Hancock Whitney Corporation

Thank you for your patience, ladies and gentlemen. This conference call is due to begin in one minute's time. Thank you.

Today's conference call, Tricia Carson, 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 risk 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 8K 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 Ackery, CFO, and Chris Zaluka, Chief Credit Officer. I will now turn the call over to John Hairston.

Thank you, Tricia, and Happy New Year, everyone. Thank you for joining us today. We're very pleased to report that fourth quarter results produced a strong finish to a record year. The company grew to over $36 billion in total assets as both loan and deposit growth exceeded expectations. Annual earnings per share were $5.22 compared to a loss in 2020, while operating pre-provision net revenue totaled $538 million in 2021, an increase of $46.5 million, or 9%. Revenue initiatives are progressing, and we are pleased to report positive quarterly net loan growth for the first time in 2021, with over $650 million in core loan growth more than offsetting just over 400 million in PPP forgiveness. As you can see on slide seven, the growth was across the footprint and in specialty lines of business, reflecting improving economic activity, increased line utilization, and contribution of newly hired bankers in growth markets. As a side note, the bankers we detail on slide 20 added around 125 million in new loans during the fourth quarter. For the year, core loans grew 4% compared to 2020, And our expectations are for continued growth in 2022 of 6% to 8%, with typical quarterly seasonality reflected in our results. I'd also like to point out that despite the impact from the pandemic on our markets and clients, our credit metrics are greatly improved and today are among the best in class. Criticized commercial loans are down over 100 million or 27% compared to 2020, and NPLs declined 85 million or 59% from a year ago. With net charge-offs returning to historically low levels, we are pleased at how our portfolio has performed during these unprecedented times, allowing us to recapture in 2021 some of the reserves added in 2020 at the beginning of the pandemic. Our capital remains solid with our CET1 ratio virtually unchanged this quarter. The company enjoyed beneficial capital creation from strong earnings, but revaluation of OCI and outsized balance sheet growth resulted in a TCE ratio a little under our targeted 8% at year-end. During the quarter, we saw deposits grow by $1.3 billion related to seasonal year-end deposits and Hurricane Ida-related funds, adding stimulus funding during 2021, and total deposits organically grew almost $3 billion during the year. The work we started pre-pandemic, coupled with the de-risking efforts in 2020, have put us on a path to achieving updated corporate strategic objectives, or CSOs, noted on slide 19. including the previously announced path to a 55% efficiency ratio. We are looking forward to carrying the momentum from the strong finish to a brighter 2022, not only for our company, but for our clients, our associates, and communities as we hopefully begin to emerge from today's ongoing pandemic environment. I want to take a moment to thank my colleagues at Hancock Whitney for their perseverance and their dedication to clients and each other as they work as a team to build momentum through 2021. I'll now turn the call over to Mike for further comments.

Thanks, John. Good afternoon, everyone. Results for the quarter were strong, with reported EPS of $1.55. Included in the results were $4.9 million, or four cents per share, of net non-operating income items, which were mostly storm-related. Excluding these non-operating items, EPS came in at $1.51 for the quarter, with PPNR essentially flat when quarter. As John pointed out, certainly the quarter was a strong finish to a record year for the company, so I'd like to cover a few important themes that we think drove the results. First was balance sheet expansion. As mentioned, on an EOP basis, we grew core loans $652 million and deposits $1.3 billion this quarter. The deposit growth coupled with PPP forgiveness led to a nearly $1 billion increase in our average excess liquidity. Putting that liquidity to work by deploying into loans, bonds, or even funding some deposit runoff is one of the major keys to our success in 2022. Meeting and then beating our fourth quarter expense goal was another major theme with expenses coming in at just under 184 million. So 3 million below our established goal of 187 million. The past year's efficiency efforts have been significant and impactful and certainly set the foundation for achieving our 55 percent efficiency ratio goal by fourth quarter of 2022. And the last major theme for the quarter was continuing improvement in credit. The fourth quarter makes six consecutive quarters with quarter-over-quarter improvement in our credit quality metrics to now among the best in class. Moving to a few operating comments for the quarter. Our NIM was 2.80 percent, down 14 basis points length quarter. The impact of the $1 billion increase in average excess liquidity was a significant impact to the NIM, and a loan was responsible for 10 basis points of the quarter's compression. Otherwise, the NIM would have been down about four basis points, which would have been consistent with our previous guidance. As mentioned, efforts to deploy excess liquidity into loans and bonds are ongoing. As talk about rates rising in 2022 continues, we included some enhanced interest rate sensitivity disclosures on slide 15. You'll see expanded details regarding our swap and hedging position, rate floors, as well as historical loan and deposit data information. Please note that we do not have any rate increases built into our 2022 forward guidance or updated CSOs detailed on slide 19. Any increase in rates in 2022 will be accretive to our guidance. Based on today's rate environment, we do expect the NIM will remain flattish to slightly down from current levels until about mid-year and then begin to widen. Certainly that is very dependent upon the pace of loan growth as well as overall excess liquidity deployment. And finally, we were opportunistic with our buyback authorization and with the quarter's market disruption We repurchased just under 394,000 shares and an average price of $48.98. At this point, I'll turn the call back to John.

Thank you, Mike. Let's just open the call for questions.

Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove that question, please press star followed by 2. Again, to ask a question, press star 1. As a reminder, if you are using a speaker phone, please remember to pick up your headset before asking your question. We will pause here briefly as questions are registered. The first question comes from Michael Rose with Raymond James. Please proceed.

Hey, good afternoon, guys. Hope you're well. I wanted to start off on... Good afternoon. We just want to start off on loan growth. You know, this quarter... Really strong ex-PPP looks to be up about 13% annualized. But I wanted to dig into the increase in core CNI, which looked to be up about $600 billion Q1Q. Can you give us some color on what drove that and what we should expect as we think about CNI next year? I mean, was it just new clients? Was it pickup and utilization? Was it kind of all of the above? Thanks.

Yeah, thanks, Michael. Good question. I'll talk about the first part and then get to line utilization second. So overall, loan production was terrific for the quarter. We were very pleased with it. Paydowns were light, or at least lighter than we expected. They were still there, but not quite as large as we anticipated. And if you look in the growth, the slide that shows across the markets and the specialties, the core business really enjoyed strong production and pull-through rates across all of our geographies, east, west, and central. And then the robust activity in equipment, finance, and healthcare certainly helped. So overall loan production was a good bit better at a commitment level rather than our last pre-pandemic year in 2019. So 21 over 19 was much better, stronger. And that reflects, I think, all the bankers that we've added, the markets we've spread to, better tech, a better asset quality and an early push in 2021, which wasn't easy to normalize the cadence of both our front end shop and the supporting areas. So really a lot of credit goes to the team for doing that. When you get the line utilization, that also was a tailwind. And just as a reminder, our utilization pre-pandemic was right out in the fourth quarter of 19, a little over 47%, and then reached the bottom in first quarter of 21, at a little under 38%, so a pretty big drop. And then since then, we've seen three-quarters of increase in utilization leading up to Q4. So when looking at utilization, that certainly was a tailwind, and we expect to see that continue upward through the year. Now, certainly every quarter might not be as big an increase in utilization as Q4, but certainly we'd see it going up over time. Any additional questions on that, Michael, to cover what you were looking for?

No, I think that's helpful. Just if we could switch to expenses, I think core expenses are down now kind of seven quarters in a row. You guys are guiding expenses to be down. It looks like another 2% this year. All we keep hearing about, though, is wage inflation. It looks like you obviously had hired some bankers in the back half. of the year, I expect that you would hire more. So can you just break down where the incremental cost savings are coming? Because clearly wage inflation and technology costs are on the rise for everybody. So if you can just walk us through what drives that 2% decline. Thanks.

Well, Michael, this is Mike. I think that as we move into 2022, it really is as much as anything else. We've established, I think, a pretty good runway for expenses with where we landed in the fourth quarter of 21. So it really is just kind of continuing that level of expenses through the next four quarters or so. And we've guided to basically on an annualized basis for expenses to be down around 2% or so between 21 and 22. We've talked about things like strategic procurement, which I think will help us continue to cut costs as we move into 22. And as we've said, you know, I think many times before, we're really interested in cutting costs, not only to become more profitable, I think we've done that work in 21, but it really is to create room within our expense base for continued investments back into the company. So technology investments, and then certainly we'd like to continue to hire new bankers, as we did primarily in the second half of 21. And then, of course, we have the specter of inflation and specifically wage inflation. And we've accounted for all of those things in the guidance that we've given for 22. So it's really just about execution, I think, from this point forward.

Okay, very helpful. And then if I exclude the non-recurring items, it looks like you guys are at an ROA of about mid to high 140 range. That's kind of at the high end of the CSOs. you know, a couple of years out, understanding that there's some puts and takes, right. And you're not going to have the negative provision, you know, but also can you just get some color around maybe some broad strokes around what goes into that, especially the, the ROA target in terms of, you know, expectations, if you can provide any color on, you know, loan growth or, you know, NII or any, any expectations for that. Thanks.

Yeah, so if you go to slide 19 of the earnings deck, really the top half of that slide gives our overall guidance for 2022. So I think, you know, unless you have any specific questions, for the most part, most of that information should be pretty straightforward. And I think as an aside, if you do the math around each of those items that we're guiding to, when we look at PPNR for 2022, if we back out the impact of the PPP loans, both in 21 and what remains in 22, we're looking to actually grow kind of our core PPNR between 10 and 12 percent in 22. So that's part of obviously what's built into the CSOs that you see at the bottom of slide 19. Now, one of the things we did in the table at the bottom of slide 19 is we took 20-21 CSOs and then kind of adjusted them the really unusual items in 21 that really aren't going to be repeating, we believe, on a go-forward basis. So specifically, we backed out the impact of the PPP loans in 2021, and then also backed out the impact of the negative provisioning that we did in 21. And so when you do that, you kind of arrive at an adjusted 21 CSOs, and then you see on a go-forward basis what we're projecting for three years down the road.

Very helpful. John, just to add on.

Yeah, thank you, Michael. Just as an add-on, remember that any rate increases, as Mike said in his prepared comments, are not built into those CSOs, and they're essentially determined to be a run rate in the current environment. Obviously, any change in the credit environment of the economy would be, I mean, excuse me, the rate environment of the economy would be beneficial if rates were to rise.

I appreciate it. Thanks again.

Thank you.

Thank you, Mr. Rose. The next question comes from Brad Millsatz with Piper Sandler. Please proceed.

Hey, Brad.

Thanks for taking my questions, Mike. Maybe I wanted to start with the balance sheet and specifically The liquidity, I think, at the end of the quarter, you had around $3.8 billion of Fed funds and then another half a billion dollars of PPP loans that will come back. I think in the deck, you alluded to the planned investment of about $1.5 billion in the bond book that started in 4Q21. Just curious if that number in your mind could go higher. It looks like you didn't do a lot of your investing in the bond portfolio until kind of late in the quarter based on the period inverse of the average. Just curious kind of how to think about that cash on the balance sheet vis-a-vis a lot of the deposit growth that you have in the quarter, that some of that might be temporary given insurance proceeds and public funds.

Yeah, I'd be glad to. And thank you for the question, Brad. So obviously we're starting the year, as you mentioned, with kind of excess liquidity at the $3.8 billion. And then certainly on top of that, we have you know, the better part of $500 million of PPP loans that'll be forgiven in the first half of 22. So as we go through the year, the things we've kind of talked about as obviously being extremely important to our ability to deploy that excess liquidity, I think is first and foremost loan growth. So certainly the loan growth and the momentum related to that loan growth that we've been able to achieve really the last three quarters of 21, I think puts us in an excellent position to hit the guidance around loan growth that we've given in this document. So that's the 6% to 8% on an end-of-period basis. If you kind of translate that into dollars, that's between $1.24 and $1.65 billion of loan growth that we're looking at guiding to for next year. So obviously the preference in terms of deploying that excess liquidity is really loans first, and that's what we intend to do. Related to the bond portfolio, what we had talked about last quarter, beginning with the fourth quarter, was growing the bond book by about $300 million a quarter. So that's where the $1.5 billion comes from. For 22, that would be about $1.2 billion. But to answer your question about how we look at that, certainly as we go through the year, that number certainly could change. And, again, that's something I think we'll evaluate each and every quarter as we go through the year, depending upon the kind of loan growth we're getting, whether we have any deposit runoff to fund for that excess liquidity, and then certainly what the reinvestment yields might be related to the bond portfolio. Certainly with today's activity, specifically in the 10-year, if that continues to a certain level, you know, certainly the reinvestment yields, that I think will be available in the bond portfolio will certainly be better than what we achieved in the fourth quarter, which was around 158 basis points or so. So that really is how we kind of think about managing the balance sheet and then specifically deploying that excess liquidity 22.

Great. That's helpful and very helpful. Thank you. And for my one follow-up on slide eight, where you guys talk about new loan production yield, do you think Do you think 3Q, it was sort of the bottom there, and you'll continue to see improvement? I'm kind of curious, you know, kind of the mix of the new stuff, you know, you're putting on, is that mostly variable, you know, or is it, you know, a good percentage fixed rate, or is it kind of more reflect your current mix? Just kind of wanted to get a sense of how the back book, you know, can reprice, you know, as rates, you know, move higher, hopefully throughout the year.

Sure. This is John. I'll start with that one. In terms of the lung growth that occurred in Q4, it was mostly variable, as you suggested. The driver for the difference of 10 bps, 3Q to 4Q, though, was really mixed. It wasn't that the rate environment really improved that much, really at all. It was more in the mix of what we delivered. And so if you look at the two primary sources of growth, which would be your core markets like we have on the left side of the page you just mentioned in the regions and then the right side towards specialty, the higher percentage of the total net growth, the number that is generated in the core markets will drive a mix that's better and a little higher yielding. So there was no real change in risk appetite, no change in strategy. We just simply had a higher production level and less pay downs in the core markets. So anytime that happens, that's gonna be more beneficial to a new-to-bank rate. So to the extent that occurs in the next several quarters, then that bodes well for the starting point in those credits. Does that answer your question, or would you like to ask anything clarifying?

And then, Brad, I think you asked about the mix of the production in the fourth quarter. Roughly speaking, it was about two-thirds variable, one-third fixed.

So certainly I think that sets us up for potentially rising rates in the future.

Great. Very helpful. Thank you, guys. I'll hop back into you.

I really appreciate it. You bet. Thank you.

Thank you, Mr. Milfats. The next question comes from Brett Rabattin with Hove Group. Please proceed.

Hey, good afternoon, everyone. Hi, good afternoon. I wanted to, I first wanted to, I first just go back to the margin and appreciate all the color on slide 15 as it relates to the sensitivity. Maybe talk about the expectations for the margin and if you look at the 3.2% gradual number for 100 basis points and 7.3 for immediate. I think about your balance sheet and I think about the repricing and what you're doing in the bond portfolio and the liquidity that you're expecting to deploy It would seem to me like if the Fed does raise in March and you're having some reduction in the public funds seasonality in 2Q, it would seem like your margin could be on a pretty good path for the back half of the year. I know the guidance is related to no Fed hikes, but assuming we had three throughout the year, I was curious if maybe you would give us some thoughts on the margin path, particularly in the back half of the year.

Yeah, Brett, this is Mike. And, yeah, certainly the guidance that we're giving, you know, really adapts to any kind of increase in rates. And that really does call for kind of this notion of flattish NIM for the next couple of quarters and then certainly begin to widen in the second half of the year. And I think that widening primarily comes from, as we mentioned earlier, the deployment of excess liquidity. really primarily into loans and then secondarily into bonds. But certainly if we do get rate hikes this year, and certainly that's looking like more and more of a certainty each and every day, you'll note that at the bottom of 15, we have some historical information about our rate data, both on loans and deposits from the last time we had a rising rate environment. And you can see I think we did pretty good on loans with a beta of about 48%, and then on the deposit side, that's actually total deposits, about 25%. So if those numbers can kind of translate into a similar type of beta as this go-round, then again, without giving any specifics at this point, I would certainly think that we'd be able to see our NIF begin to rise sooner than mid-year. And then in the back half of the year, the cumulative impact of the deployment we've talked about, you know, will certainly be, I think, pretty accretive to the NEM. So I know that's not a whole lot in the way of specifics, but at this point, you know, it's pretty consistent, I think, with the guidance, with the add-on of what the impact of our rates might be.

And this is John. The only thing I'd add is a note that the PPP contra to NEM that occurs throughout the It seems like it's been every quarter. There's been a number as to PPP runoff that's impacted them. That really becomes immaterial in the second half of the year. So some of that inflection point we shared around flat to the midpoint and then beginning to recover in a flat rate environment is tied to the absence of that contra and the continued deployment in loans and therefore a little more favorable earning asset mix. So I don't know if this color is helpful or not, but if you just look at the revolving... base of credit that we have, it's about 9% higher in the year 21 from in the year 19, back when utilization was a good bit more than it is today. So if you take the bigger revolving base on higher line utilization back to what we would consider norm, and at the top of page 15 on the right, you sort of see the rate floors on an incremental basis. You can sort of back into what the pace of net interest income creation that comes until you begin to really run off all the excess liquidity. So it gives you a story. And as you go up every quarter, obviously the benefit changes and goes higher.

Yeah, I appreciate the cover. That's obviously a complicated equation with all the things that go into it on a quarterly basis. So I appreciate that. I guess the other thing I wanted just to ask about was just thinking about the banker hires and you know, what the pipeline looks like for maybe this year, if you've got any visibility into that. And, you know, if you think that the second half of last year is a good kind of indication for what you might do this year.

Yeah, thanks for the question. I mean, it certainly won't be for lack of trying. We continue to have conversations. Some of those are obviously warmer than others, depending on where they're coming from and what the market is. probably the best weapon we have to moving people. And generally, once you get past the first part of the year, those conversations begin to be a little bit more finite. But as end of year bonuses are satisfied and people are a little bit more flexible in their considerations of where they wanna spend the rest of their career. But our best weapon is a very consensus appetite for risk between our credit organization and the line. So when they sense in those interviews and talking with both the banking leader chain of command and the credit chain of command. I think people sense that synchronicity, and it's encouraging and maybe fresh to them. And so as a result, we think our chances are pretty good at continuing hires. You never say it's done until they're in the door, right? So I don't want to go into any numbers or really even talk about any markets or targets, but certainly our efforts are fervent in pursuing some additional benefit. And you can see why in terms of the fourth quarter. I think we shared in the deck, I don't recall what slide it is, but about 125 million of the fourth quarter net growth actually came from those new team members and new markets. So it's not an inconsequential benefit. It's tangible and it's there for us to see.

Okay. And if I could just take one last one around FinTech. You know, a lot of banks are talking about their investments on the platforms to possibly improve efficiency. over time, you know, was curious if you guys wanted to talk about FinTech a little bit in terms of anything you're doing with investing and kind of how you view FinTech as a potential purveyor for improved efficiency.

Sure, it's a good question, a fair question. I mean, overall tech is obviously important and part of the improving efficiency that we've enjoyed the past year and that we will enjoy continuing through 22 and 23. is from technology uplifts that improve both effectiveness, which is really revenue generation, and efficiency, which affects the ER and expense ratio. So it's really important. FinTech, we don't have today announced a partnership with FinTech, although it wouldn't surprise me if we had one sometime this year. Obviously, it's important to get it right, because a misstep can cost you several quarters of starting over again. But we look at it as a potential partner to help us with with deploying additional liquidity. Now those would be secondary providers. Obviously our desire to finally launch our digital lending in the retail space will occur a little later this year as some of our branched tech uplifts wrap up and we ride those same rails to have a very efficient digital delivery utility. So we'll talk about that a little more when we get to second or third quarter in terms of timeline and expected impact. But all that's cooked into the 22 guidance.

Okay, great. Appreciate all the color.

Sure. Thanks for the questions.

Thank you, Mr. Rabatt. And the next question comes from Jennifer Demba with Truist. Please proceed.

Good afternoon.

Hi, Jennifer.

Just wondering, the guidance, the fundamental guidance that you gave for the year 2022, curious as to where you see the most opportunities for upside or downside within that guidance right now, John.

I want to let Mike talk about the impact on them from the upside of rates, and then I'll cover a couple other items. You want to start with that, Mike?

Yeah. Obviously, I think, given that the guidance that we're giving is with no rate increases, certainly if we get Again, as it seems likely, any rate increases this year, that's very accretive to our guidance. And as we go through the year and rate increases do happen, we'll adjust the guidance that we give on a quarterly basis.

Yeah, in terms of other guidance, the 6% to 8% of end-of-period loan growth has a lot of different moving parts, Jennifer, included in it. And one of those inputs is expected paydowns. If rates begin to move up, then the impact on cap rates and on P multiples of takeouts, which have been the two primary sources of paydowns for us, you would expect those to begin to diminish without really having at least a significant impact on production. So in a rising rate environment, we enjoy the benefit to them because deposit betas will absolutely lag loan betas. And then secondly, we think we'll see more utilization on lines. It's hard to predict right now, but that could go up through the year. And then thirdly would be what I just mentioned in terms of paydowns beginning to diminish. I think we've got the expense number pretty tight, Mike, as it is. It ought to impress given the work that we've all done. So I think the chance of an upside beat is probably going to be more in revenue because of what happens to the balance sheet and them. Yeah, I'd agree, John.

And I think, you know, certainly there's a little bit of a wild card when it comes to deposits. Deposits have been, you know, pretty, I wouldn't say erratic, but just hard to kind of project or predict this past year. And you can see that we're guiding to flat to down. And certainly we have lots of excess liquidity to fund any kind of deposit outflows that might occur. And it also puts us in a position where as rates do rise, we can lag those increases and stand some degree of deposit runoff. The other category that I would mention, certainly there's risk, I think, with expenses. It just kind of goes without saying, but in this environment, if we do more investments than we're counting on at this point, hire more bankers, or if our assumptions around inflation or wage inflation know we're on the low side then certainly there would be some risk on the expense side but you know at this point i wouldn't uh at all describe that as a significant risk i i think we've uh accounted for all those items in terms of our planning for next year so just pointing out a few things that you know could be uh could be perceived as risk thanks so much you bet thank you

Thank you, Ms. Dimba. The next question comes from Katherine Mallora with KBW. Please proceed. Thanks. Good afternoon. Hi.

Good afternoon, Katherine.

Just one follow-up on the CSO goals. As we move through the next year or two and we are in an environment where we continue to see rate hikes, will you update your CSO to reflect a higher rate environment? Because I would imagine in that environment, your objectives could very feasibly go a lot higher than this 135 to 145. Or is that just kind of give you flexibility, you know, if there's kind of expense growth or other credit changes or kind of other offsets that, you know, offset a much higher spread growth in that kind of environment?

Yeah, Catherine, good question. And, you know, typically when we publish our CSOs, you know, again, they're three-year goals down the road. And we typically update those at least on an annual basis. So I would expect us to do that a year from now. I don't know that we'll update the CSOs as we go through 22. I think that's just probably a little dependent on actually what occurs and what kind of rate increases we get. and what we think those impacts will be. But as of now, the game plan would be to update the CSOs on an annual basis. In terms of our guidance for 22, as we go through the year, I think we'll update those, you know, based on circumstances, both internal as well as external.

Katherine, this is John. The only thing I'd add to what Mike shared is the purpose of all that detail on page 15 is to try to give the building blocks of what the impact of a better environment may be after giving the baseline. So depending on how quickly you think rates go up and what you estimate for both loan and deposit basis given what the balance sheet looks like today, it should be pretty straightforward to model that just based on what you think the market's going to do. So that was really why we shared all that detail is we recognized the CSOs are flat, and I think the whole market's pricing and rate increases these days for March, and we tried to give as much detail as we could to the map. I hope it was helpful.

Yep. No, it definitely is, and it shows, I think there's significant upside even to where you're putting out your objectives if you do think that there can be rate hikes. I guess I was just trying to think through just how much upside there could be, because if you can get to let's call it the midpoint on 140 ROA without any rate hikes. And that's pretty amazing if we think about how asset sensitive you are and if you assume that there are four to six hikes coming. So I just didn't want to get too optimistic within that objective, just knowing that there could be offsets. And for example, you may invest more, right? If all of a sudden we do have rate hikes and your margin is expanding, well, then maybe you may change your kind of expense I'm just trying to think about how much upside there really is to that midpoint of the 140 ROA.

I think those are all the right things to think about. You know, certainly when we and others began our planning process, probably in the fall and late fall, I don't think anybody was really expecting rate increases of 22. And look, and here we are now with, you know, potentially three or four, you know, or pick a number. So the environment has changed, you know, pretty dramatically, pretty quickly. And, you know, as we know, in the pandemic age, things can change both externally and internally in that manner, so.

Got it.

Very helpful. Thank you for all the detail. You bet, Kevin. Thank you so much.

Thank you, Ms. Malour. The next question comes from Kevin Simmons with DA Davidson. Please proceed.

Hey, good evening, everyone.

Yeah, good evening, Kevin.

Just a couple quick ones. Most of the questions have been asked and answered. The ACL to loan ratio is still quite strong here at 1.80%. I see the guidance for 22 talks about continuation of modest reserve releases. So would you define modest reserve releases as what you've been, given that you're using the word continuation, kind of what you've done the last three quarters or so, that kind of piece? And to that end, I mean, just if you can, update us or refresh us on where that settling point might be for that reserve and when you might get there. I know that's a hard thing in terms of budgeting, but just help us how to think through it. Thanks.

Sure. Be glad to, Kevin. So related to really your first question, yeah, for the past two quarters, our reserve releases have been, you know, $29 million this quarter, what, $28.8 last quarter. So certainly pretty consistent, I think. And, you know, charge-offs as well, only $700,000 this quarter. And that's down from just under $2 million last quarter. So when we say that our kind of program related to modest reserve releases will continue, it really does mean, I think, continue at something near this level. You know, certainly there are lots of factors that go into that. the level of future charge-offs, the macroeconomic environment, what those assumptions might be on a go-forward basis, what's happening with our own loan portfolio, you know, least of which or not least of which, what's going on with the pandemic and, you know, various surges or variants. So all those things kind of go into, you know, the modeling that we very carefully do around, you know, what we end up reporting each and every quarter. So certainly for the next couple of quarters, again, to answer your direct question, you know, I would point you to reserve releases, you know, in the neighborhood of what we've done the last couple of quarters and would suggest that that guidance is probably good for the next couple of quarters. Related to the last part of your question, you know, and again, we've given this information in past quarters and it really is just to provide some context. It's not to suggest that these are levels that, we think we'll settle at, but if we go back and look at our day one CECL, that was about 128 basis points. But if you kind of make the adjustment for the energy portfolio that we sold in the second quarter of 2020, that goes down to just under 100 basis points. So again, that's really just for context. It's not to suggest, you know, that the aim is to get, or the aim or the intent is to get to those levels. what level we eventually settle at before, you know, the provisioning maybe goes to zero and then we begin to build, you know, will depend on a multitude of variables that I think is just really probably too difficult to make that kind of call right now. So, again, you know, to kind of wrap up, the guidance is for reserve releases around the magnitude that we've done the last couple of quarters for a couple of quarters.

Okay, that's helpful, Mike. Thank you. And just one quick follow-on. You mentioned how you guys took advantage of the market disruption and stepped in and repurchased shares. Given the dip we saw in the TCE ratio and that stock has done better, is it less likely to expect as active an approach toward buybacks here in the next few quarters?

I don't think so. I think that'll depend a lot again on future market disruptions and certainly with the volatility in the market. You saw that, for example, on a day like today. The fact that our TCE ratio is where it is right now isn't a major hindrance to us, a hindrance that prevents us from doing repurchases on a quarterly basis. for example, the magnitude that we did in the fourth quarter. So again, we'll continue to be opportunistic, I think, in how we approach the buyback. And again, the fourth quarter was a good example of kind of what that means.

Okay. Thanks very much.

Thank you.

Thank you, Mr. Fitzsimmons. The next question comes from Christopher Marinak with Jannie Montgomery Scott. Please proceed.

Thanks. Good afternoon. I just want to follow back up on the Return on Tangible Common, you know, looking out three years. John and Mike, if you're able to hit the 15 percent or beat it, you know, the capital that it throws off, what does that mean for your capital distributions, and how do you think of that kind of on a cumulative basis?

Well, I'll start off, and John certainly has color, but for now, if we think about our capital priorities, you know, it really is first and foremost earning support for our dividend. And then we certainly would like to continue to grow capitals, support our organic loan growth. And, you know, after that, we begin to look at things like potentially increasing the common dividend. You know, and that's something we evaluate really on a quarterly basis with our board. So nothing is planned right now, but certainly I think as we go through potentially this year, that that's something we could look at a little bit more intently. and then certainly buybacks and continue to be opportunistic in terms of buybacks. So that really is kind of the way I think we think about capital deployment right now. But if I think about your question and maybe go down the road a little bit further, if we are able to achieve these kinds of goals and these levels of profitability, certainly we'll be building, I think, significant levels of capital. And at that point, I certainly think that You know, one of the things that we'd like to do is, you know, look at maintaining our dividend payout ratio at levels that might eventually lead to higher levels of dividend increases. And then, again, potentially where our valuation is, you know, looking at continuing buybacks or maybe doing something a little bit more impactful. But, again, all of that is really hypothetical, you know, based on certainly us achieving these goals and targets on a go-forward basis.

Great. That's helpful. And I guess just related, is there any lower bound on the CET1 ratio as time passes, not necessarily in 22, but just in the big picture?

Lower bound in terms of a level that we would want to go below? All right. Yeah. I mean, we, you know, again, we look at this in a way that we'd like to continue building our ratios. You know, I think we'd like that common Tier 1 to, you know, really be no lower than around where it is right now, so call it the 11 percent level.

I think it's probably a good parameter. Great, Mike. Thanks very much. Okay.

Thank you, Mr. Maranac. We have a follow-up question from Catherine Millor. Please proceed.

Thanks for letting me jump in again. I just had a question about the fee guide for fees to be flat this year over last. Are you taking a more conservative view on service charges returning to levels that we saw maybe pre-COVID within that guide, or is that more of a kind of statement on the downside risk we have on the mortgage line? Just kind of trying to think through on the fee pieces.

Sure, it's a good question, and the guidance really, Catherine, is a blend of one big put and one big take, and that is the management year over year in the secondary mortgage business, just simply because production is expected to decline, even at the rates we're at right now. I think the refi boom, although it was a little bit of an uptick in refi business in Q4, at least it was for us, we anticipate some stabilization in first quarter and then kind of bleed down for the rest of the year. So that would be a headwind. And then on the tailwind side, our card fees, merchant fees, really anything related to business card ventures continue to outperform on the upside. And then wealth to some degree outperforms once you get past the reduction from the sole mutual fund complex. So when you put those all together, it gives you a clinical push, but obviously the rate environment can change that. It can make it a little better or a little worse. So when we rolled it together, we got to the push, and it wasn't a, we weren't being coy to get to a flattish description. That was just the way the math came together. But certainly the environment could yield an upside if it lines up a little better than we are forecasting.

Okay, great. That's helpful.

Thank you.

You bet. Thank you for the follow-up.

Thank you, Ms. Malour. There are no other questions waiting at this time, and I would like to pass the conference back over to John Harrison for additional remarks.

Well, thank you very much for moderating, and thanks to all of our friends on the sell side for choosing us to attend the call, and we certainly appreciate our buy-side investors attending. We hope to see you on the road in person sometime this year. Everyone have a great day and be safe.

That concludes the Hancock Whitney Corporation's fourth quarter 2022 earnings conference call. Thank you for your participation and enjoy the rest of your day.