Q4 2021 Hancock Whitney Corp Earnings Call
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Today's conference Cool Trisha Carlson 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.
Unified Berrien.
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.
Can't talk 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 Harrington, President and CEO , Mike <unk>, CFO and Crystal Luca Chief Credit Officer, I will now turn the call over to John Harrison.
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 is both loan and deposit growth exceeded expectations annual earnings per share were $5.22 compared to a loss in <unk>.
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're pleased to report positive quarterly net loan growth for the first time in 2021 with over $650 million core loan.
More than offsetting just over $400 million in PPP forgiveness as you can see on slide seven the growth was across the footprint and the specialty lines of business, reflecting improving economic activity increased line utilization and contribution of newly hired bankers and growth markets as a side note the bankers with detail on <unk>.
'twenty 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 returned to historically low levels. We're pleased at how our portfolio has performed during these unprecedented times, allowing us to <unk>.
Recapture in 2021 some of the reserves added in 2020 at the beginning of the pandemic.
Our capital remained solid with our CET one ratio virtually unchanged this quarter. The company enjoyed beneficial capital creation from strong earnings with 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 rose about $1 3 billion related to seasonal year end deposits and hurricane related funds and in stimulus funding during 2021 and total deposits organically grew almost 3 billion during the year. The work we started pre pandemic coupled with the Derisking efforts in 2020 and put us on a path.
To achieving updated corporate strategic objectives, our CSO as noted on slide 19, including the previously announced path to a 55% efficiency ratio. We're looking forward to carrying the momentum from the strong finish to our broader 2022, not only for our company, but for our clients our associates and communities as we hopefully bigger.
<unk> 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 and good afternoon, everyone.
<unk> for the quarter was strong with reported EPS of $1 55 included in the results were $4 9 million or <unk> <unk> 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 PPE.
<unk> essentially flat linked 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 <unk> basis, we grew core loans $652 million in 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.
Two loans bonds or even funding some deposit run off 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.
Last year's efficiency efforts have been significant and impactful and certainly set the foundation for achieving our 55% efficiency ratio goal by fourth quarter 2022.
And the last major theme for the quarter was continuing improvement in credit.
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 280% down 14 basis points linked quarter the impact of the $1 billion increase in average excess liquidity was a significant impact to the NIM and alone was responsible for 10 basis points of the quarters compression otherwise.
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.
His talk about rates rising into 2022 continues we included some enhanced interest rate sensitivity disclosures on slide 15, Youll see expanded details regarding our swap hedging position rate floors, as well as historical loan and deposit beta information.
Please note that we do not have any rate increases built into our 2022 forward guidance our updated CSO as 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 394000 shares at an average price of 48 98 at this point I will turn the call back to John . Thank you, Mike, Let's just open the call for questions.
Thank you if you like to ask a question. Please press star followed by one on your telephone keypad if for any reason you'd like to remove that question. Please press star followed by two again to ask a question press Star one.
Binder, if you are using a speaker phone. Please remember to pick up here and said before asking your question. We will pause here briefly ask questions are registered.
The first question comes from Michael Rose with Raymond James. Please proceed.
Okay.
Hey, good afternoon guys.
Well I wanted to start on.
Good afternoon.
Start off on loan growth this quarter.
Strong ex PPP looks to be up about 13% annualized but I wanted to dig into the increase in core C&I, which look to be up about 600 billion Q on Q can you give us some color.
On what drove that and what we should expect.
As we think about C&I next year I mean was it was it just new clients with a pickup in utilization was it.
Out of all the above.
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 at the growth.
Slide that shows across the markets in 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 has certainly helped so overall loan production was a good bit better than our commitment lever commitment level rather than that.
And our last pre pandemic here in 2019.
So 'twenty one 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 our front end shop and a supporting areas. So really a lot of credit goes to the team for doing that when you get to <unk>.
Line utilization that also was a tailwind and just as a reminder, our utilization pre pandemic.
Right out in the fourth quarter of 19, a little over 47% and reached a bottom in first quarter of 'twenty, one at a little under 38%. So a pretty big drop and then since then we've seen three quarters of increasing utilization leading up to Q4. So when looking at utilization that certainly was a tailwind in <unk>.
Expect to see that continue upward.
Through the year and certainly every quarter might not be as big of an increase in utilization as Q4.
But certainly we would see it going up over time.
And any additional questions on that Michael that cover what you were looking for.
No I think thats helpful.
Just don't forget switch to expenses I think core expenses are down now.
Seven quarters in a row, you guys are guiding expenses to be down and it looks like another 2%. This.
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 breakdown, where the incremental cost savings or comment. It's clearly wage inflation as 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 'twenty. One. 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 'twenty. One 'twenty two we've talked about things like strategic procurement, which I think will help us.
<unk> two to cut costs as we move into 'twenty two.
As we've said 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 'twenty one.
It really is to create room within our expense base for continued investments back into the company So technology investments.
Then certainly we'd like to continue to hire new bankers as we did primarily in the second half of 'twenty, One and then of course, we have.
Specter of inflation, specifically wage inflation.
And we've accounted for all of those things in the guidance that we've given for 2002.
So.
So it's really just about execution I think from this point forward.
Okay very helpful. And then if I exclude the nonrecurring items. It looks like you guys are at an ROA of about.
Mid to high $1 40 range, that's kind of at the high end of the CSO is cut.
The years out understanding that theres, some puts and takes right and youre not going to have the negative provision.
But also can you just give some color around maybe some broad strokes around what.
Goes into that especially the ROA target in terms of expectations. If you can provide any color on loan growth there.
NII or any expectations for that thanks.
Yes. So if you go to slide 19 of the earnings deck really the top half of that.
It gives our overall guidance for 2022, so I think 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 if you do the math around each of those items that we're guiding to.
When we look at <unk> for 2022, if we back out the impact of the PPP loans, both in 'twenty, one and what remains in 'twenty two.
Looking to actually grow kind of our core PNR between 10 and 12% in 2002.
So thats part obviously, what's built into the CSO that you see at the bottom of slide 19.
One of the things we did in the table at the bottom of Slide 19 is we took the 2021 CSO and kind.
Adjusted them, but they're really unusual items in 'twenty one.
Really arent going to be repeating we believe on a go forward basis since 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 'twenty one.
And so when you do that you kind of arrive at an adjusted 21, CSO and then you'd see on a go forward basis, but with projected four three years down the road.
Alright very helpful.
Just to add on.
Yes, Thank you Michael and just as an add on and remember that any rate increases as Mike said in his prepared comments are not built into the CSO and they're essentially determined to be a run rate in the current environment.
Obviously the change in the credit environment economy would be I mean, she is the rate environment economy.
What would be beneficial if rates were to Raj.
I appreciate it thanks again.
Thank you.
Yeah.
Thank you Mr. Rose. The next question comes from Brad Milsap with Piper Sandler. Please proceed.
Hey, guys.
Hey, Brett.
Thanks for taking my questions, Mike, maybe I'll, just start with the balance sheet and specifically.
The liquidity I think at the end of the quarter, yet around $3 8 billion of Fed fund 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 five in the bond book.
It started in <unk> 'twenty, one just curious if that number in your mind could go higher it looks like you didn't do a lot of your investing in a bond portfolio through kind of late in the quarter based on the period end versus the average.
Curious kind of how to think about that cash on the balance sheet vis vis a lot of the deposit growth that you had in the quarter.
Some of that might be temporary given insurance proceeds in public funds.
Yes, I'd be glad to and.
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 the better part of $500 million of PPP loan will be forgiven in the first half of 'twenty. Two so as we go through the year. The things we've kind of talked about is obviously being an.
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 'twenty. One I think puts us in an excellent position to hit the <unk>.
Since around loan growth that we've given in this document so that's the 6% to 8% on an end of period basis be kind of translate that into dollars.
Between one to four 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 Israeli loans first and as we can.
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 quarter. So that's where the $1 5 billion comes from for 'twenty, two that would be about $1 2 billion.
To answer your question about how do we look at that certainly as we go through the year.
That number is certainly could change and again, that's something where I think we will evaluate each and every quarter as we go through the year.
Paint 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.
With today's activity specifically in the 10 year.
If that continues.
No.
Certainly the reinvestment yields that I think we will.
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 2002.
Great. That's helpful and very helpful. Thank you for my one follow up on slide eight where you guys took about new loan production yield.
Do you think do you think <unk>.
It was sort of the bottom there and you'll continue to see improvement kind of curious kind of the mix of the new stuff. You are putting on is that is that mostly variable.
Is that a good percentage of 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 can reprice.
As rates move higher hopefully throughout the year.
Sure. This is John I'll start with that one.
In terms of the loan growth that occurred in Q4, it was mostly variable.
As you suggested the.
The driver for the difference of 10 bps <unk>, though was really mix it wasn't that the rate environment really improved that much.
I'll really at all it was more.
And 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 in the right side towards specialty the higher percentage of the total net growth number that is generated in the core markets will drive a mixed it'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 paydowns in the coal market. So anytime that happens that's going to be more beneficial to new money new to bank rate so to the extent that occurs.
And the next several quarters and that bodes well for the starting point in those credits.
Does that answer your question or would you like to asking can clarify 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.
Certainly I think that sets us up for potentially rising rates in the future.
Great very helpful. Thank you guys I'll hop back in queue I really appreciate it.
You bet. Thank you.
Thank you Mr Mount that.
The next question comes from Brett <unk> with hub group. Please proceed.
Hey, good afternoon, everyone.
Hi, good afternoon wanted to FERC.
Wanted to first just to go back to the margin and I appreciate all the color on <unk> or as it relates to the sensitivity maybe we talk about the expectations for the margin and if you look at the three 2% gradual.
Number four 100 basis points and seven three for immediate and I think about your balance sheet and I think about the repricing.
What youre doing in the bond portfolio and the liquidity that you're expecting to deploy.
Seem to me like if the fed does raise in March and Youre, having some reduction in public fund seasonality in <unk> would seem like you are.
<unk> 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 could give us.
Some thoughts on the margin path, particularly in the back half of the year.
Yes, Brett this is Mike.
Yes, certainly the guidance that we're giving.
Really perhaps in any kind of increase in rates and.
That really does call for kind of this notion that 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 if we do get rate hikes. This year and certainly thats looking like more and more of a certainty each and every day.
Youll note that at the bottom of <unk>.
Some historical information about our rate.
Great data is both in 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 <unk>.
Data of about 48%.
Deposit side, Thats actually total deposits about 25%.
So if those numbers can kind of translate into.
Similar type of beta Sysco brand.
Then.
Again without giving any specifics at this point I would certainly think that we'd be able to see our NIM will.
Began to arrive sooner.
Then each year and then in the back half of the year the cumulative impact of the deployment we've talked about.
Certainly I think pretty accretive to the net.
So I know thats not a whole lot in the way of specifics.
But at this point.
Yes, it's pretty consistent I think with the guidance with the add on of what the impact of higher rates.
And this is John the only thing I'd add is.
Note that the PPP contra to NIM that occurs throughout the it seems like it's been every quarter theres been a number as to PPP run office impact.
That really becomes immaterial in the second half of 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 a continued deployment in loans and therefore, a little more favorable earning asset mix. So I don't know if this color is helpful.
Not but if you just look at the the revolving base.
Base of credits that we have it's about 9% higher than the year 'twenty. One from end of year 19 back when utilization was a good bit more than it is today. So if you take the bigger revolving base.
On higher loan by 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 on.
Until you begin to really run off all the excess liquidity. So it kind of gives you a per story and as you go into every quarter, obviously, the benefit changes and goes higher.
Yes, I appreciate the color. That's it's obviously a complicated equation with all things that go into it.
On a quarterly basis I appreciate that.
I guess the other thing I wanted to just ask about was just thinking about that.
Banker hires.
What the pipeline looks like for maybe this year, if you've got any visibility into that.
Thanks.
The second half of <unk>.
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 in 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 consideration of where they want to spend the rest of the career, but but our best weapon is is a very.
Census, appetite for risk between our credit organization in the line so when they sense in those interviews and talking with both the banking.
Later chain of command in the credit China demand I think people sense that a synchronicity and it's encouraging and may be fresh to them and so as a result, we think our chances are pretty good at continuing hires you never you never say its done until they are in the door right. So I don't want to go into any numbers or really even talk about any markets or targets.
But.
And certainly our efforts are further 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 slotted. He has been about $125 million of the fourth quarter net growth actually came from from from those new team members in new markets.
Not an inconsequential benefit it's tangible and it's is there for us to see.
Okay, and if I can just thinking one last one around fintech a lot of banks are talking about their investments on the platforms, possibly improve efficiency over time. It was curious if you guys wanted to talk about fin talk a little bit in terms of anything you are doing.
With investing and kind of how you view <unk> as a potential provider 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 continued through 'twenty two and 'twenty three is from technology uplifts that improve both effectiveness, which is really revenue generation and <unk>.
<unk>, which affects the ER and the 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 several quarters of starting over again.
But we look at it as a potential partner to help us with.
With deploying additional liquidity.
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 branch check uplifts wrap up and we run those same rails to have a very efficient digital deliver utility. So we'll talk about that a little more when we get to second or third quarter in terms of timeline and.
And.
Expected impact, but all of that is cooked into the 'twenty two guidance.
Okay, Great appreciate all the color.
Sure Thanks for the questions.
Thank you Mr. Backman. The next question comes from Jennifer <unk> with Truest. 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 <unk>.
Upside or downside within that guidance right now John .
I'm going to let Mike talk about the impact on NIM from from the upside of rates and then I'll cover a couple of other items and we'll start with that yet 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.
As we go through the year.
Rate increases do happen, we'll adjust the guidance that we gave on a quarterly basis.
Yes in terms of of others of other guidance up to 6% to 8%.
End of period loan growth has a lot of different moving parts Jennifer included in it.
But one of those inputs is expected pay downs if rates begin to move up then the impact on cap rates and on PE 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 NIM because deposit betas will absolutely lagged loan betas and then secondly, we think we will see more utilization on lines, it's hard to predict right now but that could go up.
Through the year.
Thirdly would be what I just mentioned in terms of Paydowns is beginning to diminish.
We've got the expense number pretty tight.
As it is.
And on Empress given the work that we've all done so I think the chance of an upside beta is probably going to be more in revenue because of what happens to the balance sheet.
Yes, I would agree John and I think.
It certainly is a little bit of a wildcard when it comes to deposits deposits.
Pretty I would say erratic that just hard to kind of project or predict this past year and you can see that we are guiding to flat to down.
We have lots of excess liquidity to fund.
Any kind of deposit outflows that might occur and it also puts us in a position, whereas rates do rise, we can lag those increases and Stan.
<unk> deposit run off.
The other category that I would mention certainly their scripts I think with expenses.
It kind of goes with <unk>.
<unk>.
In this environment, if we do more investments and we're counting on at this point hire more bankers.
Or if our assumptions around inflation or wage inflation.
On the low side, then certainly there would be some risks on the expense side.
At this point I would at all describe that as a significant risk I think we are.
Accounted for all of those items.
Our plan for next year, so just pointing out a few things.
Could be could be perceived as risk.
Thanks, so much.
You bet. Thank you.
Okay.
Thank you MS came back. The next question comes from Catherine Mealor with <unk>. Please proceed.
Thanks, Good afternoon.
Hi, good afternoon Catherine.
Just one follow up on the CSO calls.
As we move through the next year.
<unk> and <unk>.
We are in an environment, where we continue to see rate hikes will you update your CFO .
<unk>.
A higher rate environment.
Because I would imagine in that environment your objective.
Very feasibly.
So a lot higher than this 135 to 145 or is that.
Just kind of give you flexibility if there is kind of expense growth or other credit.
Changes are kind of other offsets that offset.
Much higher.
Brad gross in that kind of environment.
Yeah.
Yes, <unk> good question.
Typically when we publish our CSS.
Again, there are three year goes 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 CSO because we go through 'twenty two.
This is probably a little dependent on actually what occurs and what kind of rate increases we get and we think those impacts will be but as of now the game plan would be to update the CSO is on an annual basis.
In terms of our guidance between two as we go through the year I think we will update those based on circumstances, both internal as well as external.
Catherine This is John the only thing I'd add to what Mike shared is the purpose of all of that detailed on page 15.
As to try to give the building blocks of what the impact of a better environment may be after given the baseline so dependent on how quickly you think rates go up.
And what's your estimate for both loan and deposit betas, 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 date. So that was really why we shared all that details. We recognize the CSO are flat and I think the whole market's pricing and rate increases these days for March.
Tried to give as much detail as we could do the math I hope it was helpful.
Yes, yes.
Yes, I think there's significant upside even to where you are now you.
Objected if you do think that there can be rate hikes, I guess I was just trying to think through.
Jeff.
How much upside there could be because if I if you can get to.
Let's call it the mid point of 140, <unk> without any rate hikes.
That's pretty amazing if we think about how asset sensitivity you are and if youre seeing there for to take tax comment I just didn't want to get.
Q.
<unk> optimistic within that objective just given that there could be offsets I'm sure.
For example, you may invest more if all of a sudden.
You have rate cuts in your margin has expanded <unk> data you may change your kind of expense goals that was just kind of trying to think about.
How can we want to get with how much upside there really is to that mid point of the 140 <unk>.
Yes, I think I think those are all the right things to think about that the other thing is.
Certainly when we began our planning process, probably in the fall or late.
I don't think anybody was really expecting.
Increases of 22 and look.
Now with potentially three or four.
Pick a number so the environment has changed pretty dramatically pretty quickly and.
We know that the pandemic H things can change.
Both externally and internally in that manner.
Okay.
Got it.
Appreciate it.
You bet, Kevin Thank you so much.
Okay.
Thank you Ms. Malloy. The next question comes from Kevin Fitzsimmons with D. A Davidson. Please proceed.
Hey, good evening everyone.
Okay.
Yes, good evening Kevin.
Just a couple of quick ones most of the questions have been asked and answered.
The.
Yes.
ACL to loan ratio is still quite strong here at 180%.
See the guidance for 'twenty two talks.
Talks about.
Continuation of modest reserve releases would you define.
Modest reserve releases is what <unk> been given that youre using a more continuation of kind of what you've done in the last three quarters or so that kind of piece or yes and to that end I mean, just if you can.
Update us or refresh us on where.
That settlement might be for that reserve.
When.
When you might get there I know thats, a hard thing in terms of budgeting, but just help us how to think through it.
Sure be glad to Kevin so related to really your first question yes.
For the past two quarters, our reserve releases have been.
$29 million. This quarter was 28 eight last quarter, so certainly pretty consistent I think.
Charge offs as well.
Well only 700000 this quarter and that's down from just under $2 million last quarter. So.
When we say that are kind of program related to modest reserve releases will continue.
It really does mean I think continue at something near this level.
There are lots of factors that go into that.
The level of future charge offs, the macroeconomic environment, but those assumptions might be on a go forward basis, what's happening with our loan portfolio.
Lease of which are not least of which what's going on with the pandemic.
Various surges or the areas. So all those things kind of go into the.
The modeling that we very carefully do around.
And.
Accordingly, each and every quarter. So certainly for the next couple of quarters again to answer your direct question.
We point you to reserve releases.
In the neighborhood of what we've done in the last couple of quarters and would suggest that that guidance is probably good for the next couple of quarters.
Related to your the last part of your question.
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 will settle out but if we go back and look at our day one seasonal there.
It was about 128 basis points.
If you kind of make the adjustment for the energy portfolio that we sold in the second quarter of 2020.
Goes down to just under 100 basis points. So again, that's really just for context, it's not to suggest that.
The aim is to get the aim of the intent is to get to those levels.
What level, we eventually settle out before.
The provisioning maybe goes to zero and then we begin to build.
It will depend on a multitude of variables that I think is just really probably too difficult to make that kind of a call right now so again.
And a ramp up the guidance is for reserve releases.
Around the magnitude that we've done in the last couple of quarters for a couple of quarters.
Okay. That's helpful. Mike. Thank you and just one quick follow on on.
You mentioned, how you guys took advantage of the market disruption and stepped in and repurchase shares given the.
The dip we saw in the TCE ratio and the stock has done better is it less likely to expect.
You know as an.
<unk> approach to our buybacks here in the next few quarters.
Yes, I don't think so I think that will depend a lot again on.
Future market disruptions and certainly with the volatility.
The market and 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.
<unk> us from doing.
Repurchases or a quarterly basis for example of the magnitude that we did in the fourth quarter. So again, we will 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.
Okay. Thanks very much.
Okay.
Thank you.
Thank you Mr Fitzsimmons.
Next question comes from Christopher <unk> with Janney Montgomery Scott. Please proceed.
Thanks. Good afternoon, just wanted to follow back up on the return on tangible common looking out three years, John and Mike If youre able to hit the 15% or beat it.
That throws off what does that mean for capital distributions and how do you think of that kind of on accumulative basis.
Well.
I'll start off and John certainly add color, but for now if we think about our capital priorities.
It really is first and foremost, earning support for our dividend and then we certainly would like to continue to grow capital to support our organic loan growth.
After that we begin to look at things like potentially increasing the common dividend.
It's something we evaluate really on a quarterly basis with our board. So nothing is planned right now, but it certainly I think as.
We go through potentially this year.
That's something we could look at it a little bit more intently and then certainly buybacks and continued 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 will be building I think significant levels of capital.
And at that point, I, certainly think that.
One of the things that we'd like to do is.
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.
Looking at continuing buybacks or maybe doing sir.
A little bit more impactful, but again all of that is really a hypothetical.
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 CET one ratio as time passed is not necessarily in 'twenty, two but just on the.
Big picture.
Lower band in terms of a level that we would want to go below.
Yes.
Yes.
Again, we look at we look at this in a way that we'd like to continue building our ratios.
We'd like that that common tier one to really be no lower than around where it is right now so call it 11% level.
I think it's probably a good parameter.
Great Mike Thanks, very much.
Okay.
Thank you Mr. <unk>, we have a follow up question from Katherine Malloy. Please proceed.
Thanks for letting me Jonathan again, I just had a question about your guide for fees to be.
Flat this year over last is that are you taking a more conservative view on on service charges returning to levels that we saw maybe pre COVID-19 within that guide or is that more of a kind of a statement on the on the downside risk we have on the mortgage line just kind of trying to think through.
Okay.
On the VA MVP.
Sure. It's a good question and the guidance really Catherine is a blend of.
One big one big taken that is the diminishment 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 so 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 hit the headwind or tailwind side.
Our card fees merchant fees really anything related to business card ventures continued to outperform on the upside.
And then well to some degree outperformance once you get past.
The reduction from the Salt Mutual fund complex. So 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 little worse. So when you roll. It together, we got to the push and it wasn't where we have been calling to get to a flattish description that was just the way the math.
Came together, but certainly the environment could could yield an upside if it lines up a little bit better than we're forecasting.
Okay, Great. That's helpful. Thank you.
You bet. Thank you for the follow up.
Thank you Ms Malloy.
There are no other questions 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 thank to all of our friends on the sell side for choosing us too.
To attend the call and we certainly appreciate our buy side investors attending we would hope to see 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.
Goodbye.
Okay.
Great.