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DATE
Tuesday, July 15, 2025 at 4:30 p.m. ET
CALL PARTICIPANTS
Chief Executive Officer — John M. Hairston
Chief Financial Officer — Michael M. Achary
Chief Credit Officer — Chris Ziluca
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TAKEAWAYS
Net Interest Margin (NIM): NIM expanded six basis points compared to the prior quarter in Q2 2025.
Adjusted Return on Assets (ROA): Adjusted ROA was 1.37% for the second quarter of 2025, reflecting Sable Trust Company transaction expenses.
Adjusted Net Income: Adjusted net income was $118 million, or $1.37 per share, for the second quarter of 2025, down from $120 million, or $1.38 per share, in the first quarter of 2025.
Pre-Provision Net Revenue (PPNR): Increased $5 million, or 3% sequentially, reaching 1.95% of assets.
Net Interest Income (NII): Rose $7 million, or 2% quarter-over-quarter.
Fee Income: Increased $4 million, or 4% sequentially; trust fees were the primary driver due to contributions from Sable Trust.
Expenses: Up $5 million, or 2%, after adjusting for one-time items; Sable Trust acquisition accounted for $2.5 million of this increase.
Efficiency Ratio: Improved to 54.91% in the second quarter of 2025 from 55.22% in the first quarter of 2025.
Loans: Grew $364 million, representing 6% annualized linked-quarter growth, with guidance unchanged for low single-digit annual growth.
Deposit Balances: Down $148 million, attributed primarily to certificate of deposit (CD) run-off and reduced public funds; DDA and interest-bearing transaction balances both increased.
DDA Mix: Rose to 37%, with management guiding 37%-38% by year-end 2025.
CD Repricing: $2.5 billion in maturities repriced from 3.85% to 3.59%, with an 86% renewal rate; an additional $3.6 billion will mature in the second half of 2025, expected to reprice near 3.5%.
Cost of Funds: Decreased two basis points to 1.57%, driven by lower deposit costs.
Loan Yield: Up two basis points to 5.86% overall; fixed rate loan yields increased thirteen basis points to 5.17%.
Bond Portfolio Yield: Rose eight basis points to 2.86%, aided by reinvestments and fair value hedge contributions.
Capital Ratios: Tangible common equity (TCE) at 9.84% and common equity Tier 1 at 14.03% post-acquisition.
Allowance for Credit Losses (ACL): Maintained at 1.45% of loans, down four basis points from last quarter.
Net Charge-Offs: Net charge offs increased to 31 basis points; full-year 2025 guidance unchanged at 15-25 basis points.
Criticized Commercial Loans: Declined 4% to $594 million; nonaccrual loans fell 9% to $95 million.
Share Repurchases: 750,000 shares repurchased, exceeding the previous level, with approximately $40 million spent and intent to sustain this capital return pace.
Organic Growth Initiatives: Added ten new bankers and finalized five new Dallas-area financial center sites, with three openings slated for late 2025 and the remainder in the first half of 2026.
SUMMARY
Management maintained full-year loan growth targets and predicts modest NIM expansion in the second half of 2025, with NII growth guidance of 3%-4%. Fee income strength is expected to persist in Q3 and Q4 2025, driven by full-period contributions from Sable Trust and continued improvement in treasury and card-related revenues. Expense guidance remains unchanged, with Sable Trust integration contributing $2.5 million to expense increases. Management reinforced capital deployment priorities, specifying an expected common equity Tier 1 operating level of 11%-11.5% and a TCE comfort zone near 8%, as discussed during the Q2 2025 earnings call. Portfolio credit quality remains favorable, with no specific sector or geographic weaknesses identified, and inflows into criticized loans described as limited.
Mike Achary stated, "The difference is less than a million dollars on NII, and it's about one basis point on NIM for the second half of 2025." NIM guidance is positioned as relatively resilient to changes in Fed action during the second half of 2025.
Leadership clarified share repurchases will target a dollar level rather than a fixed share count, dependent on market valuation.
John Hairston emphasized, "The bigger driver is simply gonna be net new loans to net new clients." Construction and development is the only segment not growing and related headwinds are expected to ease by early 2026.
Management expects continued CD repricing at lower rates, forecasting at least an 81% renewal rate in the second half of 2025, along with more favorable deposit cost trends as CDs mature.
The organic hiring plan targets a compounded 10% increase in bankers annually, with management open to exceeding this if high-quality talent becomes available.
INDUSTRY GLOSSARY
DDA (Demand Deposit Account): Non-interest-bearing deposit account used primarily for transactions and business operations.
NIM (Net Interest Margin): Ratio expressing the difference between interest income generated and interest paid out, measured as a percentage of average earning assets.
PPNR (Pre-Provision Net Revenue): Earnings prior to accounting for credit loss provisions, useful for assessing core profitability trends.
CD (Certificate of Deposit): Fixed-term deposit product that generally pays higher interest in exchange for leaving funds on deposit for a specified period.
ACL (Allowance for Credit Losses): Reserve on the balance sheet reflecting management's estimate of potential credit losses in the loan portfolio.
SNC (Shared National Credit): Large syndicated loans shared among multiple financial institutions, typically reviewed by regulators jointly.
Full Conference Call Transcript
John Hairston: Thank you all for joining us on a busy reporting day. The February was another strong quarter. The results reflect our continued focus on profitability, efficiency, and meaningful progress in our multiyear growth plan. NIM expanded six basis points, and we achieved an ROA of 1.37% after adjusting for expenses related to our transaction with Sable Trust Company, which closed on May 2. As expected, loans grew $364 million or 6% annualized due to stronger demand, increased line utilization, and lower payoffs. We remain focused on more granular, full relationship loans with the goal of achieving more favorable loan yields and relationship revenue. Our guidance on loan growth remains unchanged.
We expect low single-digit growth for the year 2025, which infers mid-single-digit growth for the February. Deposits were down $148 million, reflecting a decrease in CDs due to maturity concentration and promotional rate reductions in the quarter, along with a decrease in public funds. However, interest-bearing transaction balances and DDA balances were up in the quarter, and DDA mix actually increased 37%. NIM continued to expand as our average earning assets grew at higher yields and we continued to reduce deposit cost. Our fee income grew again this year, with trust fees driving most of the growth, thanks to the additional team and client book from Sable.
Expenses remain controlled and in line with our expectations, reflecting investments we are making in new revenue producers technology efforts to improve efficiency and client experience. During the quarter, we continued to return capital to investors by repurchasing 750,000 shares of common. We also deployed capital through the execution of our acquisition of Sable Trust. Capital ratios, despite all that, remained very solid with TCE of 9.84% and common equity tier one ratio of 14.03%. We made meaningful progress on our organic growth plan this quarter. We added 10 net new bankers to the team during the quarter, and have solidified the location of five new financial center locations for the Dallas market.
Expect three of these financial centers to open in the back half of 2025 and the remaining two will open in the first half of 2026. We will provide additional guidance on new offices and bankers on the January call. We remain very optimistic for our growth prospects for the rest of the year. The macroeconomic environment remains dynamic. But our ample liquidity, solid allowance for credit losses at 1.45%, and strong capital keep us well-positioned to navigate challenges and support our clients in any economy. Before we continue the call, I want to take a moment to acknowledge the devastating floods that have impacted communities across Texas. Our thoughts are with all those affected.
We are no strangers to the hardships that natural disasters can bring, and we are committed to supporting recovery efforts across the region. As always, we stand ready to serve our communities with the same strength and resilience that define both our company and the people we are proud to serve. With that, I'll invite Mike to add additional comments.
Mike Achary: Thanks, John. Good afternoon, everyone. As John mentioned, our results reflect another quarter of outstanding performance. Our adjusted net income for the quarter was $118 million or $1.37 per share, compared to $120 million or $1.38 per share in the first quarter. Second quarter results included $6 million of supplemental disclosure items related to our acquisition of Sable Trust Company in May of this year. PPNR was up $5 million or 3% from last quarter, and was a peer-leading 1.95% of assets. Our NIM again expanded this quarter but by six basis points and NII was up $7 million or 2%.
Fee income was up $4 million or 4%, and expenses adjusted for one-time items remain well controlled, and were up $5 million or just 2%. Our efficiency ratio improved to 54.91% this quarter compared to 55.22% last quarter. The NIM expansion was driven by higher average earning asset volumes and yields, and lower deposit costs, which were only partially offset by an unfavorable mix related to other borrowed funds. That's all shown on slide 15 of the investor deck. Bond yields were up eight basis points to 2.86%. We had $233 million of principal cash flow at 3.15%, while we reinvested $359 million into the bond portfolio at 4.71%.
Additionally, another $40 million of our fair value hedges became effective this quarter and contributed three basis points to the overall yield pickup. Next quarter, we expect about $102 million of principal cash flow at 3.11% that will be reinvested at higher yields. We expect the portfolio yield should continue to increase as we reinvest principal cash flows at higher rates. Our loan yield for the quarter was up two basis points to 5.86%. Yields on fixed rate loans were up 13 basis points to 5.17%, while yields on variable rate loans were down only two basis points. With no rate cuts expected in the third quarter of 2025, we expect the overall loan yield to again be largely flat.
Our overall cost of funds was down two basis points to 1.57% due to a lower cost of deposits and less favorable borrowing mix, as other borrowings increased compared to the prior quarter. The downward trend in our cost of deposits continued, with a decrease of five basis points to 1.65% in the second quarter. The drivers here were CD maturities and renewals at lower rates. We expect the cost of deposits will be down marginally in the third quarter with an additional reduction in the fourth quarter assuming the Fed cuts rates in September. For the quarter, we had $2.5 billion of CD maturities that matured at 3.85% and were repriced at 3.59%, with a strong 86% renewal rate.
Additionally, our DDA balances increased again this quarter up $24 million. Our NID mix was also up this quarter to 37%. CDs will continue to reprice lower for the rest of 2025 given maturity volume and anticipated rate cuts. Total end of period deposits were down $148 million mostly reflecting the impact of this quarter's CD repricing and other aspects of seasonality. We updated our guidance to reflect our current assumption of two rate cuts of 25 basis points in September and December, but with minimal impact. We expect modest NIM expansion in the second half of 2025 and NII growth of between 3-4% for the year. There's no change to our PPNR or efficiency ratio guidance.
Our criticized commercial loans decreased 4% to $594 million and nonaccrual loans decreased 9% to $95 million. Net charge offs were up this quarter and came in at 31 basis points. Our loan portfolio is diverse, and we see no significant weakening in any specific portfolio sector or geography. Our loan reserves are solid again at 1.45% loans, down four basis points from last quarter. We expect net charge offs to average loans will come in at between fifteen and twenty five basis points for the full year 2025. Lastly, a comment on capital. Our capital ratios remain remarkably strong. We deployed capital this quarter through our acquisition of Sable Trust Company, and a higher level of share repurchases.
We more than doubled the buyback this quarter and bought back 750,000 shares. We expect share repurchases will continue at this level for the foreseeable future. Changes in the growth dynamics of our balance sheet, economic conditions, and share valuation, could impact that view. I will now turn the call back to John.
John Hairston: Thanks, Mike. Let's open the call for questions.
Operator: At this time, I would like to remind everyone in order to wrap the question, please press star then the number one on your telephone keypad. Our first question comes from the line of Michael Rose with Raymond James. Your line is open.
Michael Rose: Hey. Good afternoon, everyone. Thanks for taking my call, my questions. May we can just start on the last topic on buybacks. Mike, you know, just given some of the deregulatory efforts that we've seen here recently, I know you mentioned that buybacks would kind of continue at this pace. But do you have a target CET1 ratio that you think you can you know, kind of operate on, you know, kind of through the cycle just assuming some of the deregulatory effort and the fact that they're likely to, you know, come downhill over time? Thanks.
Mike Achary: Yeah, Michael. Great question. And as we think about capital, the two ratios, obviously, that we probably pay a little bit more attention to is TCE And that's down a little bit because it's stable, but still, you know, very close to 10%. And in the tier one common, that still exceeds 14% even with the acquisition of Sable. So if we think about where those capital levels or where the company is kind of comfortable operating at, I would suggest it's somewhere between eleven and eleven and a half. For tier one common. And then certainly, anyone who knows our company knows that for TCE, it's in the neighborhood of 8%.
Michael Rose: Okay. So as I think about your CSOs, going out to the end of 2027, you know, it looks like the TCE would be around 8%. So would that kind of you know, should we use that as a guide, basically, as we're thinking about buybacks, you know, you know, beyond this year and into '26 and into '27. Is that fair?
Mike Achary: Yeah. Yeah. I think so. And certainly, you know, those levels, again, reiterate that those are levels we feel comfortable operating the company at. Our Board feels comfortable. But they're not necessarily hard lines. So just depending on circumstances, we certainly could go below those levels or operate the company above those levels. As we're doing now.
Michael Rose: Understood. And maybe just as a one follow-up question. Just as it relates to loan growth and kind of the outlook, just give us a general update on kind of the health of borrowers? It does seem know, if you listen to some of the larger guys today that I think we're at a point where even though there's still some uncertainty around tariffs and things like that, I think there's just a comfort level and borrowers are starting to move off the sidelines a little bit. I understand your guidance, but would just, you know, like to appreciate more, you know, what the drivers could be in the near term.
You know, I know utilization rates tick a little bit higher, so maybe that's a trend that could continue. But what's kind of the upper you know, what would drive you to the upper end versus the lower end of your of your guidance? Thanks.
John Hairston: Sure. Yes, Michael, good question. This is John. If Chris or Mike wanna weigh in, they can. Generally speaking, we're really not relying on line utilization to drive the upper end of the range. Certainly, it would help, utilization continues to increase. And it's only going up marginally each quarter, so we're glad to have it. The bigger driver is simply gonna be net new loans to net new clients. And we've had a really good quarter, and I would expect that we'll continue to having good quarters the foreseeable future barring any kind of macroeconomic changes that would cause clients to become more chill.
I will suggest, you know, a quarter ago when we had this call, Michael, you know, there was clearly a disturbance in the force, if you will, people not really knowing how to make, a sense of Liberation Day and how it may impact their own business. I think over the last three months, people, at least in our market areas from Texas to Florida and up in Tennessee, have largely become desensitized to those headlines. And I don't know if I would call it coming off the sidelines as much as think they're just not as, as sensitive to the headline of the day.
And they're back to relying more on whatever the facts may be that they're gonna use to make a decision of what to buy, expand, enter new markets, build a building, what have you. So, I think that's important to note. Since you asked the question about the upper range, I guess I would also call out, you know, the only sector that we didn't enjoy growth this quarter was in, the construction development book. And if you note in the deck on, I got I think that's page nine. Everything's in the green. Health care is a little bit of a push, and c and d was down a little under a million.
The year to date commitments in that sector are actually up a little under $200 million. But as we've talked about in prior calls, it takes a few quarters for a client to burn through their equity in the, in the project. Before they get to our line of credit. So we would anticipate a sustainable, growing c and d book to be somewhere towards the back half of the first quarter of 2026. Or, or the or the following quarter sustainably. So that headwind will dissipate as we move through the year. And if it does, that would eventually lead more to the upper end of the range. All other things being equal.
Michael Rose: Great. So inflection point that you guys are about. Alright. Thanks, guys, for all the color. I'll step back.
John Hairston: You bet. Thanks, Michael, for the question.
Operator: Our next question comes from the line of Catherine Mealor with KBW. Thanks. Good afternoon.
Catherine Mealor: Hi, Catherine. Could you just give us a little bit more of a color around your NIM outlook? I know you've continued to say that you think there's kind of upward NIM trajectory in the back half of the year really, I guess, regardless of what rates do. But, yeah, we've pushed back rate cuts. We now only have two in the in your numbers. And so just kinda help us think through where you think kinda NIM can go for in a stable rate environment and then sensitivity to this cuts in the back half of the year?
Mike Achary: Sure, Catherine. This is Mike, and I'm happy to share some thoughts and color around that. So I think first off, and we did disclose this, I believe, on slide 15 of the deck, For us, for the second half of the year, there really is not anywhere near a material difference between the impact on NII or our NIM If we look at one if we look at zero rate cuts or two rate cuts in the back half the year. The difference is less than a million dollars on NII. And it's about one basis point on NIM. So, certainly, the dynamics are a little bit different in terms of how we get there.
But what we do have baked into our guidance is the two cuts, the one at the midpoint of September and then one in December, both 25 basis points. So assuming those two cuts do occur, the things that, I think are really gonna be the drivers of our ability to continue to expand our NIM in the second half of the year are gonna be largely the things that we experienced in the first half of the year with the addition of, obviously, loan growth. So we're looking at a stable DDA mix. We're at 37% now. We're guiding for that mix to be between 37-38% by the end of this year.
Feel really good about our ability to grow that mix to those levels. Especially given where we are now. We'll continue to reduce our cost of deposits But certainly, if you again, if you go back to slide 15, you can see that over the course of the second quarter, our cost of deposits did begin to level out. And we certainly expect that leveling out to kinda continue in the second half of the year. We do think that we can reduce our cost of deposits by, let's say, a couple of basis points in the third quarter and then probably a little bit more than that in the fourth quarter.
And again, that's really on the heels of an expected rate cut in September. So that is know, really very dependent upon our ability to continue to reprice our CDs lower. And so, again, we've done a pretty good job of that, I think, through this cycle. And even with our cost of deposits kinda leveling out, you know, we think we'll be able to do that in the second half of the year. So in the second half of the year, we have about $3.6 billion of CDs coming off at about 3.62 Those we think will reprice at about three and a half percent or so. So no change in any of our promotional rates right now.
Our probably our best selling CD promotional rate is our eight month at three eighty five, so that continues. Certainly, we also have the loan growth for the second half of the year. We're extremely proud of our ability to grow loans in the second quarter. The 6% linked quarter annualized. You can see in the guidance that we're expecting to kinda continue at more or less that level. For the second half of the year. And on an end of period basis, loans should come in you know, again at that low single digit level year over year. And then finally, we still have a pretty good ability to reprice cash flows coming off the bond book.
As well as repricing fixed rate loans in the maturing. In the second half of the year. So again, back to the 10 basis points the first half of the year. The expansion in the second half of the year won't be at that level. It could be at something close to half that level. But still, we believe firmly that we can expand our NIM by a couple of basis points each in the next couple of quarters. So hopefully, that answered your question. Anything else I can help you with?
Catherine Mealor: It does. No. That was very helpful. A of a lot of great data there. And then giving one follow-up just on the expense side. I know your expense guide is unchanged at the 45% and that includes Sabo coming in this quarter. Is there now that the now that deal is closed, is there any kind of additional insight you can give us into how much of the of the expense base came from that just so we can kinda think about what one more I guess, one additional month of that deal in third quarter kinda could mean versus where the expense growth is coming from some of your hires and all of that?
Just kinda think about trying to think about the cadence of the expense base over the two quarters in the back half of the year? If you look at the second quarter, and again,
Mike Achary: we closed that deal at the end I'm sorry, the very beginning May we had two months The increase in our expenses and the second quarter related to Sable was about $2.5 million or so.
Catherine Mealor: Okay. Great. Okay. Great. Thank you, Gregor.
Mike Achary: You bet. Thank you.
Operator: Our next question comes from the line of Casey Haire with Autonomous Research. Your line is open.
Casey Haire: Great. Thanks. Good afternoon, everyone. I wanted to follow-up, I guess, on the loan growth again. The CRE showed very strong for you guys. We've been hearing that's been tough slotting just given weak demand and just a little more color as to what you're seeing to drive such strong results.
John Hairston: It was a little muddled, you said, on the CRE sector? Casey. Is that right? Yeah. Yeah. Commercial. The difference yeah, the difference quarter to quarter there was a little less payoffs. Very successful owner occupied real estate campaign in the business and commercial banking sectors. And then we ended up with some bridge financing numbers that were pretty attractive out of the investor CRE group. That shows up in CRE, not C and D. Does that answer your question, or do you want a little more
Casey Haire: No. That's great. That's great. Sounds like Yeah. Payoffs. Slowing down. Okay. And then just switching to, m and a. I know you guys sound very organic. And heads down here. You did enter the year as, you know, looking to you know, being acquisitive. Just wondering is what is the m and a and market like in your markets and, you know, is active? And what would draw you back into you know, looking to be acquisitive?
Mike Achary: So, Casey, this is Mike. And I guess first off, the narrative around M and A for us is completely unchanged with the narrative that we talked about on the first quarter call, so back in April. And back then, we said, that right now, and a is just not something we're focused on. But we did caveat that by saying, you know, that may change or could change at some point down the road. If we look at our capital priorities first and foremost, is to support organic balance sheet growth and more specifically, our organic growth plan. Second is return of capital to shareholders through dividends and buybacks. And then third is M and A opportunities.
You know, that may or may not surface down the road. So I don't know that I wanna be any more specific about that other than to maybe add you know, the way we think about m and a down the road, think, is opportunistic.
Casey Haire: And
Mike Achary: you know, it's hard to put really a hard label on what that is or isn't. You know, until those circumstances arrive.
Casey Haire: Okay. Great. Thank you.
Mike Achary: Yep. Bet.
Operator: Our next question comes from the line of Ben Gerlinger with Citi. Your line is still
Ben Gerlinger: Hi. Good afternoon. Hey, Ben. I don't know if Ben's up.
Ben Gerlinger: Hi. Sorry. I didn't know if you guys said it in the prepared remarks. But I know that the SNCs are below 10%. And you guys have good core organic growth. Is it fair to think that the shared national credits are at a floor on a dollar percentage or dollar rather than percentage. Or is it usually still specs some runoff?
John Hairston: No. It's a it's about a push. If you look at the, the numbers on I've I've it what's the slide number for this next slide?
Mike Achary: Yeah. It's slide 10.
John Hairston: Yeah. We're running about nine and a half percent, and I think between nine and ten is about where that's gonna stay. And so, the book on an absolute magnitude basis, probably grows as loans grows as we maybe feel good about one particular sector. But at the end of the day, that percentage will not get above 10%.
Ben Gerlinger: Gotcha. Okay. The question was should you expect any big runoff? The answer to that is probably also no. Think where it is right now is where we're comfortable.
Ben Gerlinger: Got it. Okay. Yeah. That helps. And then whoever wants to field it either. But when you when you think about rate cuts, I know that when they first started cutting rates, it kinda seemed almost predetermined that we're gonna get 50 or potentially a 100. It's not obviously ended up with a 100 basis points for the first wave. It gave you some flexibility on deposit pricing. But if it ends up being like a fed only moves 25 bps or so, When you think about the flexibility, should we expect kind of the same relative beta despite it being, like, 25 bps? Is this something a little bit more muted considering the first 100 is the easiest 100?
On pricing on the right hand side.
Mike Achary: Yeah. Ben, this is Mike, and it's a really good question. And I would suggest that you know, if the Fed does move, let's say, 25 in September 25 in December, that, you know, we would achieve something pretty close to where our cumulative where we think our cumulative deposit data is gonna end up for the cycle. So for total deposit beta, that's 37 to 38. We're sitting at 35 now. So I think that would creep up closer to that expected level. And then on interest bearing deposits, we expect for the cycle to be at fifty seven fifty eight. We're sitting at 55 now.
So similar to the total, you would see the interest bearing deposit beta start to kinda creep up. You know, we'll we'll be very proactive in reducing our deposit costs if and when the Fed does move as we've been so far this cycle. You know, we have 70%, 72% of our loans are variable, so those will price will reprice down. And so we have to be very cognizant of that back. And then also reduce our funding costs accordingly. And I think we've done a real good job of that during this cycle. And have done that mostly through you know, repricing our CDs, and it's it's worked out pretty well.
Ben Gerlinger: Gotcha. I appreciate the color. Thanks, guys.
Operator: Our next question comes from the line of Brett Rabatin with Hovde Group. Your line is open.
Brett Rabatin: Hey, good afternoon, everyone. Wanted to ask about going back to the loan growth one more time. Wanted to ask, if we look at slide 27, it shows the new, loan rates. Impacted by the rate environment. And I noticed the two q in particular had what appeared to be some spread compression. On both variable and fixed rate. Loan originations. And so I just wanted to get some color on if that's you know, spread compassion spread compression competitively if you guys were being more aggressive and that was you know, kind of the outcome being loan growth or loan growth for the quarter, any color on the new loan originations would be helpful.
Mike Achary: Yeah. I can I can start? And I would suggest that there really is probably a combination of both those things. Certainly, the environment out there is super competitive when it comes to you know, not only securing new credit from customers, but then also pricing that credit. And I think overall, we've done a tremendous job of really restarting that growth engine as evidenced by the, you know, the 6% linked quarter annualized growth in the quarter. So the overall rate on the new loans to the sheet did compress by about 28 basis points. And I would suggest most of that is really related to pricing.
However, it's also important to understand that overall yield in our loan book is five eighty six. So, certainly, our ability to again, reprice mostly fixed rate loans higher is one of the one of the things that will certainly help us continue to expand our NIM in the second half of the year. John, any color you want to add?
John Hairston: No. I think that was very good. The only points I'd add is, I mean, you'll note the mix is a good bit different in 02/2025 than it was a year ago. And the size of the fixed rate new loan book has been tied a great deal to the degree of, aggressive calling campaigns that we've had on specifically the owner occupied real estate opportunities that come with partially or fully compensated deposit balances. So we've talked to them on the last several calls about our very aggressive desire to, have full service relationships.
And so while the loan yield may suffer a little bit on the overall benefit we're getting is on the low cost deposit on the other side. And that and that drives the NIM to a to a better view. That makes sense?
Brett Rabatin: Okay. Yeah. No. That's helpful. And then, you know, you've got I think, know, next one to three years, $2 billion repricing at $5.17. So that's helpful too. The other question I have was just around the fee income guidance. And if you know, with the trust fees continue or trust fees likely to head higher, just wanted to see the, you know, the nine to 10% growth Is that based on continued strength in trust? Or do you expect some of the other businesses that have done pretty well continue to do so?
John Hairston: Well, it's a great question. Thanks for the way you finished it because, I was gonna try to slip that good news in too. But generally speaking, the trust quarter was actually good even without say The Sable chunk of the $4.7 million increase in trust fees was only $3.6 million. For the partial quarter. Now I'll remind you, trust fees are not particularly level. Month to month inside the quarter. Some accounts are skewed to the first month, some to the to the last month of the quarter. So, you can generally prorate that to see what the number will be, but it won't be exact.
But the bottom line is trust did well, and then the $3.6 million from Sable goose the number on up to nearly $5 million up. And we would expect to see the full benefit of the Sable team and that client book We get into Q3. Aside from that, the business and consumer service deposit account charges via the treasury products also performed very well for the second quarter. And generally speaking, we can expect those fee increases to continue with the size and number of accounts added inside the book of consumer and business. So we think the second half is gonna continue seeing growth. On the fee income side, from those sectors.
Besides those, our fee categories like card revenue, treasury accounts, and merchant also doing quite well, and secondary mortgage will, will be driven by, number one, our completing the pivot to secondary loans as a predominant source of fee income. And then if rates do decline, we should see a nice benefit from, from fee income on the secondary side. Does that answer your question?
Brett Rabatin: Yeah. Candice, that's very helpful. John.
John Hairston: You bet. Thank you for asking.
Operator: Our next question comes from the line of Gary Tenner with D. A. Davidson. Your line is
Gary Tenner: Thanks. Good afternoon. I had a couple of questions. First, to go back to the buyback for a minute. I know, Mike, in your prepared remarks, you suggested that the buyback continues at the same level. But then I think in a follow-up, you kind of said depends on the pricing. So, you know, you purchased a lot more shares this quarter at $52 versus what you bought in the first quarter around
Mike Achary: 59. A lot closer to 59 right now. So just wanted to make sure I understood kind of the moving parts of your of your comment there in terms of what to expect at least in the short term.
Gary Tenner: Yeah. Great. Great. Great way to distinguish that, Gary. Appreciate that. And I think the way to think about it is if you look at the dollar amount, of shares that we repurchased during the quarter, which is a little bit under $40 million. And so the intent would be to return at least that much in terms of money to shareholders via buybacks. And certainly, the number of shares that we're able to buy back with that $40 million certainly will change a little bit from quarter to quarter depending on market conditions and where our stock price is. But I think the controlling variable there would be the $40 million or so that we'll spend.
Gary Tenner: Okay. Appreciate it. And then just to think through the dynamics of deposit growth in the back half of the year getting to that kind of low single digit expectation. I guess two parts to that. One, since the CDs are projected to reprice lower by just a small amount. Do you expect the retention of the CDs to be higher in the back half of the year than they were in the first half of the year? And then how much of the total growth for the year would you suggest is kind of driven by public funds in the fourth quarter?
Mike Achary: Again, good question. So if we about CDs in the renewal rate, I mean, again, that's been that's been one of the things that really has been kind of the star of the show, if you will, around our ability to retain that money and reprice it lower. So it was something like 86% in the second quarter. And the assumption for the back half of the year is that it'll be at least 81%, if not a little bit better.
So the other thing I would suggest when we look at not only the guidance for deposits, but also the levels that we think will come in is, because of the C and I nature of our book, you know, there's a lot of seasonality built into it. You mentioned the public funds and certainly that does drive the numbers. With a public fund book of around $3 billion or so. So typically in the second quarter, you know, we see really the last couple of months of the outflows related to public funds. And then we also see outflows related to tax payments. Both corporate as well as individual.
Typically in the third quarter, those deposit levels begin stabilize, if not grow a little bit. And then on a seasonal basis, the fourth quarter tends to be our best quarter. Again, there are typically inflows related to corporate and middle deposits. And then you have the arrival of the public fund. Inflows. And those can range between you know, as much as $200 to $300 million just depending on the primarily the sales tax collections and property tax collections. That typically happen in the fourth quarter. You bet.
Operator: Our next question comes from the line of Matt Olney with Stephens. Your line is open.
Matt Olney: Hey. Thanks, guys. Wanna ask about credit and the charge offs in the second quarter were a little bit heavier than we were expecting, but it sounds like you feel really good about charge offs The back half of year moving lower. Can you just kind of flush this out for us? Did you did you get some resolutions of some lingering credits in February or any color you can give us as far as the charge offs in February and the outlook?
Chris Ziluca: Matt, it's Chris Ziluca. Thanks for the question. Good question as well. Yeah. We feel pretty good about the guidance that we've given around the charge off range. I mean, as we've said, kind of going into, this year and even last year, you know, we expect normalization of net charge offs, kind of as the cycle winds through. And we really aren't seeing any sort of specific systemic issues in the portfolio, which really gives us comfort as kind of forward view around the remainder of the year. Yes.
We did have some accounts that were kind of in our line of sight for resolution during the quarter, and we decided, we had some reserves in place, specific reserves in place on one of them in particular that we decided that we would take down and just kind of resolve that to the best that we could. So that way, we're kinda looking forward in a little bit more of a positive view.
Matt Olney: Okay. Appreciate that. And then just as a follow-up to that, we've seen consecutive quarters of improving criticized commercial loans now. We would love to just get your feel for criticized loans as we look at the back half of the year. And what your visibility is there?
Chris Ziluca: Yeah. So, again, good follow-up question. You know, from our visibility, what we're seeing is you know, a little bit more resolution and therefore outflows than we are seeing inflows. Normally, we would expect to see in this quarter a little bit more potential inflows. But, you know, we were pleasant pleasantly surprised that we were seeing less inflows a little bit more resolution of outflows. Related to some of our longer standing credits. As I mentioned, I think, one of the earlier calls, it usually takes three to four quarters before kind of a criticized loan can get either rehabilitated or resolved or paid off, you know, what have you. Know, the whole portfolio management workout process.
So with the lesser number of inflows, we feel pretty good about where we sit. Not to say that as the quarters go through, that there aren't things that kind of, you know, catch us a little off guard. But we feel like we have a pretty robust portfolio management and workout process to deal with those.
Matt Olney: Okay. Thank you, guys.
Chris Ziluca: Thank you.
Operator: Our next question comes from the line of Stephen Scouten with Piper Center. Your line is open.
Stephen Scouten: Hey, good afternoon. Thanks, guys. I know, Mike, you gave some commentary around M and A saying that largely unchanged outlook there. But I'm kind of curious as to how you think about the future path. I mean, me, the only thing that's maybe been lacking from y'all's story has been organic loan growth. And we're seeing great signs of that already this quarter. So should we think about you guys letting that story play out profitability and efficiency continue to play out? And then you know, if your shares warrant the valuation, I'm sure you feel they should, then that when M and A might be pursued down the line. Is that a decent way to think about
Mike Achary: Yeah. That's a that's a very plausible path. And, you know, again, we're we're thrilled about our ability to restart organic loan growth. We have a very well thought through organic growth plan that we're executing on right now. We've talked a lot about our earnings efficiency being extremely high right now or high. And the only thing missing had been, you know, organic loan growth. And so you know, we're we're thrilled with where we are, and we're very anxious to continue to improve our earnings efficiency and overall profitability going forward. And that really is the focus of what we're trying to do.
Stephen Scouten: Yeah. I think that's fantastic. And then as it pertains to the plans you guys have laid out for hiring, I think it was, what, another 14 people, give or take. Slated for the rest of 2025. With the uptick in M and A kind of in and around your markets, would there be potential, you know, upside to those numbers if you could be more opportunistic given M and A in your markets? Or do you kind of want to manage the expense build and personnel build you know, throughout the rest of the year? How should we think about the potential for upsizing to that?
John Hairston: Yeah. Good question, Steven. This is John. I think our appetite for good talent that is seasoned, knows the market, knows the type of clients that we would like to add, We really don't have a ceiling in how many bankers we would add over a given term. We've set the goal at 30 to be communicated externally just to help investors understand our degree of interest in growing loans, not just this year, but have, that growth pattern flywheel up over the next several years. And get back to that 85 to maybe, higher eighties loan to deposit ratio, which is really our sweetest spot in terms of, earnings capability.
So the 30 number was essentially a 10% compounded annual number, and we would anticipate being at about 10% next year as well. Now certainly, if opportunities came up for that number to be higher, we would gladly take it. You know, our, our rate of people that don't know, survive over the long term once added is actually quite low, primarily because we try to screen very well and have potential bankers meet with people, both in, the line of business and in credit to assure that their appetite for clients matches up with us, so their potential for success is very high.
So the to the I'm sure there is a maximum somewhere where Mike will get nervous about expense. But so far, know, my attitude is, we would gladly take on that problem and be happy to explain that to investors. Because we have more offensive players on the field.
Mike Achary: Well, there's no max to the revenue. Right? So There's no max. That's right. That's the question is you know, when we should we expect the compensating revenue? And so far, know, the expectation for this year was about 15% of our total loan growth be coming from new hires, and I think we're on track to hit that. And in fact, the business bankers, we've added are probably going to exceed that. For the year, but that's really too early to call. I wouldn't wanna commit to it just yet.
Stephen Scouten: Got it. That's really great color, and congrats on a great quarter.
John Hairston: Thank you very much, Steven.
Operator: Our next question comes from the line of Christopher Marinac with Janney Montgomery Scott.
Christopher Marinac: Thanks. Good afternoon. John, it seems that history is repeating itself with some new entrants coming to Texas. I was curious on, you know, your thoughts about opportunities that could create for Hancock Whitney Corporation in the future quarters ahead.
John Hairston: I'll start, and Mike can add color if he likes. I mean, disruption is usually good for us. Think we're viewed as a safe haven for people who, for whatever reason, like to maybe raise their hand where otherwise they might not have. But I mean, that disruption happens, you know, all around the footprint. We really never know how to size it, but certainly, the, the phone lines and email inboxes are open. To, to inbound calls, and there's no secret across our footprint that we are indeed looking for good talent. And, that we are a great place for people to land, who wanna build a book, rapidly with great partnership with their credit folks across the line.
So, know, thanks for asking the question. It gives me a chance for a free commercial, but we're we're definitely hiring really in every place mean, you saw from page I think it's page seven. Is that right, Catherine, in the in the deck? You know, you see the green markets. That's where we actually have open roles that we're actively searching for now. So not every market is highlighted right there primarily because of some of those markets we added people in last year. And so, we didn't, you know, make the circles bigger or smaller to denote how many people. In those different areas. But, but it does show that we're not piling everybody into one market.
Although, I would I would allow that the largest concentration of people are in markets that we consider higher growth, for obvious benefit. But, it would not surprise me to see most of the called out markets in that, sheet populated with new hires by the time we get to the end of next And note this is a net document, not an absolute document.
Christopher Marinac: Good, John. Thanks for that. And then just a follow-up for Chris. Chris, are you seeing opportunities for some of the nondepository borrowers who are not banks but, you know, looking for credit from your spot as a company. Is that an opportunity in the commercial book?
Chris Ziluca: I mean, do definitely see that as potential opportunities for us, but it's not something that we're specifically targeting. Could those loans have a depository element to them? Over time? Yeah. I mean, they can. I mean, obviously, as they kind of you know, grow and kinda rehabilitate out of just being, you know, part of that non depository lending environment. Environment. To know, a traditional banking environment. You know, I know that I've I've seen that before. Know, the hit rate's always a little bit lower than you hope. But, but it certainly is an opportunity know, for us. And we certainly hope that some of them spin off into opportunities for direct relationships.
John Hairston: Yeah, Chris. This is John. That's the only thing I'd add here. It's not that we're necessarily averse to it, but think I would I would use the word opportunistic, just like Mike did earlier that if it makes a lot of sense for us and the client, then we certainly would explore it. But we're not designated a, a group of new hires target that. That's something we would rather have a longer relationship and understand the client before we jumped in too far.
Christopher Marinac: Got it. Thank you all for taking my questions. We appreciate it.
John Hairston: Thank you. Thank you for hanging in there on a busy day.
Operator: I will turn the call back over to John Hairston for closing remarks.
John Hairston: Thanks, Kate, for moderating the call. Thanks to everyone your attention and interest. We look forward to seeing you on the road over the next quarter.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.