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Hancock Whitney Corporation (NASDAQ:HWC)
Q4 2019 Earnings Call
Jan 16, 2020, 9:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to Hancock Whitney Corporation's Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions] Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]

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 risk and uncertainties identified therein.

Hancock Whitney's ability to accurately project results or predict the effects of future plans or strategies or predict market or economic developments is inherently limited. We believe that the expectations reflected or implied by any forward-looking statements are based on reasonable assumptions, but our actual results and performance could differ materially from those set forth in our forward-looking statements. Hancock Whitney undertakes no obligation to update or revise any forward-looking statements, and you are cautioned not to place undue reliance on such forward-looking statements.

In addition, some of the remarks this morning contain non-GAAP financial measures. You can find reconciliations to the most comparable GAAP measures in our earnings release and financial tables. The presentation slides included in our 8-K are also posted with the conference call webcast link on the Investor Relations website. We will reference some of these slides in today's call. Participating in today's call are John Hairston, President and CEO; Mike Achary, CFO; and Chris Ziluca, Chief Credit Officer.

I will now turn the call over to John Hairston.

John M. Hairston -- President and Chief Executive Officer

Thanks, Trisha and happy New Year, everyone. We hope you had a healthy and enjoyable holiday season. As noted in our release yesterday, we completed 2019 on a positive note, surpassing expectations with solid results. Earnings excluding merger costs were $1.06, up 3% linked quarter. Our operating leverage increased quarter-to-quarter and we reported loan growth in line with guidance, including a reduction in our energy portfolio of just over $70 million. Criticized loans decreased, NIM expanded and our capital levels remained strong, even with the share repurchases during quarter four.

For the year 2019, the story was similar. Earnings excluding merger costs were up; operating leverage increased $24 million compared to 2018; loans grew $1.2 billion, criticized and non-performing loans both declined year-over-year; and our TCE ratio was up 43 basis points. As we begin 2020, our team remains focused on building upon positive momentum and also capitalizing on available opportunities in our markets.

Please refer to Slide 6 in the earnings deck to see a five-year look back, indicating marked improvement the company has made through those years. We charted a new course in 2015 that was designed to return us to the profitability levels we had planned for. Challenging rate and credit environments caused us to reevaluate strategies and make appropriate adjustments. During the same time period, we benefited from a growing US economy and restarted acquisitions. We completed five transactions in the past five years that were financial in nature, an accretive immediately to earnings.

Along with a deliberate remix in lending growth, the transactions helped to grow the company to over $30 billion assets and have strengthened our position in existing markets and facilitated entry to new ones. Through it all, our capital has remained strong and we have managed it, we believe, in the best interest of our shareholders through organic growth, increasing dividends, stock repurchases and profitable mergers and acquisitions.

Slide 7 addresses focus areas for 2019. With profitability back to peer levels and holding despite a falling rate environment, we worked vigorously to bring our margin and credit metrics back to or better than peer averages. We have made progress on both actually moving above average on one. The top right chart on Slide 7 shows our NIM. In the first quarter of 2019, we achieved peer levels. Then for the past three quarters, we have actually reported a better than peer average margin.

While we can check the box on this one, we will not lose sight on what it takes to keep it there. The other two metrics are related to asset quality. We have made meaningful progress on both, but still have work to do, especially on non-performing loans and TDRs. The gap to peers on criticized loans has diminished from 375 basis points in the first quarter of 2018 to only 44 basis points today, while the gap on NPLs is narrowed from 145 basis points to 72 basis points.

Turning now to the future. As we do each January, we have updated our Corporate Strategic Objectives or CSOs found on Slide 22. Our CSOs are based on the results of our annual budget and multi-year business plan. That has not changed. With achievement of profitability metrics, we opted to take a more conventional approach to discussing longer-term goals. Instead of specifying a particular target quarter two years out, we are sharing our expectations for a three-year annualized outlook represented by the business plan.

If interest rates change for the better or we find an acquisition like previous ones, we expect to accomplish the goals early. If the environment changes and presents more challenges, it could take us longer to achieve. Our CSOs are meant to convey where we believe the company is headed based on our focus and outlook today, all designed to enhance shareholder value. In recent months, we fielded questions about the company's technology readiness and scalability.

Slide 23 in the investor deck provides a short description of where we are in multi-year technology investments. The company is both competitive and scalable already with additional improvements, specifically in sales technology deploying over the next several quarters.

With that, I will turn the call over to Mike for a few additional comments and details.

Michael M. Achary -- Chief Financial Officer

Thanks, John. Good morning, everyone. EPS for the quarter was $1.03 and included nearly $4 million or $0.03 per share of the final merger costs related to the MidSouth acquisition. So EPS excluding those non-operating expenses was $1.06. For the year, EPS was $3.72 on a reported basis, but did include almost $33 million of MSL related merger cost. Excluding those costs, operating EPS for the year was $4.01. Loan growth for the company was in line with our guidance of mid-single digit average growth year-over-year, with the quarter coming in as expected. MidSouth did add $785 million of loans in the third quarter. However, we also saw a decrease in legacy energy loans of $164 million over the course of 2019.

We expect to continue shrinking our energy book in 2020 and offsetting that reduction with more granular production across our footprint and in other specialty lines of business. We hit our energy concentration goal of below 5% during 2019 and with the de-emphasis on that type of lending, we are updating our strategic goal to 2% to 4%. While there were no energy charge-offs this quarter, we do expect to see continued one-off type activity as we resolved our remaining problem loans from the energy cycle.

We're pleased to be back on track in resolving problem credits. Criticized loans were down $79 million from September 30 and after a blip last quarter related to MidSouth in the Shared National Credit exam. Non-performing loans had a small uptick this quarter with an increase of $23 million. However, our year-over-year numbers did show improvement. Going forward, we expect to see continued improvement on an annual basis and our asset quality metrics, but do remind folks that the quarter-over-quarter progress will not always be linear.

Our net interest margin was one of the bright spots for both the quarter and the year with expansion reported linked quarter, same quarter a year ago and year-over-year. Proactive NIM management that included a focus on improving loan yields and reducing deposit costs were significant focus points in 2019 and will continue to be in 2020.

Slide 15 details the NIM change quarter-over-quarter. As you can see the impact of MSL for a full quarter and the accretion related to that acquisition drove an 11 basis point expansion from last quarter. There were no interest recoveries this quarter and that coupled with the net impact of the recent Fed rate cuts were headwinds. The swap in funding from brokered CDs to home loan advances was a welcome tailwind and altogether helped drive the overall 2 basis points of expansion for the quarter.

Going forward, we do expect to see some run-off in our accretion levels from normal activity, as well as reclass a part of our discount under CECL. However, given the portfolio management activities, we noted earlier, we do expect our core NIM to remain relatively stable. Our NIM guidance does not include any additional rate cuts in 2020. Fee income was basically flat linked quarter, as the addition of a full quarter of MidSouth's fees was offset by a lower level of specialty income. For the year, however, fees were up $30 million partly driven by those specialty lines. Operating expenses were up linked quarter as expected, a full quarter's impact [Phonetic] from MidSouth added $8 million in operating expense with about $3.5 million of that total related to personnel expense. As noted earlier, all MSL related cost saves were achieved in the fourth quarter.

As John noted earlier, capital remains strong with TCE ending the year at 8.45%A. The decrease from third quarter was related to the stock buyback we announced in October. As a reminder, we entered into an agreement on October 21 to repurchase about 5 million shares of our common stock through an accelerated share repurchase program or ASR. On day one, we received 3.6 million shares, which is included in our fourth quarter's EPS calculation. We expect to receive the balance of shares by mid-year, with the number of shares dependent on our stock price over that period. The ASR allows us to essentially buy back a similar number of shares as the number issued for the MidSouth acquisition, basically changing it from a stock to cash transaction and improving the profitability of the deal.

And finally, Slide 22 includes forward guidance consisting the both our near-term outlook and longer-term goals for our CSOs.

I'll now turn the call back to John.

John M. Hairston -- President and Chief Executive Officer

Thank you, Mike and let's open the call for questions.

Questions and Answers:

Operator

[Operator Instructions] And our first question is from Catherine Mealor from KBW. Your line is now open.

Catherine Mealor -- KBW -- Analyst

Thanks. Good morning.

John M. Hairston -- President and Chief Executive Officer

Good morning.

Catherine Mealor -- KBW -- Analyst

Wondering if you could just first start on the fee guide. You said that you believe fees will be up by about 2% to 3% next year, which I think was a little bit lower than what The Street has been modeling. Can you just talk a little bit through how you're getting to that guidance and how we should think about the level of specialty fees that you're including in that guidance versus what we saw in 2019? Thanks.

Michael M. Achary -- Chief Financial Officer

Sure, Catherine.

John M. Hairston -- President and Chief Executive Officer

And this is John, and Mike might want to add some color when I'm done. The forward-looking guidance on fees presumes a very static rate environment, which typically is not beneficial for the specialty income. We assume the same thing this time last year, then, of course, things didn't work out that way and fees outperform. So I think it would be fair to say that the guidance maybe a little conservative, depending on what the right environment looks like. That flat rate environment also presumes very little refi mortgage income in it, which may also be a little conservative. So we try to be very honest in what we believe will happen in the coming quarters. And so where our assumptions are that the right environment won't be terribly helpful in fee income that may prove to be conservative.

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

Michael M. Achary -- Chief Financial Officer

Yeah. Thank you, John. So again, the guidance of 2% to 3% on fees. I think the range there admittedly is on the conservative side. And I think, we certainly have an opportunity to outperform that guidance. As John mentioned, if we look back, especially over the second half of '19 really almost all of our fee income growth was in the specialty lines that John mentioned. So that's things like BOLI derivative fees, our venture capital fees, mortgage banking and syndication. We had absolutely excellent growth in performance and really all of those specialty lines, the second half of '19. And the assumption as we go into '20 is that those fee income lines, while certainly have the potential to repeat that performance. It's just not something that at this point, we feel we can count on with complete confidence. So again, conservative assumption around the guidance and certainly an opportunity to outperform I think.

Catherine Mealor -- KBW -- Analyst

Okay. That's helpful. And then, I appreciate the longer-term CSO goals. As we think about this year, if we kind of piece some of your guidance together, we've got mid-single digit growth with a fairly stable margin and then low-single digit kind of fee growth, which maybe there is upside there, but and then that coupled with this higher 6% to 7% expense growth. It feels like this will be a hard year for you to show positive operating leverage and maybe that's more of a 2021 event. Is that the way we should think about it or do you think there are ways to get positive operating leverage this year?

Michael M. Achary -- Chief Financial Officer

Well, I think if we're going to be in the conservative side, you're probably right, but I also think we do have opportunities to outperform a bit. We talked about those opportunities in fee income. And certainly, I think we have that opportunity in spread income. The guidance that we're giving around loan growth again is mid-single digits. If the economy continues to perform well, we have an opportunity there to outperform. And then related to our NIM, we absolutely have some headwinds around accretion, some of that's related to the accounting change related to CECL, and some of that discount moving to the ACL.

But as we mentioned in the guidance, we believe we have an excellent opportunity to have really good stability when it comes to our core NIM. You see in our materials, I think we've done an excellent job with our remix focus, we can talk about that a little bit more later, but especially on deposit costs. So those efforts around the things that helped us outperform in NIM this year absolutely will continue in 2020 and certainly gives us opportunities, I think to show some positive operating leverage this year.

John M. Hairston -- President and Chief Executive Officer

And Catherine, this is John. The only thing I would add to that since you brought up the expense number is -- in the guidance, we broke apart the -- I guess what you would call normal inflationary increases of 2% to 2.5%, which would be indicative of the same type of expense management we've had the last several years. The increase in the overall expense number take out MSL, which is easy to understand. The rest of that is purely offensive investment, that's in bankers, teams and technology investment, all geared to take advantage of what probably is the most sweeping market disruption we've had from our Eastern border to our Western border. So we believe this is a good year to invest aggressively and playing offensive ball.

And the timing of doing that, may lead to the expense load occurring before we get the benefit of the gains, and so some of that is timing. So when you say operating leverage improvement in '21, maybe better than '20, we absolutely believe it will be good in '21. And the timing of all that investment relative to benefit may lead to '20 be a little bit more dampened, but that's a positive. So looking at the expense number, we would encourage you, don't look at it as negative. It's not. It's a positive because of where we are investing and what we expect the benefits to be going forward.

Catherine Mealor -- KBW -- Analyst

Great. That's super helpful. Thank you so much.

John M. Hairston -- President and Chief Executive Officer

You bet. Thanks for the questions.

Operator

Thank you. Our next question is from Michael Rose from Raymond James. Your line is now open.

Michael Rose -- Raymond James -- Analyst

Hey. Thanks for taking my questions. Just wanted to go back to the expenses. Appreciate the Slide 23, talking about all the technology initiatives that you have planned. Is this a multi-year build out, meaning, should we expect additional incremental investment beyond 2020 into 2021 and 2022, outside of the 2% to 2.5% kind of inflationary expense growth that you guys will have every year? Just trying to size, where you stand in terms of technology investments and how long the investment period could be? Thanks.

John M. Hairston -- President and Chief Executive Officer

Thanks for the question, Micheal. This is John. No, you'd expect the expense growth in '21 deploying down. We're not prepared to give numeric guidance around that. But in terms of specific of the technology investments, this is more the wrapping up of a multi-year technology investment than the beginning. We've been doing this now for a really about five years and aggressively the last three or four. And heretofore, have been able to cover all those cost increases with operational synergies from within the company. The combination of doing that plus the investments back in advantageous investments for market disruption. Those pile up together to create the 6% to 7%. But I would look more for our customary increases in '21 over '20, versus the little bit larger one in 2020.

Michael Rose -- Raymond James -- Analyst

Okay. That's helpful. It looks like the kind of the end of the investment process. Okay. That's clear.

John M. Hairston -- President and Chief Executive Officer

Well, you never say there is no investment Michael, of course. But I think I would say it's more normalized. And also in just the dynamics, I don't want to get too far in the weeds and complicate it. But a lot of the investment is in back office automation to kind of finish what we did the last several years. So what will happen is the operational synergies that cover the bulk of that cost, reminder being revenue growth to make it a very profitable venture, but those come in the late part of '20 and '21 just through reductions in some of the back office areas where that work just simply goes away and the elimination of paper from branches and whatnot.

So also out there, which we're not prepared to give any detail around, but the investments in digital have been beneficial. The app ratings and the adoption of usage of those for servicing transactions has dramatically increased and really did in '19 over '18. That will facilitate some additional redirection of expense dollars from a brick-and-mortar to both digital and to analytics used to create revenue. So I think, I would look at this more as finishing what we began a few years ago than something new. We've already absorbed the bulk of all of our technology cost.

Michael Rose -- Raymond James -- Analyst

Very helpful.

Michael M. Achary -- Chief Financial Officer

This is Mike. As John mentioned, what we'll see in '21 is some of the benefits of the investments we're making this year. That will help offset future investments and expenses.

Michael Rose -- Raymond James -- Analyst

Sort of the previous question about operating leverage. Understood. One follow-up for me. Just wanted to touch on asset quality. Energy clearly has been in the headlines over the past couple of months. Just wanted to get a sense from you guys, where you think we are in the process of this kind of second cycle, the first being the '14, '15 downturn, a couple of years of improvement and now some negative migration across the space now. Do you think this is kind of plays out over the course of the next year or we kind of near the end of it at this point? Thanks.

John M. Hairston -- President and Chief Executive Officer

Well, this is John, I'll start and Chris can address. Thank you specifically. But there is really two ways to look at the, I'll use your words the second wave of energy. One is the impact on the balance sheet, and the second is AQ specifically. And if we look at the balance sheet, we've been pretty steadily reducing energy balances altogether. And some of the color that we've given, I don't remember the slide numbers for energy, but it's been a pretty healthy reduction in outstanding, and that's going to continue. And while energy is a good business and specifically E&P has been more volatile.

So as a result, we continue to press down on that overall book of business. We're being responsible and we're taking care of core flow relationship clients. But the non-core relationship paper will, over the course of time continue to reduce. So we are doing no new energy work except with very core full relationship clients we know a lot about. And so when you noted in the guidance, the 2% to 4% target versus the 5%, that's the play there.

So the impact of another cycle and energy will force those balances down. And some of the loan guidance that we gave for the year, not some, it includes all of the expected reductions in energy, offset by more granular, more spready lines of business. So hopefully, that will address the balance sheet part. Chris, you want to talk about AQ, specifically?

Christopher S. Ziluca -- Chief Credit Officer

Yeah. I mean up from my perspective, we think that energy is going to continue to be an area of focus for us. And we don't really anticipate any sort of bounce back in improvement in the sector. So as a result, all of our actions from an asset quality perspective are to continue to drive down our asset quality issues in the energy portfolio specifically.

John M. Hairston -- President and Chief Executive Officer

And this is John, again. An interesting phenomenon in the last couple of quarters is when we bought some really impressive, I think, improvement in the criticized book, a lot of that was related to energy. And so that the downward pressure has been almost uniquely if not completely uniquely E&P, which we really didn't expect to see particularly with the performance of crude prices and to a lesser extent, that gas. [Phonetic] And so it's certainly disappointing to even still be talking about energy. And that has proven to be somewhat less predictable as an industry. Therefore it doesn't fit our desire to have less volatile earnings in the future. So for that reason, the energy book will continue to decline.

Christopher S. Ziluca -- Chief Credit Officer

That's very helpful. Thank you guys for all the color. [Speech Overlap] Thank you. Thank you very much. Appreciate it.

Operator

Thank you. Our next question is from Brad Milsaps from Piper Sandler. Your line is now open.

Brad Milsaps -- Piper Sandler -- Analyst

Hey. Good morning guys.

John M. Hairston -- President and Chief Executive Officer

Good morning, Brad.

Brad Milsaps -- Piper Sandler -- Analyst

Appreciate all the color and guidance. I just wanted to maybe delve into the NIM a little bit more, your guidance around a stable core NIM. Just kind of curious to the moving parts there, particularly, so do you think more of that stability is going to come from changes you'll make in the balance sheet versus opportunities maybe on the deposit side? It's particularly in the context of, I think it's Slide 16, where you show new loan yields, I think, were down a fair amount linked quarter due to some specials you've been running? Just kind of curious, if those specials expired and might we see that maybe tick up a bit in coming quarters?

John M. Hairston -- President and Chief Executive Officer

Yeah, specifically on that Brad, some of that was some of the consumer and home equity related promotions that we had done. So we absolutely expect on a go forward basis for the yield on our new production to kind of bounce back. But to answer your question, I think there are several areas that will help us with our efforts to keep our core NIM stable, if not have an opportunity to outperform a little bit. First will be, certainly, to continue the efforts around remixing our loan book and striving for production that's more granular, down segment and having higher yields. So, that absolutely will continue. And again has been, I think, a bright spot in our efforts to manage our NIM in the past year or so.

Second, deposit rates. In that slide in the deck, it shows a monthly break out of our cost of deposits. And you can see that I think we've had pretty good success in being pretty proactive in reducing our deposit rates with really very little in the way of customer pushbacks. So those efforts will absolutely continue even in the face of what we believe will be a flat rate environment. Kind of aiding our deposit costs a bit is that we have a pretty, pretty good quantity of CD maturities, especially in the first half of 2020, little bit less than $2 billion that will be coming off at a little bit less than 2%. So the reinvestment of those CDs at a significantly lower rate will obviously be helpful.

And then thirdly, managing the balance sheet. I think we, again as I mentioned have opportunities to maybe outperform our loan growth guidance a bit, but we also have opportunities to potentially look at doing some restructuring our bond portfolio. I'm not ready to talk about any of that in any degree of detail right now, but those are certainly things that, if we're able to execute on, will certainly be helpful to the overall efforts.

Brad Milsaps -- Piper Sandler -- Analyst

Great. Yeah. That's helpful. And then just kind of one follow-up housekeeping question on the expenses. Is the right starting point with the guidance versus 2019, is it the $737 million kind of core expense number that you guys disclosed in the release?

John M. Hairston -- President and Chief Executive Officer

Yeah. That's correct. So that $737 million excludes about $33 million of merger costs related to MSL.

Brad Milsaps -- Piper Sandler -- Analyst

Would it be fair to say that your guidance, you maybe go in sort of worst case scenario for fee revenues and maybe worst case for expenses, you're kind of conservative in both regards?

Michael M. Achary -- Chief Financial Officer

Well, as we kind of mentioned in some of the early discussion around fees, we do think that's conservative in the guidance that we've given. On the expense side, the 6% to 7% or so. I think there is an opportunity to come in may be on the lower end of that range, but those are the levels that we believe will occur over the course of 2020. We have again a pretty modest increase in base expenses, some 2% and then the MSL annualization that adds another 3% or so, and then the technology as well as the investments related to market disruption kind of rounds out the numbers.

John M. Hairston -- President and Chief Executive Officer

Yeah, Brad. This is John. I think the only comment, I'm just using that phrase, worst case on the expense number. But mentioned earlier a lot of offensive spend in that. So I wouldn't want to beat the number because we were unable to hire the number of bankers, we expect to hire. And those bankers are targeted at the more granular parts of our business that we now, I think we're kind of coming into our own in terms of being able to grow those areas. And so, I don't want to say, I won't the expense on the high, but I do want to make those investments, and see those returns to create value down the road.

Michael M. Achary -- Chief Financial Officer

I think we're going to be shy about spending money to take advantage of those market disruption.

John M. Hairston -- President and Chief Executive Officer

No, not at all. We think it's a good time to do it.

Michael M. Achary -- Chief Financial Officer

Yeah. It's a little bit of a once in a lifetime opportunity with that much disruption happening in the markets that we serve. And again, as we've talked about many times, that's something we're looking to enhance those opportunities around.

John M. Hairston -- President and Chief Executive Officer

And then say, and this is John, it's also somewhat exacerbated by the fact that the very, very large organizations and some of our markets are not as focused at those -- in those markets as we are. And so the sum of all of that opportunity is why we believe it's a good time to invest in all things that win the hearts and minds of prospective clients and so we're pretty aggressive there.

Brad Milsaps -- Piper Sandler -- Analyst

No. Thank you, guys. Really appreciate it.

John M. Hairston -- President and Chief Executive Officer

Sure. You bet.

Operator

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

Casey Haire -- Jefferies -- Analyst

Thanks. Good morning, guys. Wanted to touch on expenses again, just the 6% to 7. Can you guys provide like a breakdown between the three components MSL, tech, and then disruption opportunities? How much per each is driving the core -- driving it from that core inflation of 2% to 2.5% to 6% to 7%? And then do you guys have a -- is there any, any expectation that the disruption that you're seeing could contribute to 2020 or would that be gravy versus your guidance?

Michael M. Achary -- Chief Financial Officer

Casey, this is Mike. I'll start with kind of the build up of the 6.5%. As we mentioned, I think a little while ago, kind of looking first at the base increase related to expenses around 2%. Then the annualization of the MSL expenses will add year-to-year another 3%. And then the tech/market disruption expenditures 1% to 1.5%, so that's how we get to the 6.5% or so.

Casey Haire -- Jefferies -- Analyst

Okay. Great. And then like -- so on the disruption side, I know you mentioned that tech will produce revenues this year. Are you assuming any like, is the mid-single digit loan growth guide, does that assume that you do get some business from some of these assumed hires this year?

Michael M. Achary -- Chief Financial Officer

Well, first-off, I don't think there is any revenue this year associated with THE technology spend. The benefit related to that will come in '21, around some expense offsets. But to answer your question about the market disruption, the loan growth guidance that we've given of mid-single digits, does not include any benefits related to market disruption at this point.

Casey Haire -- Jefferies -- Analyst

Got you.

John M. Hairston -- President and Chief Executive Officer

We're pretty far down in the weeds on that one. But I will share the timing of the investment, the rollout schedule, some of the utilities we've been working on for some time, is loaded toward granular lending in the first half of the year. So presuming that, that is a successful mid-year rollout and we're timing the addition of the additional bankers to follow that pretty quickly. If we hit out of the gate pretty quickly on that, then we may see some benefit in '20, but we're not counting on that for the guidance that we're giving.

And if we outperform, great. If it takes a little longer than it will be more than '21, but I know you're kind of working on the proforma there. But the timing it's kind of hard to predict this many quarters away from the hires and who is available and when they come on and what the cost is. So we're doing our best to kind of give a direction of where we expect to invest this year. And what we think the impact of that will be is expressed to the CSOs. And if we get there earlier, maybe we'll outperform the CSOs in terms of timing and -- but that's our intended direction.

Casey Haire -- Jefferies -- Analyst

Okay. And just switching to sort of the NII front. I think most of us sort of thinking just grow the balance sheet, in line with loans. You guys do have a strong liquidity profile, is the expectation that you guys dip into that a little bit and we saw some positive mix shifts on the funding side with the brokered deposits. I guess basically, I'm trying to get at the average earning assets. Is that just track loan growth or does it lag it, if you guys dip in your liquidity profile?

Michael M. Achary -- Chief Financial Officer

I think a little bit of a combination of both. So you can assume that for all practical purposes, the bond portfolio will stay pretty static at around $6.2 billion. On the liquidity side, certainly we have opportunities, I think to again move our loan to deposit ratio up a little bit, and in offset some of that with earning asset growth. But we have a lot of levers and a lot of different avenues of flexibility, in terms of how we manage the balance sheet and rest assured that we're going to do that in a way that helps us maximize NIM, as well as net interest income.

Casey Haire -- Jefferies -- Analyst

Got you. Last one from me, just on CECL sort of the day two provisioning, your first quarter guide for provision, you're basically saying that it will be flat versus the fourth quarter here at $9 million on a similar expectation for loan growth pace. Is that what you're -- it seems like if the business is usual and there is not much of an impact from CECL day two provisioning. Is that the way to look at it?

John M. Hairston -- President and Chief Executive Officer

Yeah. I think for the next couple of quarters that's certainly the case. The provisioning will continue to be impacted by charge-offs, loan growth and things of that nature, as it's always been. Certainly, the kind of loan growth that we have will be important from a CECL perspective, both in terms of loss expectations going forward, but also duration. So those are all things that as we move through the CECL world will impact the provisioning.

The other thing that's out there too is the assumptions around kind of the macroeconomic environment. Right now, that's fairly benign. But at some point down the road of that changes that certainly will have impacts to CECL in the form of what our provisioning is. But to the next couple of quarters, I think it really is kind of as we just described more or less.

Casey Haire -- Jefferies -- Analyst

Okay. Great. Just one more if I could. The core NIM relatively stable, is that versus the fourth quarter here at 3.29% or is that versus 2019 overall?

Michael M. Achary -- Chief Financial Officer

We're talking about it -- relative stability from the fourth on, with some potential for a little bit of expansion.

Casey Haire -- Jefferies -- Analyst

Great. Thank you.

Michael M. Achary -- Chief Financial Officer

Welcome.

Operator

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

Matt Olney -- Stephens -- Analyst

Hey, thanks. Good morning, guys. I want to follow-up on the loan growth commentary and the guidance of mid-single digits. If I look at 2019 and strip-out MidSouth, I think the organic growth was closer to around 2%. So can you give us some more details on which loan categories do you expect to drive the 2020 growth? And John, I think you've mentioned more granular lending. Can you tell us more specifically kind of what's behind these new loans?

John M. Hairston -- President and Chief Executive Officer

So essentially to my puts and takes on a loan growth '20 over '19?

Matt Olney -- Stephens -- Analyst

Right.

John M. Hairston -- President and Chief Executive Officer

Did I hear you right?

Matt Olney -- Stephens -- Analyst

Yeah.

John M. Hairston -- President and Chief Executive Officer

Sure. Well, let's talk about what's the apps [Phonetic] are first. We already mentioned, energy, I won't go any further than that, that's going to be a declining one. I think indirect lending is part of consumer, will decline for the year. I mean the risk adjusted yields are just not as attractive and the captives or their financing add-ons at a rate that we just don't believe the risk adjusted yield is on the upside or has upside right now. So we will diminish indirect. I think CRE was a big pay down quarter for Q4. In fact I think we had about $200 million of pay downs, which is a much bigger number in Q4, down than we expected and that offset some of the growth we anticipated.

But the granular part of the quarter was actually solid and it was about consistent with quarter three. So I think we'll continue to see commercial banking, business banking, CRE even those are big pay down Q4 I think will be a good growth story for the year. And then across our markets, particularly in the back half of the year, as the disruption begins to -- began and we see advantages from the investments we're making. We should see some good commercial banking and perhaps middle market. So I think, energy in indirect has added downward and really everything else will be headed up for the year.

Matt Olney -- Stephens -- Analyst

Okay. That's helpful. And then I guess Mike, on the margin outlook, the commentary around the guidance around lower accretion levels from the reclass to ACL? Can you put a range on this reclass or can help us kind of size it up for our models as we transition into CECL for 1Q '20 and then the pace of that run-off throughout 2020?

Michael M. Achary -- Chief Financial Officer

Yeah. So for the amount of accretion run-off related to the reclass it's of around $3.5 million or so for the year. There's a little bit more of that, that will occur in the first quarter and then from that point on the accretion levels should even out a little bit.

Matt Olney -- Stephens -- Analyst

Okay. And then the last question from me, on the CSOs. I appreciate the update there. And I appreciate this more of a three-year update and you gave us the ROA, TCE and ROTCE, but we didn't see the EPS that we've seen in previous CSOs. Any color on why the decision not to include EPS this time?

Michael M. Achary -- Chief Financial Officer

I think we're just trying to approach it from a little bit more of a macro point of view, Matt. And certainly, I think we've given enough information that you can probably imply an EPS range to those numbers. But again, because the CSOs are now in the context of more three year targets, the challenges around kind of projecting that from an EPS perspective. We thought it was better served by substituting in ROA.

Matt Olney -- Stephens -- Analyst

Okay. That makes sense. Thank you.

Michael M. Achary -- Chief Financial Officer

You bet.

Matt Olney -- Stephens -- Analyst

Thank you. Our next question is from Ebrahim Poonawala from BofA Securities. Your line is now open.

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

Good morning, guys.

John M. Hairston -- President and Chief Executive Officer

Good morning.

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

Just so I guess, one question, given -- you've mentioned multiple times in terms of taking advantage of the market dislocations, that's happening because of M&A. Does that suggest that, you don't see Hancock being a participant in any kind of a larger deal and we should expect another year where we could see a MidSouth type deal as the most likely path on M&A, is that a fair conclusion?

John M. Hairston -- President and Chief Executive Officer

Yeah, I think absolutely is fair. So from an M&A perspective at least for the next year or two, I think what you can expect from us is a kind of transactions we've done in the last two or three years. So things of the nature of First NBC and MidSouth, we think, makes sense for us. Add-on to that, the opportunities we have for market disruption and that will be really be our stance, I think for the next year or two.

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

That's helpful. And just in terms of the buyback, so Mike, I think you mentioned there is about 1.5 million of shares as part of ASR which come in the second quarter. Could you, in the meantime be -- are you able to buy additional stock in the open market? And do you want to buy more stock, just remind us in terms of the TCE levels where you want to maintain and operate the bank at and how we should think about any additional buybacks?

Michael M. Achary -- Chief Financial Officer

Sure. So related to TCE, you see the number that the -- we came in at 12/31 [Phonetic], probably a little bit stronger than we had projected. So we're good as far as TCE and that not being a challenge or an implement toward any future buybacks. So as we said before, we're focused on kind of completing the ASR that should happen, really no later than the end of the second quarter. At that point, we'll get back presumably somewhere between 1 million and 1.5 million shares. We still have authority remaining. And the ASR does not preclude us from buying stock back on our own, while the ASR is still happening. So those will be decision that we'll look at and certainly consider the benefits of doing that on a go-forward basis. But I think without a doubt, our intent at this point is to focus on completing the ASR, and second half, looking at potentially buying back additional shares.

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

That's helpful. And just one last question, I'm not sure. So you've talked about your loan growth, but would love to hear, John, any color around just what you're seeing in the markets in terms of, we've got the state deal done this week? Is business sentiment getting better or like should we expect potential for upside surprise as things move along or do you expect things to remain a little more cautious, given this upcoming elections later this year, and if you're seeing any difference across your markets around growth appetite?

John M. Hairston -- President and Chief Executive Officer

That's a great question. We haven't really seen any change in sentiment quarter-over-quarter. We are mindful that it is an election year and there is a fair amount of disparity and the platforms that could lead to some concern from those business leaders who are in the investment business. And so if they begin to have some degree of concern as we get closer to November that it may be a less beneficial environment in 2021 and beyond for their industries. And that could curtail investment appetite, which would have a direct impact on loan growth.

So no change in sentiment now really at all. It really hasn't had any impact. And if anything, sentiment is, maybe slightly more positive, simply because that momentary couple of quarters, where there was a lot of hand wringing about a recession seems to have died down a good bit and I think we're sort of back to normal. So overall, our marketplace, I think, sentiment would be considered positive.

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

Got it. Thanks for taking my questions.

John M. Hairston -- President and Chief Executive Officer

Sure. Thank you for asking.

Operator

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

Jennifer Demba -- SunTrust -- Analyst

Thank you. Good morning.

John M. Hairston -- President and Chief Executive Officer

Good morning.

Jennifer Demba -- SunTrust -- Analyst

Question on the hiring opportunities with market disruption. Sounds like you want to -- biased at more toward your legacy market, I'm guessing, Louisiana and Mississippi. And how many hires do you have in the budget for 2020, given the guidance, the expense guidance you gave?

John M. Hairston -- President and Chief Executive Officer

Well, first question on where, the disruption is really not limited to the core. It's really spread across our whole footprint. And as you may remember, we have our healthcare practice out of Nashville, where Tennessee is beginning to look a little bit more promising as well. So it's really more franchise wide opportunities. In terms of numbers of bankers, it changes a little bit based on where we find opportunity, so if it's in the very granular areas, in business banking and commercial banking. The number may be a little bit higher. And if it's more in middle market, banking could be a little lower. So we have an assumption that I really wouldn't want to share across, with the public. But it would be the largest number of bankers we have hired for 2020 in any single year in the past five or six. So a little bit more substantial hiring than we've had in the past.

Jennifer Demba -- SunTrust -- Analyst

Okay. That's helpful. And, Mike, you mentioned earlier in the call, you are considering restructuring the balance sheet. Do you have any details you can share right now as to what you might be considering?

Michael M. Achary -- Chief Financial Officer

The comment was related to the bond portfolio and again, not prepared to share anything related to that. All I think I was doing is stating that as an opportunity at some point later in the year.

Jennifer Demba -- SunTrust -- Analyst

Okay. Last question, based on the comments earlier in the call, sounds like you feel like your fee income guide is fairly conservative. Are there any parts -- are there any other parts of your guidance you feel are on the conservative side or conversely you feel like have more opportunity for missing in this environment right now?

Michael M. Achary -- Chief Financial Officer

I don't think so. I will add again that related to the market disruption opportunities, there is really no revenue or balance sheet growth built into the plan related to that. So should some of those investments begin to yield positive results, then certainly that's upside to the guidance.

Jennifer Demba -- SunTrust -- Analyst

Thanks so much.

Michael M. Achary -- Chief Financial Officer

You bet. Thank you.

Operator

Thank you. Our next question is from Christopher Marinac from Janney Montgomery. Your line is now open.

Christopher Marinac -- Janney Montgomery -- Analyst

Thanks. Good morning. Just a quick one on the loan yield that you mentioned in the presentation last night. So when we look at the real change here, it is somewhat little bit worse than just the rates in the last quarter. But I'm curious if that is a one-time trend, Mike, or will that sort of continue to be an issue. This is just the new loan yield drop that changed so much in the last two quarters?

John M. Hairston -- President and Chief Executive Officer

Chris, you're talking about the Slide 16 of the deck, around new production yield. I'll give you a little color. This is John. Mike can add if he likes. That number is the average of the new business the day we initiate the transaction. And if you look at the rate curve throughout -- not the rate curve, but the actual LIBOR rates, between October, November, December, they slide precipitously, by the time we got to December, and cyclically -- and this was even more pronounced in this particular year's fourth quarter. Our production was heavily influenced toward December. And so the timestamp in the December LIBOR numbers dragged the computed number down to that 4.35. That was exacerbated by better than expected, which is a good thing better than expected equity line production business, which 4Q was usually not a big quarter for us, but this time it was.

And the teaser rates that those lines come on to prescriptively adjust in month six. And so the number looks like a much lower number. But a lot of that was due to timing and mix. And so, there was also a new market tax credit component to that, that we enjoyed the benefit of on the taxes side. But that also put the number a little lower. So I wouldn't call it normal. But it's really tough to predict what LIBOR is going to be on the day we put a loan on the books and that can have an impact sometime on the total. I don't know if that color was helpful for you. But that's really how the number got to what it was.

Michael M. Achary -- Chief Financial Officer

The only thing I would add is that, we do expect that number to improve as we go through 2020.

Christopher Marinac -- Janney Montgomery -- Analyst

Okay. That's super guys. Thank you very much for the additional color here.

Operator

Thank you. Our next question is from Will Curtiss from Hovde Group. Your line is now open.

Will Curtiss -- Hovde Group -- Analyst

Hey. Good morning, everyone.

John M. Hairston -- President and Chief Executive Officer

Hi, Will.

Will Curtiss -- Hovde Group -- Analyst

I wanted to just -- I mean you've addressed I think everything else, but just more curious kind of modeling question in terms of the merger related expenses of 3.9%, are you able to provide a little bit of break out in terms of where in expenses we can back those out? Thanks.

John M. Hairston -- President and Chief Executive Officer

It's a variety of different categories. Some of that is personnel and other expense as well. And, again, that's kind of our final merger cost related to MSL. The total was some $33 million.

Will Curtiss -- Hovde Group -- Analyst

Okay. And I know it's not as pronounced as last quarter. But in terms of how to break that out, is there any additional color you can provide in terms of where the majority of...

John M. Hairston -- President and Chief Executive Officer

Yeah, I think I just share that between personnel and other expense.

Will Curtiss -- Hovde Group -- Analyst

Okay. All right. Thanks.

John M. Hairston -- President and Chief Executive Officer

You bet.

Operator

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

John M. Hairston -- President and Chief Executive Officer

Okay. Thanks everyone for some very good constructive questions. We look forward to seeing you on the road sometime soon. Have a great day.

Operator

[Operator Closing Remarks]

Duration: 51 minutes

Call participants:

Trisha Carlson -- Manager of Investor Relations

John M. Hairston -- President and Chief Executive Officer

Michael M. Achary -- Chief Financial Officer

Christopher S. Ziluca -- Chief Credit Officer

Catherine Mealor -- KBW -- Analyst

Michael Rose -- Raymond James -- Analyst

Brad Milsaps -- Piper Sandler -- Analyst

Casey Haire -- Jefferies -- Analyst

Matt Olney -- Stephens -- Analyst

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

Jennifer Demba -- SunTrust -- Analyst

Christopher Marinac -- Janney Montgomery -- Analyst

Will Curtiss -- Hovde Group -- Analyst

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