管理層發言
Good day, ladies and gentlemen, and welcome to Hancock Whitney Corporation's Fourth Quarter 2025 Earnings Conference Call. As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Kathryn Mistich, Investor Relations Manager. You may now begin.
Thank you, and good afternoon. During today's call, we may make forward-looking statements. We would like to remind everyone to carefully review the safe harbor language that was published with the earnings release and presentation and in the company's most recent 10-K and 10-Q, including the risks and uncertainties identified therein. You should keep in mind that any forward-looking statements made by Hancock Whitney speak only as of the date on which they were made. As everyone understands, the current economic environment is rapidly evolving and changing. Hancock Whitney's ability to accurately project results or predict the effects of future plans or strategies or predict market or economic developments is inherently limited. We believe that the expectations reflected or implied by any forward-looking statements are based on reasonable assumptions but are not guarantees of performance or results, and our actual results and performance could differ materially from those set forth in our forward-looking statements. Hancock Whitney undertakes no obligation to update or revise any forward-looking statements, and you are cautioned not to place undue reliance on such forward-looking statements. Some of the remarks contain non-GAAP financial measures. You can find reconciliations to the most comparable GAAP measures in our earnings release and financial tables. The presentation slides included in our 8-K are also posted with the conference call webcast link on the Investor Relations website. We will reference some of these slides in today's call. Participating in today's call are John Hairston, President and CEO; Mike Achary, CFO; Chris Ziluca, Chief Credit Officer; and Shane Loper, Chief Operating Officer. I will now turn the call over to John Hairston.
Thank you, Catherine. Happy New Year to everyone, and thank you for joining us today. The fourth quarter of 2025 was a strong finish to a remarkable year. We saw year-over-year improvement in EPS of 8%, PPNR growth of 6%, and tangible book value per share increased 12%. As we look forward to 2026, we remain focused on growing our balance sheet and continuing to improve profitability. As part of our multiyear organic growth plan, we expect to hire up to 50 additional revenue-generating associates this year. Additional offensive players will meaningfully support growth targets while improving profitability through a focus on full relationship clients. We are pleased to announce today that we completed the bond portfolio restructuring last week, which is detailed on Slide 7 of the investor deck. On an annual basis, we expect the restructuring exercise to benefit NIM by 7 basis points and EPS will improve $0.23 per share. Mike will give more details on the restructuring in his remarks. We provided guidance on Page 22 for what we believe will be a very successful new year. This guidance reflects our organic growth benefits as well as the impact from the bond portfolio restructuring. Now for a few notes on the fourth quarter. We had another quarter of very solid earnings with an ROA of 1.41% and an efficiency ratio under 55%. Fee income growth continued this quarter and expenses remained well managed, including thoughtful investments supporting revenue-generating activities. Net interest income continued to grow as we reduced the cost of funds and enjoyed higher security yields. NIM was relatively flat, down 1 basis point from the prior quarter as a decline in loan yield outpaced our higher yield on securities and lower cost of funds. Loans grew $362 million or 6% annualized. As shown on Slide 11 of the investor deck, our production was quite strong. Our increase in production this quarter more than offset an increase in prepayments, which produced net growth of mid-single digits. With the investments we're making into new revenue producers, we expect this trend to continue and loan growth in '26 will be mid-single digits compared to the previous year-end. Deposits were up $620 million or 9% annualized, largely driven by seasonal activity in public fund DDA and interest-bearing accounts, which increased $417 million. As a reminder, we usually experience seasonal public fund outflows in the first quarter of each year. Our interest-bearing transaction balances were up $223 million with higher balances driven by competitive products and pricing. Retail time deposits decreased $90 million due to maturities during the quarter and DDA balances were up $70 million, inclusive of a $191 million increase in public fund DDAs. DDA mix ended the quarter at a strong 35%. We expect our investments in financial centers and revenue producers will support our guidance for deposits, which we anticipate will increase low single digits from 2025 levels. As previously announced, we fully exhausted our share buyback authority last quarter, which impacted capital ratios. Despite enhanced repurchase volume, we ended the quarter with TCE a little over 10% and a common equity Tier 1 ratio of 13.66%. Our Board approved a new 5% buyback plan that will be effective through the end of '26. We are very optimistic as we look forward to the coming year. Our work over the past several years has resulted in solid capital levels, a robust allowance for credit losses, superior profitability, ample liquidity, benign asset quality, and now positive trends in balance sheet growth. We are excited for the opportunities in the coming year and believe we are positioned well for a successful and growing 2026. Lastly, I would like to introduce you all to the President of Hancock Whitney Bank and Chief Operating Officer, Shane Loper. He will be joining us on our earnings calls going forward. With that, I'll invite Mike to add additional comments.
Thanks, John. Good afternoon, everyone. Fourth quarter's earnings were $126 million or $1.49 per share compared to $127 million or again $1.49 per share in the third quarter. PPNR for the company was down slightly from the prior quarter to $174 million. Expressed as a return on average assets, that continues to be a solid 1.96%. NII increased 1% this quarter, driven by favorable volume and mix for both average earning assets and interest-bearing liabilities, partly offset by a slightly lower NIM, which decreased or narrowed 1 basis point this quarter. As John mentioned, our fee income business had a solid quarter, and expenses were up due to continued investments in revenue-generating activities. Our efficiency ratio was 54.9% for the quarter and 54.8% for the year. That was down 58 basis points from 2024's 55.4%, reflecting our net interest income growth, strong fee income performance, and well-controlled expenses. Fee income grew in each of the 4 quarters this year, totaling $107 million in the fourth quarter. We enjoyed solid performance across each category, with the increase this quarter driven by higher specialty income. We expect fee income will be up between 4% and 5% in 2026, with a continued focus on core deposit account growth that often delivers multiple categories of fees. As mentioned, expenses remain well controlled, up only 2% from the prior quarter. Much of this increase was from investments that we believe will enhance our revenue-generating capabilities in 2026. We expect expenses will be up between 5% and 6%, including an impact of about 185 basis points from the execution of our organic growth plan and a full year of expenses related to our acquisition of Stable Trust Company. Expense growth year-over-year was well controlled at only 3.6%, inclusive of ample reinvestments. The 1 basis point contraction in our NIM was driven by lower loan yields on both new fixed and variable rate loans and existing variable rate loans, following the 2 rate cuts this quarter. Partially offsetting this was higher bond yields, lower costs of deposits, and a favorable mix and rates for other borrowings. Our overall cost of funds was down 7 basis points to 1.52% due to a lower cost of deposits and better funding rates and mix as we ended the quarter with lower FHLB advances. Our cost of deposits was down 7 basis points to 1.57% for the quarter, with the cost of deposits down to 1.53% in the month of December. Following the rate cuts in October and December, we reduced promotional rate pricing on our interest-bearing transaction accounts and retail CDs. In 2026, we expect CDs will continue to mature and renew at lower rates, which will support improvement in our cost of deposits. The yield on the bond portfolio was up 6 basis points to 2.98% due to cash flows of $213 million rolling off at 3.55% and reinvestment in $290 million of bonds at a yield of 4.45%. In addition, we had a $0 loss bond swap of $230 million with a yield pickup of 45 basis points. As John mentioned, we completed a bond portfolio restructuring in the first 2 weeks of January 2026. We sold $1.5 billion of bonds at a yield of 2.49% and reinvested the proceeds in bonds carrying a yield of 4.35%. We're expecting the annual impact will support our NII and NIM growth in 2026 and will contribute 7 basis points to our NIM, $24 million to NII, and about $0.23 to earnings per share. Our forward guidance for 2026 is on Slide 22 of the earnings deck and includes the expected impact of the bond portfolio restructuring, but excluding the pretax charge of $99 million. We are assuming 2 25 basis point rate cuts in April and July of 2026. We expect NII will be up between 5% and 6% from 2025, with modest NIM expansion, and our PPNR guide is to be up between 4.5% and 5.5%. Our efficiency ratio is expected to fall in the range of 54% and 55% in 2026. For the fourth consecutive quarter, our criticized commercial loans improved, decreasing $14 million to $535 million. Nonaccrual loans decreased $7 million to $107 million. Net charge-offs came in at 22 basis points. Our loan loss reserves are solid at 1.43% of loans. We expect net charge-offs to average loans will come in at between 15 and 25 basis points for the full year 2026. Lastly, a comment on capital. Our capital ratios remain remarkably strong, even with the full exhaustion of our share repurchase plan, where we bought back about $147 million of shares in the fourth quarter of 2025. Our Board reauthorized a new 5% repurchase plan in 2026, and we expect share repurchases will occur at a more even pace across 2026. 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.
Thanks, Mike. Let's open the call for questions.
分析師問答
The first question is from Michael Rose at Raymond James.
Noticed that the fourth quarter loan production was up about 7.5% Q-on-Q, but paydowns were also up. Maybe Mike or John, if you can just talk about what your expectations are for kind of gross production versus expected paydowns as we move through the year, inclusive of those two cuts.
Thanks, Michael. I'm going to ask Shane to start with that answer. Go ahead, Shane.
Thanks, John. I will discuss where the production came from and connect it to our future outlook. First, I want to thank the entire team for achieving good operating results this year; your contributions have been vital to our success. It's noteworthy that loan production increased for the third consecutive quarter, reaching nearly $1.6 billion in the fourth quarter. We usually see about 35% of that production funded, growing to around 40%. In the fourth quarter, the team added another $260 million in production compared to the third quarter, contributing significantly to the 6% growth we are discussing. Geographically, our banking teams saw growth in all our core markets: Texas, Louisiana, and Florida. This is crucial as we improve our commercial and middle-market segment mix, which will lead to higher spread relationships that can balance out some of the thinner spreads in our specialty segments. Commercial real estate continues to provide steady production, which will increase once the initial equity is burned off in those deals. We anticipate ongoing fundings reflecting the production we’ve seen over the last 18 to 24 months, throughout 2026, although we do expect paydowns to be a headwind to CRE growth. This isn’t new information; many of those paydowns will transition to lease-up and permanent market phases. CRE production for 2026 is expected to remain stable as the 2025 production funds. In healthcare, our team is still delivering growth with both current and new bankers. The production is generating good net interest income, although it has slightly thinner spreads compared to commercial and middle-market segments. I expect continued performance in healthcare as we focus more on healthcare real estate and selectively on senior care sponsor operators. Our commercial finance teams, covering equipment finance and asset-based lending, are also maintaining robust production and balance growth. We are witnessing good deal flow, allowing us to evaluate credit and consider capital investments from companies. We noted consumer loan growth for one of the first times, with an increase of about $5 million in the quarter, led by HELOC production. The fourth quarter of '25 marked our first growth quarter for HELOCs, with an increase of about $15 million and the highest number of applications in three years. We believe HELOCs will remain a strong consumer product into '26, achieving around 40% line utilization. Lastly, I want to highlight our business banking team, which had a solid $36 million in growth this quarter at our highest spreads. We have recently brought on a seasoned executive from a super-regional bank to lead this segment, and we have high expectations for this team regarding loan and deposit growth through 2026. Our goal is to become the best bank for privately-owned businesses in the country, and we are dedicated to achieving that with swift credit execution, top-tier deposit products, and sophisticated wealth management for businesses and their owners. Looking ahead to 2026, I believe our team is engaging the right clients and prospects to improve our segment mix and meet our mid-single-digit growth guidance. In summary, while we expect paydowns in CRE and anticipate some entry of private credit and similar lending opportunities, we are confident in our stable foundation and focused on business generation moving forward.
Michael, any follow-up?
It's a very detailed response. So I appreciate all the color. Maybe just as my follow-up question. So it looks like the ROA target has been moved a little bit higher from last year, but the TCE ratio is also higher. Can you just walk us through some of the other assumptions that kind of underlie meeting some of those targets for your CSOs? I know you have the Fed funds rate at 3.25%, but would just love some other colors around kind of the base case expectations.
Sure, Michael. This is Mike. I can add some color to that in a few comments. I think the biggest thing is this notion of consistent balance sheet growth, organic balance sheet growth over the next 3 years. Our guidance for loans has stepped up this year to the mid-single digits from what we achieved last year, which was akin to more low single digits. So kind of continuing this notion of consistent balance sheet growth over the next couple of years is really important. You called out the rate environment. We're assuming just to keep the assumptions straightforward, Fed funds at 3.25%, which is where we expect Fed funds to end at the end of this year. We'll continue to reinvest back in the company. So I would expect expense growth to be something on par with what we're guiding for this year, which if you kind of strip away the investments that we're calling out in the guidance and the annualized impact of Sabal, is still a pretty reasonable run rate of somewhere around 3.5% to 4%, so that kind of continuing for the next couple of years. And then look, we've been tremendously successful in terms of kind of upscaling our fee income businesses. The guidance for next year is in the 4% to 5% range. So to kind of continue that going forward is equally important. We'll grow the deposit side of the balance sheet somewhere over the next couple of years, I think, in low to mid-single digits. And the NIM expansion will follow along with NII growth. So those are the main things. Now in terms of the TCE guide of 9% to 9.5%, we're well north of that now at just over 10%. You can assume that we'll continue buybacks at the levels we've done both in '25 and again, what we're guiding for '26. So I think the combination of continuing a pretty robust buyback program, along with addressing the dividend and organically growing the balance sheet should help us get our TCE down to those levels. So those are kind of the main assumptions.
Michael, this is John. I'll keep this brief. If we look at the overall picture, the ROA guidance being a bit steeper than our current position doesn't seem overly ambitious, especially considering our reinvestment in future revenue. However, our aim is not only to achieve high profitability but also to ensure consistent balance sheet growth each year. This allows investors to see continued growth in PPNR while maintaining a solidly profitable portfolio. Achieving all of this simultaneously is a significant challenge, and we also want to maintain good credit quality. If we were to reduce our expense growth by reinvesting less, our profitability guidance would have been higher. Our objective is to add bankers and possibly offices later this year while expanding into higher-growth markets, which will help build value for investors over time. I hope this clarifies things for you.
The next question comes from Catherine Mealor from KBW.
I have a question about the margin. You mentioned a modest NIM expansion expected in 2026, but we’re seeing a 7 basis point increase right away from the bond restructuring. Could you explain your thoughts on the margin beyond that one-time event? Do you still expect the core margin to have potential for growth, or is that modest expansion primarily due to the bond restructuring, with stability expected once we reach the new rate?
Sure. I'd be glad to, Catherine. So I think the main underpinnings of what we're referring to in terms of our ability to widen the margin and grow NII next year is really around the balance sheet. So we've got the loan growth pegged at mid-single digits. So if you assume that's somewhere between 4% and 5%, that should add a healthy amount of volume to our balance sheet and certainly coming with that will be an intended increase of average earning assets. So I think, first and foremost, it's organically expanding the balance sheet. Then you called out the bond portfolio restructure. So that will contribute 32 basis points in terms of the bond yield and about 7 basis points on the NIM. But related to the bond portfolio, we also have about $1.150 billion of cash flow, principal cash flow coming back to us next year. That will be coming back at about 3.75% and going back on the balance sheet, call it, between 4.25% and 4.5% depending on where rates are. So that's a significant improvement on top of 32 basis points related to the bond restructure. So that could be as much as somewhere between 45 and 50 basis points of bond yield improvement from the fourth quarter of '25 to the fourth quarter of '26. So that's significant. Then in terms of our cost of deposits, we're assuming the 2 rate cuts next year, one in April and one in July. So given that, we've got anywhere from about 25 to 30 basis points improvement in our cost of deposits from fourth quarter to fourth quarter. A lot of that is coming from our continued ability to reprice CD maturities. We've got about $8 billion of CD maturities next year. Those will come off at about 334. The assumption is that they'll go back on at about 280 or so, that is inclusive of about an 81% renewal rate. So the organic growth of the balance sheet, the securities yield improvement, our ability to continue to reduce our cost of deposits. Those are the main tailwinds, if you will, toward NIM improvement next year. Probably one of the headwinds would be we do expect, with a couple of rate cuts next year, our loan yield will continue to decline a bit next year, but I think at a slower pace than what you saw over the course of the fourth quarter. I think you put all that together and our NIM improvement, call it, somewhere between 12 and 15 basis points, maybe a little bit north of that, again, with 7 coming from the bond restructure. So that's how we're kind of thinking about the NIM and NII next year.
And by next year, you mean '26.
'26, yes, I'm sorry. This is the fourth quarter comment.
That was really helpful, Mike. As a follow-up regarding your revenue producer and hiring plans, you've hired 22 new bankers from the third quarter of '24 through the fourth quarter of '25, and you're planning to hire 50 in '26, effectively doubling the number of bankers. I understand you gained momentum in that plan throughout the year. Could you explain what gives you confidence in being able to hire that many more bankers this upcoming year compared to last year, and what pace we can expect for their onboarding as we progress through the year?
Sure. Catherine, this is Shane. Thanks for that. So we're confident in it. However, hiring is competitive as every bank is looking to hire from a limited pool of bankers. And the reason we're confident is we've significantly enhanced our banker hiring discipline to really look just like our client acquisition process. Our goals are to hire probably a split of 60% business bankers, 40% commercial bankers of that up to 50% in '26. And those folks really are targeted to intentionally generate a better portfolio mix, a little more granular business. The enhanced recruiting process is yielding expected results. We're out of the gate strong in the first quarter. We began this early fourth quarter, and it's a process that is really pretty tight in terms of ongoing meetings, pipeline review of potential hires and where they are and what their skill sets are. And we're following up on that on a very regular basis. So I think the strength of that process has been greatly enhanced. And as I've said before and we've said before, this organic hiring plan is designed to be like a flywheel with bankers hired in previous years and quarters ramping up production as those current year bankers are oriented to our sales and credit processes. So we're getting the production from those folks that the 22 that we've hired last year as we're hiring up to the 50 this year. And really, to date, the bankers hired are performing as expected and contributing to our growth, and we monitor that performance on an ongoing basis to ensure that we're getting what we expect. We're also going to continue to be opportunistic in hiring bankers in our specialty segments. So CRE, healthcare, equipment finance, and ABL. So at this point, given the enhanced processes and the work that's going on, the pipeline, if you will, of potential candidates to bring into the company is good. I feel very good about getting that up to 50 in '26.
Up next, we'll take a question from Casey Haire from Autonomous Research.
I wanted to discuss fees. The fee guide indicates a range of 4% to 5%, which may seem high, but we didn't account for Sabal, which closed mid-year. It feels a bit conservative since, if I annualize this fourth quarter, we're already at a 425% level. I'm just curious if we're overlooking something or if this truly is a conservative estimate.
Thanks. This is Shane. I'll take that one, too. So fee income across all our banking segments and products, as you just articulated, continues to deliver in the fourth quarter. We've grown consumer DDAs in the fourth quarter and throughout the year. That's contributing to service charges, which will contribute even more as a full year of those accounts are on the books. Mobile openings have increased by 20% year-over-year, as well as 80% of our new checking accounts are digitally active. So that really makes them very sticky in kind of primary accounts. Business service charges continue to perform, and those are reflective of the book that we have and our strong treasury service products and services. And as we improve our overall execution in business banking, as I mentioned before, I would expect those deposits and deposit fees to follow along that improvement curve. Card fees right now are generally holding flattish in a trajectory quarter-over-quarter. But I think there's an opportunity there to grow in 2026 through our purchasing card and business card growth. Merchant is another area where we have a solid opportunity to grow as that business banking execution improves and our product bundling strategy gains momentum there. Mortgage fees, again, continue to perform, and we're ready for anything that may happen in the mortgage market with our direct-to-consumer digital offering that we have there. You mentioned the Sabal Trust fees. Wealth management continues to contribute and their strong execution with the Sabal team to retain clients and grow the base there. Annuity sales are a little softer in the fourth quarter, but have remained historically strong for us with our managed money contributing recurring fees at about $15.6 billion of AUM. So given those things and our focus on growing core deposit accounts, continuing to deepen wealth management, I think the fee income target of 4% to 5% is solid, and we should be able to hit that bar.
So Casey, this is Mike. One item just for consideration. Certainly, the 4.5% or 4% to 5% might look a little anemic compared to what we were able to do this year, '25. But certainly, you have the impact of Sabal year-over-year, which kind of distorted the '25 numbers a bit. And certainly, '25 was an absolutely outstanding year for something like annuity fees, which is just hard to imagine that that's going to repeat at that same level in '26. The other reminder, I think, is we have a pretty healthy series of specialty lines of business in our fee income book. Those things are very unpredictable quarter-to-quarter and even year-to-year, things like BOLI, SBA fees, derivatives, very dependent upon the rate environment, syndication fees, SBIC fees. So if you dig into the quarter, one of the things that really drove the quarter, the fourth quarter was we had a really healthy quarter in terms of SBIC fees, which again is one of those things that's really hard to predict and really hard to count on year-to-year. So I think overall, we feel pretty good about the 4% to 5%. And certainly, we'll look at adjusting that if necessary as we go through the year.
That's very detailed. I want to wrap up on the M&A question. You are taking the right steps by increasing the buyback this quarter and improving your TCE ratio, as well as making many new hires and committing to organic growth. However, when speaking with investors, there seems to be considerable concern about your ongoing interest in the M&A market, despite your statements indicating you are not focused on that. What would you say to address those concerns about your appetite for M&A?
Well, I think the most important thing for us to say is really consistency with what we've been saying in the last couple of quarters, which is really what you just kind of repeated in terms of not something we're particularly focused on. And I think the best way to describe our stance is really opportunistic. And I don't know what else to say about it other than to describe it that way. Again, as we've mentioned before, we're aware of the things that are going on around us. We're not sticking our head in the sand. So we pay attention to those things and talk to folks just as an effort to get to know folks and let them get to know us. But at the end of the day, opportunistic is really, I think, the best way we can describe how we look at that. Hopefully, that helps.
It does. When you mention opportunistic, is there a chance for something with a payback period longer than three years? Is that not considered an opportunity for Hancock? Or is that something you would entertain?
I mean, look, in today's world, I think that this threshold of not exceeding a 3-year earnback is something that if we were to go that route, we would not cross that line. But look, that comment does not mean we're doing anything other than just approaching this from an opportunistic point of view. It doesn't mean we have something out there ready to reveal. That make sense?
The next question comes from Brett Rabatin from Hovde Group.
I wanted to start on the purchases of securities during the quarter and the $1.4 billion at $435. Can you talk maybe about what kind of securities those were? And then will that change the effective duration of 3.9 that you had at the end of the year?
It will not, first off, Brett. And in terms of the securities that we bought and sold in the bond restructure that we announced, those were almost entirely commercial mortgage-backed securities. The vast majority of the bonds that we sold, as you can imagine, were bought kind of in the 2020 and 2021 vintage, some in 2019, but almost exclusively commercial mortgage-backed securities. In terms of the no loss bond swap that we did during the quarter, that was also entirely commercial mortgage-backed securities. In terms of the bonds that we bought during the quarter, it was a variety of commercial mortgage-backed, some residential, some SBA.
Okay. So you effectively didn't change the duration of the portfolio. It was more just an opportunity you felt like with capital to improve the yield.
Yes. Certainly, we had the capital to invest in something like this. So we decided to pull the trigger on the $100 million. It felt like the right time; the markets at the time were behaving. I'm sure glad we did that when we did it instead of commencing that in the current environment. So we're very fortunate in terms of that timing. But yes, I think so. It was just an opportunity to enhance our NII, enhance our NIM, and improve the yield on our bond portfolio.
Okay. The other question I had was about deposits. There were strong flows in the fourth quarter, some of which were seasonal. Last year, deposits didn’t grow and were slightly down. From your comments so far, it seems you're planning to lower CD rates and be quite proactive in managing funding costs in 2026. I'm curious how you plan to increase deposits. Will there be specific areas where you'll be more aggressive? Or is there anything in particular that could drive deposit growth compared to last year?
I'll start just real briefly. But again, the guidance for next year for '26 related to deposits is low single digits. That means 1% to 3%, I guess. But in terms of how we get that, I'll let Shane answer that question, but I think it has all to do with the new hires that we're planning for next year.
Yes, Brett, it relates to new hires. Our business banking segment is really gaining traction in '26. We believe that quick credit execution will lead to an increase in credit balances and deposits. I have emphasized the growth we are seeing in our geographies. This is about core business and new relationships as we bring on new bankers and engage different types of clients that contribute to enhanced deposits. We are also adding new capabilities in treasury services, which will be appealing to clients and will help us attract additional deposits. Overall, it's a mix of new bankers, effective outreach in our core markets, and strategic investments that will help us increase deposits.
Ben Gerlinger from Citi has the next question.
I just wanted to mention that we've discussed the hires extensively regarding the significant increase in '26 expectations. I'm curious if there is a specific expectation for when the new bank signs agreements. Do they anticipate securing a loan within a certain timeframe or achieving profitability by a specific date? While having 50 bankers is excellent for '26, is it reasonable to expect a much stronger growth outlook for '27 and '28?
Go ahead, John.
I was going to say, Ben, your question is about like time to breakeven, time to get to target operating model. Is that the question?
Yes, Ben, this is Shane. All new bankers, whether they're business banking, commercial, or middle market, we measure their effectiveness by risk-adjusted revenue. And we look at that from a total managed and self-originated perspective. And I think it's been said on previous calls, typically, we'll see kind of median breakeven at that 24- to 26-month range. So when you look at new bankers hired last year, a lot of those folks are approaching halfway through where their breakeven point is. And then this year, of that 50, I would think by the end of '27, they would be producing very well on a risk-adjusted revenue basis. And we measure that typically in multiples of the cost of that banker.
Got it. That's useful. Is there any kind of requirement regarding either the current core team or new bankers focused on deposit gathering efforts given the current rate environment? How do you approach both sides of the balance sheet when hiring someone?
The question is around kind of our expectations on deposits versus loans?
Correct.
Yes. I think for all of these bankers, we're expecting a blended portfolio. We're not interested in bringing on bankers that are just going to generate loan balances. While that's important, we need the full relationship because with the full relationship, when I refer to risk-adjusted revenue, you benefit from the deposits, and you receive additional fee income that comes from treasury, card services, and other activities. So when considering how we ask our team to approach the market, it’s evident that a credit relationship may be necessary at some point to establish a new relationship, but we do expect full service to encompass treasury, card services, and all other fee products, including our advanced wealth management services for the business owners I mentioned.
Yes. Ben, this is John. I'll add some color, which I think may be helpful in what you're looking for. We've invested a tremendous amount of money and time over the last decade with tools that help our bankers understand what the implications are of their own portfolio balance sheet. So for example, if in a specialty line that generates credit but really doesn't have the capacity to generate deposits, then their portfolio under their view is transfer priced on the lending side, risk-adjusted for credit and credit degradation or improvement. So they really sort of are the balance sheet manager for their portfolio and their conversations with leadership around their goals look almost like an overall corporate balance sheet discussion in our ALCO meeting. It's a very sophisticated model that took us a long time to put together. And that really was the secret sauce to the improvement we had in our overall cost of funds while pivoting to loan growth last year and what we're expecting in '26. So it's a very balanced assessment. So I wouldn't call it as much a mandate as it is an overall risk-adjusted revenue target for the year, and based on their tenure with the company, if that's a building revenue set over time, then the core folks really have to produce liquidity to keep up the funding requirement for the new folks if they're credit-focused. But ultimately, their time to generate fee and deposit income will have to continue. So when we say risk-adjusted revenue, that's literally, as Shane said, that's deposits, fees, and loans, offset by the risk. Does that make sense?
We'll take the next question today from Gary Tenner from D.A. Davidson.
I have 2 quick follow-up questions. I guess, the first, Mike, on your comment about NIM improvement, that 12 to 15 basis points you mentioned. I just wanted to clarify to me that sounded more like a 4Q to 4Q number, not necessarily not full year over full year. Is that the right way to think about it?
Yes, that's exactly right. Fourth quarter of '25, the fourth quarter of '26.
Okay. And then the second, just in terms of the buyback, I don't want to put words in your mouth. But based on what you're talking about it being on a more level basis over the course of the year, subject to maybe leaning in if there were to be some kind of sell-off, it doesn't sound like there maybe is a great deal of price sensitivity at this point. It's more about working down the capital ratios a little bit. Is that also fair?
Well, I think it's fair to say that we're cognizant of the price sensitivity. So that's something we'll certainly consider as we execute that program over the year. The comment was really meant that you will not see a big aggregation or be unlikely to see a big aggregation of buybacks in one quarter like we did in '25. I think it will be all things equal, a little bit more spread evenly across the year. I mean that be literally be across the year.
Next, we'll take a question from Christopher Marinac from Janney Montgomery Scott.
Just want to dig a little bit into credit quality. And just was curious if there's anything on the commercial charge-offs in Q4 that would sort of be more just temporary from year-end cleanup? Or would you see perhaps a slightly higher trend going into '26?
Thanks, Chris, for the question. We'll wake up Ziluca to answer that.
Thank you for the question, I appreciate it. From a credit quality standpoint, we are actually quite satisfied with what we see as a very resilient portfolio. Over the past couple of years, we have refined our underwriting and portfolio management processes, which we believe has helped us address any specific issues effectively. As indicated by the decrease in both nonaccruals and criticized assets this quarter, we experienced significantly fewer inflows during this period, which contributed to this positive situation. Looking at the charge-offs, for example, the top four charge-offs this quarter came from various industries, with no single industry resembling the others. They are all contextually specific. In many cases, we had existing reserves for these issues, which were already classified within our criticized and nonaccrual accounts. This is one reason why specific reserves showed a slight decrease this quarter, as we decided to write those off.
Great. So I guess the question, I think, is, is there room for you to let the reserve kind of run down over this next year? I mean you're still having low losses relative to a 3- or 3.5-year maturity for the whole book. I'm just curious if you've got cover to kind of gradually lower that over time.
Yes, Chris, this is Mike. I mean, admittedly, we're fairly high where we are at 143 basis points. So I think the short answer is, yes, there's probably a little bit of an opportunity, but we're very cognizant of not letting that ratio get too low. So I don't know that you would see us below 125 or 130 basis points. And again, by making that comment doesn't mean that we're trying to get to that level. It just means all things equal, I don't think we would go below that threshold.
Great. And then as this year plays out, depending on how many we do or don't get in terms of Fed rate cuts, how does that impact this kind of risk-adjusted pricing as you think about it? I know the nominal returns are coming down or nominal yields are coming down, but is the risk-adjusted you think going to be stable? Or maybe that's more internal than you share with us, but just curious how you think about it.
Yes. I don't think it'd be at least stable compared to where we are now, even with a couple of rate cuts. Again, from Shane's comments, and I'll let him add some color if he'd like to. But we're very deliberate in terms of the kind of new loan growth we're trying to add to the balance sheet, very deliberate in terms of the credit quality that we consider. So the risk-adjusted spreads should not, all things equal, compress considerably.
Yes. I think we can get better at our pricing and overall deal execution to improve the overall loan yield. I know you're asking about risk-adjusted spread. But I think the better we can execute, the better we can price. And one of our strategic initiatives for 2026 is to calibrate how we actually price and our pricing models to win business and to put some positive pressure on loan yields. And that calibration is going to require intentional focus given potential rate reductions, competition for new deals and pressure on current clients. So I feel like we have an opportunity to put that positive pressure in, and Emory Mayfield, who's our new Chief Banking Officer, will be leading that strategic initiative as we go into the year.
Everyone, at this time, there are no further questions. I'll hand the conference back to Mr. John Hairston for any additional or closing remarks.
Thanks, Lisa, for moderating the call. Thanks, everyone, for your attention. Have a wonderful new year, and we look forward to seeing you on the road.
Once again, this does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect.