter, while both trust fees and investment and annuity income was down related to market conditions. We kept a handle on operating expenses with only a slight overall increase. A full quarter's impact of the trust and asset management acquisition, especially related to personnel expense, was offset by other items. As we previously indicated, we implemented some tax reform strategies in the quarter that lowered our effective tax rate to 8%. This compared to our original guidance early in the year for 15% in the fourth quarter. We expect the rate will return to a more normal level of between 17% and 19% in the first quarter.
As John mentioned, TCE topped 8% this quarter and we are happy to be back above that target. We did buy back 200,000 shares during the quarter as we chose to remain focused on building capital. Our outlook today is to remain opportunistic on buybacks and to continue to manage capital in the best interest of our shareholders.
I will now turn the call back over to John.
John M. Hairston -- President and Chief Executive Officer
Thanks, Mike. And with that let's just open the call for questions.
Questions and Answers:
Operator
Thank you. (Operator Instructions) And our first question comes from the line of Catherine Mealor of KBW. Your line is open.
Catherine Mealor -- Keefe Bruyette & Woods Inc. -- Analyst
Thanks, good morning.
John M. Hairston -- President and Chief Executive Officer
Good morning.
Michael M. Achary -- Chief Financial Officer
Good morning.
Catherine Mealor -- Keefe Bruyette & Woods Inc. -- Analyst
I want to first start on the margin. It's a really nice expansion this quarter, as you mentioned, Mike. And so it seems like you're expecting another 5 bps improvement in the first quarter just from the restructuring. And so then if I compare that to your 4 bps to 6 bps guidance for the quarter, it feels like you really -- net the restructuring, your guidance for the margin near term is effectively stable. So I guess that's question one.
And then question two on top of that is as we look out to next year and we think about what the Fed does, how do you think about upside you potentially could have for your margin if the Fed stops now, and then how it looks if we see another couple of rate hikes? Thanks.
Michael M. Achary -- Chief Financial Officer
Yeah. Thank you, Catherine. So, again, related to the restructuring that we affected this quarter, 7 basis points of NIM improvement in total, we got 2 basis points of that in the fourth quarter, and we're expecting another 5 basis points in the first quarter of '19. So the guidance for the quarter coming up of 4 basis points to 6 basis points, obviously, accounts for those 5 basis points related to the restructuring transaction. But then I think it also, in part, is going to be dependent upon, as I said in the prepared comments, around what happens to our funding mix as we go forward. So certainly in the fourth quarter, we benefited from the seasonality of deposit inflows, primarily the DDAs that came in at quarter end, but then also the public fund money helped us to be less reliant on borrowed funds this quarter than we have been in the past.
So I think, again, as I mentioned in the comments, whether the NIM comes up at the bottom or top of the 4 basis points to 6 basis points range, at least for the first quarter, is going to be I think very dependent upon what happens to that funding mix. Again, from a seasonality point of view, we usually see some of those deposits begin to flow out as we move through the quarter and then especially on the public fund side that accelerates as we move into the spring time.
And then your other question around upside a little bit later in the year. I think as we go through the latter part of the year and -- kind of a basic assumption is that the Fed does move to the sidelines a bit and doesn't engage in rate hikes in 2019. I think one of the bigger determinants of whether we have some upside related to NIM is going to be deposit costs and again deposit mix. So we do think that as we go through the first quarter and even into spring, there is certainly some potential for deposit betas to catch up a little bit even if the Fed does stay on the sidelines, but at that point we'd certainly expect deposit rates to begin moving sideways a bit. And I think that, coupled with the strategies that we have in place to grow some of our loan segments that tend to be a little bit higher yielding, give us a little bit of potential for upside related to the NIM.
Catherine Mealor -- Keefe Bruyette & Woods Inc. -- Analyst
That makes sense. And then is it -- and then on that, it feels like your CSO goals, and if you're going to hit that 1.4% ROA, it feels like the biggest way to get there is probably some margin expansion. Is that a fair assessment or can you get there with the margin at basically these levels?
Michael M. Achary -- Chief Financial Officer
Well, it's not any one thing that is going to get us there, but it's all the components that we have built into our business plan. So, certainly one component is to continue to grow our loan portfolio, and again, to grow that in the higher yielding loan segments that we've kind of targeted. Certainly our funding mix and how we fare with controlling deposit costs are big factors as well.
We also, related to fee income, expect a little bit in the way of outsized growth from some of our wealth management segments, trust in particular, but also investment sales. And I think card fees is certainly something we're counting on also to give us a little bit in the way of outsized growth. All those things in the context of controlling expenses is really how we get there.
Catherine Mealor -- Keefe Bruyette & Woods Inc. -- Analyst
Great. Got it. Okay. Thank you. Great quarter.
Michael M. Achary -- Chief Financial Officer
Thank you.
Operator
Thank you. And our next question is from the line of Michael Rose of Raymond James. Your line is open.
Michael Rose -- Raymond James -- Analyst
Hey, can you guys hear me?
John M. Hairston -- President and Chief Executive Officer
Yeah, Good morning.
Michael M. Achary -- Chief Financial Officer
We can.
Michael Rose -- Raymond James -- Analyst
Hey, sorry about that. Maybe just following up on the CSO question, can you give us the type of environment that you would need to see to kind of get there, and maybe just from a credit perspective and interest rate perspective, loan growth environment perspective, just what are some of the assumptions that go into achieving some of those CSOs that you have laid out? Thanks.
John M. Hairston -- President and Chief Executive Officer
Thanks. Okay, thanks for the question Michael. Mike Achary commented on the need to grow the loan portfolio in higher yielding segments and that's pretty much the requirement to do if we're going to see the types of NIM expansion that we envisioned necessary to get to a peer norm. Right now we underperform on NIM and we're very anxious and interested in closing that gap. So our ability to grow credits at the lower end in size and granularity in the portfolio is going to be important. That change has been yielding good fruit and we've been seeing that throughout the year and the production levels for 4Q '18 versus '17 in those segments have been impressive. And we would expect to see that continue throughout the year based on the investments and the focus we have in that area.
Another area that -- I don't know if I'd mentioned expenses or not, but we continue to reinvest heavily in those areas of the Company that help with both NIM expansion and loan growth in granular segments, deposit retention, and that would include digital investments. And so as we invest in those types of utilities that helps our bankers being more effective and our clients more sticky inside our book, we have to be very good at containing other cost to act as somewhat of an offset to that growth. So managing expenses well while those investments occur and then that result in better operating leverage over the next couple of years is very important. With respect to the environment, obviously, we don't have a really ugly recession built into those types of goals. So if the macroeconomic conditions were to degrade, the industry would be under a little bit more pressure and we didn't really make any bets one way or the other, in the numbers for that we assumed a relatively steady state.
Michael M. Achary -- Chief Financial Officer
Michael, the only thing I would add to that is, again, we have this footnoted on the CSO slide that we're not assuming really any change in the interest rate environment over the course of '19 and '20. So we have no rate hikes built in to those projections that get us there and then also, we're not assuming that we would engage in any additional M&A activity.
Michael Rose -- Raymond James -- Analyst
Yeah, understand the no change in rates, but maybe any commentary around the shape of the curve, does that have any sort of impact?
John M. Hairston -- President and Chief Executive Officer
Sure, it does. And certainly, again, when we talk about no rate hikes and no change in the interest rate environment that's inclusive of really the shape of the curve.
Michael Rose -- Raymond James -- Analyst
Okay, that's helpful. And then maybe just one follow-up for me. You guys are back to 8% TCE, bought back a little bit of stock earlier in the quarter. As we move forward and particularly into 2020, it looks like capital will begin to really build here. So what are your capital strategic priorities and does M&A come into the fold again at some point? Thanks.
John M. Hairston -- President and Chief Executive Officer
I think most of all, certainly on a shorter-term basis, meaning the next couple of quarters, we are in the mode where we would very much like to continue to build capital again for another couple of quarters, and then certainly as we get to the back half of the year we'll look to address things, like the possibility of any kind of strategic buybacks or even a dividend increase. So we also have, in terms of our capital plan, a desire to have our dividend payout ratio between 30% and 40%. So this quarter, for example, is (technical difficulty). So that's something we would like to address.
As far as M&A, the stance there really hasn't changed. We have no interest right now in any large bank or strategic M&A type transactions. We do pay attention and certainly look at smaller kind of infill deals, but even those transactions would need to fit pretty tight criteria and certainly be viewed as kind of a value transaction as opposed to something a little bit more strategic. In the event that we get into 2020 and again find ourselves in a position, potentially where we built some capital, certainly those priorities could change, but that will depend on the circumstances and I think where we are at that time.
Michael Rose -- Raymond James -- Analyst
Okay. And maybe just one follow-up on that, just given the fact that where your stock is, I mean any thoughts on raising some Tier 2 to maybe fund some additional buybacks here near term? We have seen several, I'd say, larger banks enact that strategy. So any thought given to that?
John M. Hairston -- President and Chief Executive Officer
Yeah, certainly that's something we'll consider, again, as I mentioned, probably more likely in the back half of this year.
Michael Rose -- Raymond James -- Analyst
Great, thanks for taking my questions.
John M. Hairston -- President and Chief Executive Officer
You bet.
Michael M. Achary -- Chief Financial Officer
Thank you.
Operator
Thank you. And our next question is from the line of Brad Milsaps of Sandler O'Neill. Your line is open.
Brad Milsaps -- Sandler O'Neill -- Analyst
Hey, good morning.
Michael M. Achary -- Chief Financial Officer
Good morning, Brad.
Brad Milsaps -- Sandler O'Neill -- Analyst
Mike, just curious, appetite around the balance sheet to further reduce the securities portfolio. I'm curious if that also is part of your strategy to hit the CSOs as you try to drive more NIM expansion, just kind of curious further opportunities to reduce that there. And then how many more VISA shares do you have left? Are there any opportunities for further restructuring or have you exhausted most of the gain you had there?
Michael M. Achary -- Chief Financial Officer
Related to the VISA-B shares, we did retain a small level of those, but for the most part we did sell the vast majority of what we owned. As far as the bond portfolio, certainly in addition to the impacts of the VISA-B restructuring transaction, we've been in a mode the last couple of quarters where we've been letting cash flow from our bond portfolio help fund loan growth, thereby improving our earning asset mix and then certainly that was a big help this past quarter as well. As we stand right now, the size of our bond portfolio is about 20% of our total asset base. That's right around the level that we'd like to maintain the bond portfolio. But certainly we are also very, very open to continuing the tactic of letting the bonds roll off and our maturities and cash flow out of the bond portfolio roll off and help to fund loan growth. So certainly that's something that we could avail or could continue to avail ourselves as we go through the next couple of quarters.
Brad Milsaps -- Sandler O'Neill -- Analyst
Great. And then maybe just one follow-up on asset quality. I understand you had the couple of cleanup credits this quarter that you had reserved for. Obviously, it looks like criticized NPLs all going the right direction. The reserve now though is below 1% of loans, you've kind of given guidance for a similar provision in the first quarter. Just kind of curious how you're thinking about providing for some of these higher yielding loan growth categories going forward, is just kind of sub-1% kind of a level to think about or is this something you would see build over time?
Michael M. Achary -- Chief Financial Officer
Well, that will depend, I think, obviously what happens in terms of future charge-offs. There's nothing that's out there that's looming that we haven't kind of dealt with already. So I think from a credit perspective and how we think about our ALLL, somewhere around the 1% level, I think, is a good place for us to be. So I would look for provisioning to kind of be aimed toward maintaining an ALLL somewhere in that range.
Brad Milsaps -- Sandler O'Neill -- Analyst
Great, thank you guys.
Michael M. Achary -- Chief Financial Officer
Okay.
John M. Hairston -- President and Chief Executive Officer
Thank you.
Operator
Thank you. And our next question is from the line of Ebrahim Poonawala of Bank of America Merrill Lynch. Your line is open.
Ebrahim Poonawala -- BofA Merrill Lynch -- Analyst
Good morning, guys.
John M. Hairston -- President and Chief Executive Officer
Hi, Ebrahim.
Ebrahim Poonawala -- BofA Merrill Lynch -- Analyst
Just wanted to follow up on your margin comments, Mike, and sorry if I missed some of this, but, one, was there any seasonal outflows that we should look out for in terms of the non-interest bearing deposits, because it seems like the public funds is all in interest bearing. So are there any seasonal outflows on NIB in 1Q that we should be expecting?
Michael M. Achary -- Chief Financial Officer
Yes, Ebrahim, certainly, again, and as I mentioned before, the fourth quarter has that aspect of seasonality where we typically have pretty nice inflows of DDA deposits. Those DDA deposits tend to be corporate and upper middle-market customers, as well as the public fund inflows. And certainly both categories of those deposit inflows this quarter were extremely helpful to our NIM and to our funding mix and again, enabled us to be much less reliant on borrowed funds. So as we move into the first quarter, certainly, we do see the beginning of some outflows related to both of those deposit categories. The public funds tend to roll off, beginning in the first quarter and really kind of picking up a little bit momentum as we move into the second quarter.
The DDA deposits have a tendency to stay just a little bit longer on some occasions and sometimes begin to flow out again as we move into the latter part of the first quarter and into the second quarter. So again, when we gave the range for the first quarter in terms of our NIM from 4% to 6%, I think the timing and magnitude of those outflows were really, more than anything else, determine whether we come in at the bottom of that range or potentially at the top of that range. So seasonality and timing is certainly a big factor.
Ebrahim Poonawala -- BofA Merrill Lynch -- Analyst
Understood, and thanks for going through that again. Appreciate that. And then just bigger picture, Mike, as I take a step back, I think the -- is it safe to assume if the Fed doesn't go anymore, the mix shift that we've seen toward CDs away from NIB deposits that continuing, where absent the rate hike, like 1Q should be the high watermark and the NIM probably drifts lower from there or does the sort of loan-to-deposit ratio going higher, like how do you think about managing the margin in that context?
Michael M. Achary -- Chief Financial Officer
Well, again as mentioned before, we believe what could happen certainly if the Fed remains on the sidelines is that at least for the next quarter or so, maybe two quarters, we go through a period where deposit betas probably kind of complete the process of catching up and then go sideways from that point. So, again, on a little bit longer-term basis related to our NIM, that will become a bigger factor as well, as the success we have, as John mentioned earlier, around growing our loan segments that give us the best potential to increase our loan yield.
Ebrahim Poonawala -- BofA Merrill Lynch -- Analyst
Understood. And just separately moving to loan growth, on slide eight you mentioned -- you call out the healthcare team in Nashville having pretty good growth. Can you remind us in terms of the size of the healthcare book and in terms of -- are these loans -- most of them either larger loans, either SNCs, would love to get more color, just because there is fair amount of credit concern around healthcare exposure of the banks and we have seen some hiccups over the last year. So understanding just in terms of your underwriting approach, risk inherent in that portfolio would be helpful.
John M. Hairston -- President and Chief Executive Officer
Ebrahim, this is John. It was a pretty good quarter for healthcare, maybe not as large as others. But what's in that book from our Nashville group is a very diverse group of credits. We really don't have much of a concentration in any one type of healthcare in that pie. And so we would really have not had a lot of concerns over any credit-related trends and really haven't seen any degradation.
Sam, do you have any commentary you'd like to add to that?
Samuel B. Kendricks -- Chief Credit Risk Officer
Other than we'll stay very tuned to the developed nations in healthcare generally. We are (inaudible) as it relates to legislative issues right now. Simply a bit of gridlock relative to ACA et cetera. So that group has done a good job of continuing to calibrate the portfolio, based on our expectations around emerging issues et cetera. So we feel very confident in the team and their ability to continue to manage that portfolio. We have moved some folks in and out of the portfolio based on our changing comfort level among various segments depending on these emerging issues as they are.
Ebrahim Poonawala -- BofA Merrill Lynch -- Analyst
Got it. And how big is the healthcare book and how much of those are SNCs?
Samuel B. Kendricks -- Chief Credit Risk Officer
We -- excuse me -- the Tennessee Healthcare group manages a very specific portfolio. We have a larger healthcare portfolio across the market.
John M. Hairston -- President and Chief Executive Officer
We talked about that. I think that's about $600 million, the Nashville Healthcare.
Samuel B. Kendricks -- Chief Credit Risk Officer
In the Nashville group. Yeah, that's correct.
John M. Hairston -- President and Chief Executive Officer
And from a growth perspective, we think that's going to be relatively flat in the first quarter.
Ebrahim Poonawala -- BofA Merrill Lynch -- Analyst
Got it. Thanks for taking my questions.
Operator
Thank you. And our next question is from the line of Brett Rabatin of Piper Jaffray. Your line is open.
Brett Rabatin -- Piper Jaffray -- Analyst
Hi, good morning.
John M. Hairston -- President and Chief Executive Officer
Hey, good morning Brett.
Brett Rabatin -- Piper Jaffray -- Analyst
Wanted to just go back to growth for a second, and just thinking about 2019, and you've gotten energy down to where you wanted it. I guess, I'm just curious, can you guys maybe give us a little color around like the bigger segments that you think will drive the growth in '19 and kind of where you see the opportunities in the various industries.
John M. Hairston -- President and Chief Executive Officer
Sure. That's a good question. We've said in a few quarters in a row now that our desire to enjoy better granularity in the book and therefore better yield would -- like loan growth, maybe not as much of a feature as had been in previous years, because we're not necessarily growing uniquely corporate middle market business. Part of that reason was because we had a greater desire to fund business growth from business deposits versus personal deposits, the margin between those were just too skinny. And so as a result, where we're growing, where we've been successful growing in the past year or so had been in the smaller end of commercial and where the consumer book was formally shrinking, it is now growing again. And so over the course of time and in the loan growth numbers that Mike has shared and when we talked about 2019, the expectation is that the portfolio loan growth may not be as large as it has been in some previous years. I think we used mid-single-digits as a guide. What will be different is what makes it a (inaudible).
Brett Rabatin -- Piper Jaffray -- Analyst
Okay, that's good color. And then just to go back to SNCs and just thinking about credit, you're focused on growing smaller loans. It's great to see the criticized loan totals be lower. Can you give us any color around just -- I think you've got about $1.8 billion of SNCs, just people are worried about leverage. Can you go through like what might look like that in your portfolio? And just would you do any SNCs this year with some larger banks, you're talking about it being a bit of an opportunity given some of that market going away?
John M. Hairston -- President and Chief Executive Officer
This is John. I'll start and then Sam can add some color. Our SNC book has been relatively the same number for a couple of years now. And any activity we would have in shared national credits this year is more likely a shift in the mix of what's in it, leaning more to credits that have an opportunity for fee complement or some offset depository relationship versus shares of just very, very large credits where we're a very small part of it. So I don't see the SNC portfolio growing a great deal at all this year, I think it's more a matter of just mix change in the SNC book, just like we have in the overall loan book as a whole.
Sam you have anything to add in that?
Samuel B. Kendricks -- Chief Credit Risk Officer
No, I would agree with that. It is not a driver of our overall growth, it's not our strategy to grow through SNCs. We will manage the portfolio as we see opportunities that meet our sort of strategic goals, but we pay very close attention to both the banks we partner with and the clients generally that we are -- have either had some dealings with or that we feel very confident in the industries and the management teams that they operate.
John M. Hairston -- President and Chief Executive Officer
And this is John. Our confidence in that posture is born from the last year or two of being able to be successful growing other areas. And as long as that success continues, then our posture on SNCs will likely remain just what we just said.
Brett Rabatin -- Piper Jaffray -- Analyst
Okay. I figured that might be the case. And then just to clean up there, what might count as leverage under FDIC classification in the book.
John M. Hairston -- President and Chief Executive Officer
I'm sorry. Would you restate the question?
Brett Rabatin -- Piper Jaffray -- Analyst
Yeah. I'm sorry. Just what might count as leveraged lending in the SNC book under the regulatory classifications, six times or above EBITDA?
Samuel B. Kendricks -- Chief Credit Risk Officer
I don't have that data handy with me right now. So...
Brett Rabatin -- Piper Jaffray -- Analyst
Okay.
Samuel B. Kendricks -- Chief Credit Risk Officer
We have to follow up (multiple speakers).
John M. Hairston -- President and Chief Executive Officer
So Brett, the total size of the SNC book in the fourth quarter was about $1.9 billion. About 25% of that was energy and the remaining three quarters was non-energy. And I don't think we've disclosed in any form that I can recall how much of that's been leveraged.
Brett Rabatin -- Piper Jaffray -- Analyst
Okay. Thanks for the color. Appreciate it.
John M. Hairston -- President and Chief Executive Officer
Okay. Thank you.
Operator
Thank you. And our next question is from the line of Jennifer Demba of 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 CSO and your preparedness for that, when we might get some guidance as to what your provisions and reserves could look next year.
Michael M. Achary -- Chief Financial Officer
Jennifer, good morning. This is Mike. And like everyone else out there, we are hard at work on implementing CSO and I think we're making great progress in that regard. We haven't reached the point where we're prepared to give any kind of color as to where we think potentially the one-time adjustment at year-end could come in at or how CSO could impact our provisioning on kind of a go-forward basis. But certainly, I think that we would be in a position to begin commenting on that at some point in the second half of this year.
Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst
Okay. And second question is government shutdown, any thoughts on the impact of that as you see it and are you seeing any impact of that this month?
John M. Hairston -- President and Chief Executive Officer
Jennifer, this is John. Not really. And we, like most of our colleague organizations, are doing all the right things to support those, maybe without a payroll right now. It's not a material impact either way. And since SBA credits have sizable portion of our growth story, the fact that some of those credits may be a little more difficult to get done right now, has not really impacted us. So we certainly would like to see a resolution, so we can get back to steady state, simply because of all uncertainty (ph) it causes, but it has not been a material impact to us really in any way.
Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst
Thank you.
John M. Hairston -- President and Chief Executive Officer
Thank you.
Operator
Thank you. And our next question comes from the line of Matt Olney of Stephens. Your line is open.
Matt Olney -- Stephens, Inc. -- Analyst
Thanks, good morning guys.
John M. Hairston -- President and Chief Executive Officer
Good morning Matt.
Matt Olney -- Stephens, Inc. -- Analyst
Want to go back to the credit discussions, and it sounds like you guys are pretty confident you're going to see continued improvements on your credit trends throughout 2019. I think you said you could approach peer levels at some point. Can you just add some more color as to what's driving that confidence that credit will continue to improve throughout 2019?
Samuel B. Kendricks -- Chief Credit Risk Officer
Matt, this is Sam. As we come to our clients we measure sort of the forward trajectory relative to their projections and their performance against projections. Generally folks are tracking pretty well. So we sort of have a forward outlook as we think about our criticized loans, classified loans, just generally sort of mapping out where we think things will head. So at this point we feel positive. Now that's absent any significant economic change, et cetera, but based on the sound economic data points that we see today, things are tracking along and so we continue to expect general improvement. We also have some resolution plans on some problem loans that are continuing to work their way through the process.
So at this point, we feel like that is a reasonable sort of expectation relative to our portfolio. We've had some success along those lines through 2018. And we'll continue to pursue those strategies that have worked for us thus far.
John M. Hairston -- President and Chief Executive Officer
And Matt, this is John. In slide 10 of the deck, there are trend lines that break out energy versus non-energy. And the energy trends, as you see, have been attractive to an improvement, but those percentages are still high relative to where our energy book typically is. And that's just the lingering effects of the cycle, and in particular SNC ratings on upstream credits. And so I think as those -- we look for those to improve, we'll be disappointed if that didn't continue to improve. And then on the non-energy side, we've had some improvement there that we expect to continue. So I think really our book is healing from all the different activities that occurred in the last several years and we really would be disappointed if we didn't see that continue.
Matt Olney -- Stephens, Inc. -- Analyst
And then changing gears onto loan growth, I think in the prepared comments, you guys gave several descriptions and drivers of the strong loan growth in the fourth quarter. I think one of the things you mentioned was that there were some loans that were booked this quarter that weren't really in the pipeline earlier in October. Did I hear that right? Could you just kind of clarify the dynamic of what occurred in the fourth quarter that drove some loan growth that you didn't expect earlier in the quarter?
John M. Hairston -- President and Chief Executive Officer
Yeah, that's correct. There were two primary causes of the outperformance. One was there were credits and opportunities that we didn't see early in the quarter and before we gave the 4Q guidance that -- that occurred that we were able to win. And there were a sizable chunk of CRE credits just in the normal course of completing construction and those credits moving off the permanent markets didn't quite close in December as we expected and those slipped into Q1. So all of that is built into the loan growth guidance for first quarter. Does that answer your question?
Matt Olney -- Stephens, Inc. -- Analyst
That helps. Thank you for that. And then just lastly, I'm trying to appreciate the loan mix shift that you've talked about on this call. And I think I appreciate the focus on the higher yielding loans. Can you talk about the -- I guess some of the lower yielding loans that you could potentially exit this year? I guess you sold some lower yielding municipal loans in the fourth quarter. Could we see additional strategic exits like that this year or could we see some additional run-off of some lower yielding loans? Anything else notable on that side of exiting some of those credits?
John M. Hairston -- President and Chief Executive Officer
I'll give it a whirl. And then Mike may want to add some color there. I think we will continue to see the public finance credit sector decline throughout the year and that's not because we're afraid of the book, it just has very low yields. The indirect auto book will be, I think, paring down in volume, simply because the value right now for four and five year money is just not as attractive as we think it perhaps will be later and so when the yield curve provides a little bit better shape.
So indirect is likely to shrink. And in mortgage, while it may grow a quarter and maybe even in second quarter, by the time we roll them into second half of the year, just given the rate environment, we expect the mortgage book to shrink as well.
So areas that will offset that and become better would be the remainder of consumer, as was mentioned earlier, and then on the smaller end of business and commercial banking. And the difference in the yields of those portfolios are remarkable.
Michael M. Achary -- Chief Financial Officer
And John, nothing to add to that. Matt, you asked about potential for additional sales or exits. There's nothing planned right now that we've identified. And certainly we're cognizant of when those kinds of opportunities arise. So certainly that's something that we continue to look at.
Matt Olney -- Stephens, Inc. -- Analyst
And that municipal loans that you sold last quarter, I think you said it yielded about 2%, is that relatively close to what the overall portfolio still yields today?
John M. Hairston -- President and Chief Executive Officer
In terms of the public finance book, yeah, it's a little bit north of that. So we sold the lower yielding loans that were in that portfolio. And you're right, the 2% is what was the yield in what we sold.
Matt Olney -- Stephens, Inc. -- Analyst
Got it. Thank you, guys.
John M. Hairston -- President and Chief Executive Officer
Thank you.
Operator
Thank you. And our next question is from the line of Christopher Marinac of FIG Capital Partners. Your line is open.
Christopher Marinac -- FIG Partners LLC -- Analyst
Thanks, good morning guys. You had answered my credit questions from Matt and Brad earlier. So thank you for that. Just want to follow up on the legacy kind of Hancock footprint on the Gulf Coast. Would you depict it as being stronger or about the same if you look back the last six to nine months?
John M. Hairston -- President and Chief Executive Officer
About Gulf Coast, do you mean Mississippi or you mean along the Panhandle and Alabama et cetera?
Christopher Marinac -- FIG Partners LLC -- Analyst
I guess all of it John, I think the whole -- the whole piece would be great.
John M. Hairston -- President and Chief Executive Officer
I think it's probably a little better than it was when we put the banks together. If you remember back in the post Katrina environment, the economic growth was still relatively slow. The focus was on rebuilding and so there was lots of construction activity going on in those days, but it was much more difficult to recruit new employers to the region, because their memory of Katrina was so vivid. That appears to have diminished a great deal.
And so really all along the Gulf of Mexico and our footprint, we're seeing a better outlook for economic development. And the only damp spot or soft spot maybe in the area where Marine services drives the economy in a small portion of Louisiana, but that even seems to have stabilized. And while it's certainly not growing impressively today, as the Gulf gets a little busier perhaps in years in the future or due diversification from the economic leadership of those communities, we expect that not to lag as much it is now. So we're pretty warmed (ph) to the economic development opportunities along the Gulf.
Christopher Marinac -- FIG Partners LLC -- Analyst
That's great guys. Thank you very much for all the color this morning.
John M. Hairston -- President and Chief Executive Officer
You bet. Thank you and thanks for the question.
Operator
Thank you. This does conclude the question-and-answer session. I'd like to turn the conference back over to Mr. John Hairston for the closing remarks.
John M. Hairston -- President and Chief Executive Officer
Thanks Amanda for handling the call. And thanks to everyone for your interest in Hancock Whitney. Have a great day.
Operator
Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.
Duration: 55 minutes
Call participants:
Trisha Carlson -- Manager of Investor Relations
John M. Hairston -- President and Chief Executive Officer
Michael M. Achary -- Chief Financial Officer
Catherine Mealor -- Keefe Bruyette & Woods Inc. -- Analyst
Michael Rose -- Raymond James -- Analyst
Brad Milsaps -- Sandler O'Neill -- Analyst
Ebrahim Poonawala -- BofA Merrill Lynch -- Analyst
Samuel B. Kendricks -- Chief Credit Risk Officer
Brett Rabatin -- Piper Jaffray -- Analyst
Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst
Matt Olney -- Stephens, Inc. -- Analyst
Christopher Marinac -- FIG Partners LLC -- Analyst
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