Q2 2022 Hancock Whitney Corp Earnings Call

Speaker 2: Good day, Ladies and gentlemen, and welcome to hand cut Whitney Corporation: second quarter 2022 earnings conference call. At this time, all participants are in listenonly mode. Later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Tricia carlson Investor, their Relations manager. You may begin.

Speaker 1: Thank you and good afternoon.

Speaker 3: 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 involving and changing.

Speaker 3: hhandcck quity's ability to accurately project results are, 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.

Speaker 3: 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.

Speaker 3: 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 eight -k are also posted with the conference call webcast link on the Investor Relations website.

Speaker 3: We will reference some of these slides in today's call. Participating in today's call our John hston, President and CEO , Mike acy CFO , and Chris, the lua Chief Credit Officer. I will now turn the call over to John hston. Thank you tricp, and thanks to everyone for joining us today to discuss another solid quarter. The momentum we've reported the past few quarters continues and, we hope you agree, reflects the company well positioned for today's uncertain environment. As expected, the movement in rate served as a tailwind this quarter and helped us beat our targeted efficiency ratio of 55%, well ahead of plan. Also, as expected, the upward rate migration pushed our NIM back over 3%, as earning assets repriced and deposit bta is lagged. Core loan growth exceed our expectations up over seven million more than offsetting this quarters runoff and P P P loans improving line utilization production in all geographic markets across our footprint, coupled with a strong showing in health care, real estate and mortgage, these were all contributors to the 13% linked quarter annualized growth.

Speaker 4: We are especially pleased to report that almost 15 million of the quar'sgrowth from bankers in expansion markets across our footprint, particularly beamont, Dallas and San Antonio in taxas and Jackson and Mississippi. Even with a strong second quarter however, we continued prior guidance for the year at 6- 8%, but with a clear buyas to the high end of the range in three Q. we expect moderation in pipeline in pull through rate, followed by our rebound in Q4. So, Moving on to deposits, while we reported a 2% runoff, the drivers were commercial clients converting cash on their balance sheet in the working capital and some opted to use excess liquidity to pay down debt and light of increasing money rates. We saw normal seasonal reductions from public funds and consumer clients paying taxes and there was a portion of migration elsewhere in pursuit of higher rates. There was relatively no change in our best in cass to deposit mix, with almost half in DA and the other half and low cost categories. Credit continued improving despite being at historically low levels last quarter. Npl and criticized loans declined once again and that chargeoffs were actuallyual in that recovery for the quarter. As a result of this performance we finished the quarter with a strong allowance at one point. Five five, eight percenti' began my comments saying we believe we are well positioned for today's environment. I would refer you to Slide 20 and earnings deck to observe the rationale for that case with that last Mike to share any further comments.

Speaker 5: Thanks John . Good afternoon everyone. The second quarter was another solid quarter, with net income of 121 million in EPS of a dollar 38 per share.

Speaker 5: The results were down slightly linked quarter, mostly due to a lower negative provision for loan losses as we complete our reserve release tapering.

Speaker 5: Compared to a year ago, earnings increase from a dollar per share to a dollar 38 per share. As a reminder, the same quarter a year ago included 42.2 million, or 37 cents per share, of net nonoperating items related to efficiency initiatives we undertook last year.

Speaker 5: The successful execution of those initiatives helped the company become more efficient and are positioned us well for today's uncertain and challenging environment.

Speaker 5: Operating preprovision net revenue, or pnr, totaled 147 million- up 12.4 million, or 9% linked quarter, and up nine point seven million, or 7% from a year earlier.

Speaker 5: three operating themes we think drove our results in the second quarter. Those inclued the impact of overall higher rates, the end of reserve releases and higher operating expenses, mainly due to increased personnel costs.

Speaker 5: The movement up in rates was beneficial to our results has earning assets repricednew loans and securities were added to the balance sheet at much higher yields. The majority of our floors on loans reset and we lagged in moving deposit costs upwe also shifted our mix and earning assets as we used excess liquidity to grow loans, invest in the bond portfolio and fund deposit runoff.

Speaker 5: In addition, the majority of our remaining Federal homeloan advances were called during the quarter.

Speaker 5: As a result of this activity, our NIM for the second quarter widenened 23 basis points to 3%, and.

Speaker 5: Also important to note is that June's NIM of 3% provides a better indication of how the rate moves and mix shift within the balance sheet is impacting our net interest income today.

Speaker 5: Even more important is our expectation and guidance that the NIM in July should begin the third quarter at around 3% and.

Speaker 5: Please refer to Slide seven 12, 13 and 18 in our earnings deck for additional information on second quarter's results and future expectations for nv.

Speaker 5: Our asset quality metrics were again improved this quarter, with NPL and levels of commercial criticized loans down slightly to historically low levels.

Speaker 5: In addition, we saw net recoveries of seven thousand and our ACL remained very strong at 339 million or 2% of loans excluding PP.

Speaker 5: As a result, we did release nine point one million of reserve this quarter and we believe we have now seen the end of reserve releases.

Speaker 5: Expectations are that our ongoing provision levels for the next few quarters are likely to be zero or low as model scenarios become more pessimistic.

Speaker 5: Another driver for the quarter was higher operating expenses.

Speaker 5: While most expense categories were stable, personnel expendse increased almost eight million.

Speaker 5: As noted on Slide 15, there is some seasonality to this line item, as annual merit increases are paid in April .

Speaker 5: This year the average raise was 3% and added two point two million to the second quarter's base salary totals.

Speaker 5: Incentives paid increased three point five million in the quarter as company and individual performance reflected a solid first half of the year.

Speaker 5: Also an additional day in the quarter increased the total by one million and biney. We have another one point- one million of increase related to higher headcount end wages due to inflationary pressures.

Speaker 5: The increase in fsees for the first half of this year has been primarily related to filling vacancies in the consumer bank, with increases also in commercial banking technology and our corporate internship program.

Speaker 5: It's important to note that, while expenses were up, the improvement in NI and fees more than offset the increase, resulting in an efficiency ratio with 55% meeting our target earlier than expected, which takes us to guidance.

Speaker 5: Slide 17 and' 18 or updates to our near-term and NIM guidance and reflect both the impact from past rate moves and our expectations for rates for the remainder of this year.

Speaker 5: And finally a couple of closing comments on capital.

Speaker 5: Our TCE, while again impacted by O, did increase six basis points to 7%, and.

Speaker 5: Our capital levels remain solid, with CET one over 11% and leverage estimated to be up 30 basis points. Link quarter.

Speaker 5: Again a very solid quarter that's helped to position us well for today's environment. With that, I'll turn the call back to John .

Speaker 6: Thanks Mike. Let's open the call for questions.

Speaker 2: Well.

Speaker 7: Thank you. If you would like to ask a question, please press star. Follow by one on your telephone, keepy pet. If for any reason you would like to remove that question, please press star. Follow by to again to ask a question. Press Star one as a reminder. If you are using a speaker phone, Please remember to pick up your answer before asking your question. We will PA your briefly est questions or registered.

Speaker 2: The first question is from the line of Kevin fish Simmons with DA davidfrom in of not open.

Speaker 8: Hi good afternoon everyone.

Speaker 6: I get.

Speaker 9: Just wondering if you can.

Speaker 5: You guys brought it up earlier John , about.

Speaker 10: Deposit declines we've seen that from some banks already and.

Speaker 5: Just curious what you're.

Speaker 11: Thoughts are on that and related to the ability to grow NI and specifically, it seems like the past few years we've had NI growth driven by the balance sheet, while the margins's been hurt by this excess liquidity. And now that you're adversing And so we we looking at- I know you don't give guidance specifically on NI, but do you feel?

Speaker 12: Confident that you can grow NI driven by the percentage margin even if.

Speaker 13: Average earning assets is relatively limited by that cash being drawn down and maybe I 'm.

Speaker 14: Maybe I'm not characterizing the R, if that's not what you expect, But if you can kind of address that topic.

Speaker 5: Yes Ke in. This is. This is myike, I'll start answering the question and certainly John can add some color. butyeah, I think you you have that right. So what we're expecting from this point for the rest of the year, you know, if you look at our guidance, is really for deposits you will the year to be kind of flat to slightly down. Now that implies over the course of the second half of the year, net net for deposits probably to be down a bit from where they are now. So not expecting a lot of earning asset growth in the second half of the year and in fact you know we still have the last of our home loan advances that will likely be called at the end of this month So you could see some additional deleveraging in the second half of year. But we absolutely expect the NIM to continue to widen, you know you really with the tail window of higher rates, and for N? I to continue to grow, you know, as we go through the back half of the year. So that those are things that you know we have the high confidence around happening. And certainly as far as deposits go again, you know the guide is is really for deposit to be flat to slightly down. So that's how we're kind of thinking about the second half of the year with respect to N? I in the NIM.

Speaker 15: Kevin. The other thing I would add to it is there's no lack of capacity to grow deposits. The retail franchise and the commercial franchise are very good at do that at the same time, without a vehicle to deploy it. From this point forward, pretty close to dollar for dollar, I think, get letting the Lang deposit ratio ease up a little bit for the purpose of that, interest income and overall earn, ings is a little bit more important to this than you know. Bolstering the- currently it's moderately excessive now versus grossly excessive in terms of liquidity, So naturreally drives, not a capacity, it's really just balance sheet management leading to that posture. And then the last thing I would add, just a reminder around the mix of our deposit base. It's absolutely tremendous and we certainly, you know, see ourselves holding on to that favorable mix as we go through this environment.

Speaker 16: Yes and listen. It's ironic, but I'm talking about shrinkage of excess liquidity as a problem, because we've been talking about that is as the main headwind for quite some time, So it should be seen as a good thing. But M I'm just wondering, just just the duvetail off that' just wondering if it does that. It happened so quickly, at least quicker than I thought. Just a maybe.

Speaker 5: Accelerate that, the pop ada or that, or take away that lag on deposit pricing more than you might have otherwise had, and not just you guys in particular, but all banks- and does it? What does it do about likely securered purchases going forward to?

Speaker 17: Yes So in terms of the the second question first around the bond portfolio. I mean we just think about the composition of our earning asset base and how that's likely to be deployed. In the second half of the year I mean you're right for the most part you know this notion of excess liquidity really has kind of played out you and we're kind of back pretty quickly to traditional ways of managing the balance sheet not having all of that excess liquidity. So certainly the focus is going to be continued on look growing our loan book and we have guidance for additional loan growth in the second half of the year and as far as the bondportfolio is concerned. You know we'll probably grow with a little bit from where it is right now. But I don't think you'll see a lot of net growth for the second half of theyear and the bondportfolio that's at least how we're looking at it now and then your first question around deposit betas there're starting off I think pretty low for most banks right. Now. I think most banks are following. You know that same philosophy around you know kind of a controlled way of looking at deposit betas but certainly think that that's going to pick up as we go through the back half of the year and especially if the Federal Reserve raises rates has expected. So I think that will play out you know probably more toward the the fourth quarter but we'll certainly say.

Speaker 18: Okay great. And one just qure question on the loan growth. I was just curious why you expected at the modery in third quarter but then to rebound in fourth quarter. 'massuming some kind of seasonality? But just if you can add a little bit.

Speaker 19: There's a little seasonality there. Kevin, the the primary driver is and if we go through the second quarter I obvious growth was. It was very good, it was very diverse. It was spread across geographies and specialties. Both the pull three rate and the scaling of the pipeline early, and the second quarquarter was was was better than we expected. So it was. It was all good new as the price increases got worked into our modeling, especially the 75 BS increase that happened in June and we were modeling another 75 for July . So is that ripple through a pricing for fixed rate lending? We saw pretty sharp reduction in terms of what the fixed ratepipeline looked like for three Q and if you assume a 60 day average closed for something that requires a praisal in such, you know that the pipeline work we in June reflects what's going to happen in auust right. So the reason we're given the guidance for the moderation is, as we saw, competitors pretty significantly lagging in terms of adjusting pricing models for fixed rate deals, really beginning in junethey're only just now- and when I say just, I mean the last several days- beginning to see bids that are more similar to what we're suggesting. So so thepipeline has a whole in it for the middle of Q3 and we also have some schedulle paydowns, a projects on the series side that better normal paydowns scheduled for three Q. So it's a little bit of seasonality. Some of it is the fact that we we're dealing with pricing with the assumption of the 75 B and then maybe even on another quarter two and the following months and our pricing model and at this point time we rather get get pricice properly than than have any more bulk in terms of just your growth. So it in a sentiment take down, it is a lack of demand. I think it really was just a bubble. It lasted about six weeks or so and a pricing gap and I think that all historically that takes about 6, eight weeks and that's lookslikewhat. What' going happen? What's going to happenin this time?

Speaker 2: ok great, Thank you everyone.

Speaker 6: You bet. Thank you for the quest.

Speaker 2: Thank you for your question. The next question is from the line of Bret rabittton with popy group. Ye is now.

Speaker 2: Any good afternoon everyone.

Speaker 20: bre wanted to. You mentioned deposit betas a little bit. Wanted just to to kind of talk about the progression of the margin from here and appreciate the 3, 35 guidance for July . The math makes sense as we think about the remaining greatate hikes from here, the loan beas in the deposit betas. Can you talk about how fast you expect the deposit bet to accelerate? I E you know. At what point do you think that the deposit bet it will start to slow the migration upward of the margin, you know, in the next six months?

Speaker 5: Yes bre, this. This is Mike. I'll give you a few comments related to that question, So related to the NIM, I think overall.

Speaker 5: Just given the trajectory of what's happened with rates and what's likely to happen, not only at the end of this month But as we move into depmber and then the potential for the Fed to continue increasing, maybe at a slower rate, in November and December , I think we'll see the majority of the margin expansion that we're anticipating for the second half of the year. I think we'llsee most of that the third quarter, not to say ggest that we won' see any in the fourth quarter. I believe we will, but I think, all things equal, we'll see most of it in the third quarter. Also think and believe that by the time we get to the fourth quarter we'll begin to see, I think, the full impact of deposit betas, not to say there won't be some impact in the D quarter. I think again, as we look at the second half of of the year, that impact probably is going to be weighted more toward the the last part of the year. So hopefully that that's helpful.

Speaker 21: Yeah that's like IA very helpful. Appreciate that. And then just wanted to to talk about the guidance for efficiency ratio and you kind of have it, you know, staying below 55, but it would see like it could migrate based on.

Speaker 22: Even the guidance for revenue and expenses from here towards 50%. Is there a reason why you didn't want to give any different guidance on the efficiency ratio in terms of where it trends in the next six months to year?

Speaker 23: No no no, no specific reason at all. We just felt like, given the detail of the guidance that we gave on Slide 17, above the efficiency ratio, that certainly the math would take that number down to the level that you suggested.

Speaker 24: So it was really kind of a given nothing, as opposed just specifically calling out there.

Speaker 2: ok great, and then maybe just.

Speaker 22: I'm sorry good, I H.

Speaker 19: I'm sorry, stepped on your bread. The bottom of Page 18. that last bullet point might be one that you were looking for in the earlier question around just what the NIM expansion is as increases go up in the timing. So I think you can back into where you're headed with that bullet point.

Speaker 2: Okay just' trying to to figure what. I guess johi trying to igureout on Page 18 what the assumption was for the deposit beat. So that's all everything that you guys have said. It was very helpful just quickly. Last was just thinking about. Know everyone's talin about a recession and what that might mean for balance sheets and growth or like there'of. How, how are you guys thinking about the opportunity for market share movement? You know, in a recession and what do you think happens? You know, similarly are a recession and 23. you respond to that in terms of growth or like there'reof.

Speaker 25: Yeah I'll start, and that's a great question. That could go a few different places around the table, but I I'll help again and anybody else in chime and wants to. In terms of our growth appetite at this point in time, given sort of the position we find ourselves in, we outlined that on Page 20 of the day- our offensive hiring, our posture is to continue. There's a lot of good talent out there. We have a terrific synchronicity between the treasury function and the line leadership. We have great nchon synchronicity between the line, the credit leadership and, as we have dialogue within incoming bankers with the experience that appreciate the observation of that and I think that's led to some really good success. People that join the organization, the last know 4, six quarter, S and so with that success behind us, we would, we would presum it. It's also in front of, and we'll continue to, an offensive hiring and you know to we, you know till something changes. So I don't think that slows and a recessive environment- you know there's always winners and losers in that environment and to the extent that there's any further disruption around this, and that would also provide that opportunity for growth and I think we would probably looking pretty hard to deposit togetherthering if we into a recessive environment for still hiring people, we would generate loans. So I don't think it'd be any different than it's been in prior cycles. It's nice to go into a cycle if we have one from a position of strength with the law loss reserve and the very low levels of CIT and P L loans. So we kind of start off in a good place with a good strong reserve. And so I think with all that you know role together we will keep doing it exactly what we're doing today, with the exception is we would respond to protect a deposit book. So' see babies begin toclimb up as we ensure we hold on to those corerelationships in the future. That I answer what you were looking at, or would you like some clarity?

Speaker 22: No that's how that's really helpful. John appreciate color.

Speaker 26: You bet. Thanks the question.

Speaker 27: Thank you for your question. The next question is from the line of Jennifer dimble with tru securities. Your line is now open.

Speaker 2: Thank you good after on. Just curious on your share repurchase appetite at this point. I know you got about two point seven million shares left on the authorization.

Speaker 21: Yes Jennifer, this is Mike, So so that'will absolutely continue, I think, in the second half of the year. We've always kind of described our appetite as being opportunistic and admittedly we probably bought maybe more shares in the second quarter than we expected, but that certainly, given the amount and level of market disruption, we saw that opportunity to do so. So we'll continue to be opportunistic in the second half of the year, just maybe not at the same level that we bought shares back in the second quarter.

Speaker 2: ok right, and back on the hiring topic for just a second. Are there, in particular, markets where you're seeing relatively more opportunities right now?

Speaker 28: That's a good question, Jennifer. Our focus is really on the growth markets just simply because was we hired teams and individuals and book end areas of the company where the naturally expected organic growth rate is higher. To the extent we can find folks there, particularly teams, we'd like to take advantage of that. But here in the last quarter you notice the mix of people was a little different. About half the people we hired we're in those growth markets and about half in the core and the folks that are in the Louisiana Mississippi, Alabama area of the footprint that were added were really more opportunistic highres. So I would probably say it's going to be, by the time you look at a one year's view, probably 80% or so of those hires will be in very high growth markets where we have low market share but very good opportunity.

Speaker 2: Thank you.

Speaker 5: Yes may have. Thanks for the question.

Speaker 2: Thank you for your question. The next question is from the line of Casey. Here with Jeffrey in line, is no open.

Speaker 29: Yeah thanks, good afternoon everyone. So I guess a question on the bond book: if, if deposit growth- I know you guys are kind of, you know, looking add to that going forward if, if deposit growth remains tough in a in in a Fed tightening cycle, you know what is the. You guys have a decent sizeed bond book at 27% of the balance sheet. How, how much over there is there an opportunity to fund out of that fund, the loan growth out of that? Like, how willing, how how small are you willing to run that portfolio as a percentage balance sheet?

Speaker 5: Case y- this is Mike. So we run the bond portfolio probably as low as maybe 20%, totwenty-two percent of earning assets. Admittedly, a 27, it's probably on the high end. Our, our sweet spot probably is around 25 or so. Those are just kind of broad parameters but again, giving that, the intent right now, based on how we look at the second half of the year, is to grow the bond book, I would say modestly from where it is now. So that's kind of how we think about that.

Speaker 30: Okay understood, and then just on the indirect book.

Speaker 31: Which is is amortizing. Is that due to less demand or just LAP less appetite on your part, or a combination of bol? And how big is that portfolio?

Speaker 32: It's case. That's a business we exited our exited new notion in maybe 6, eight quarters ago- I believe it was the year four last. There's about 16 million left and the book and it's been running off that you know, started four million. A quarter is down with a two handle now and I think probably three more quarters of that and the amortization is going to become immaterial. In terms of strategy. I mean the risk, adjusted returns. But again it's skinning up and what we saw coming in where higher prices, too many different features getting built into the principle, the note, and if we went into a credit cycle we were seeing losses per inst that that didn't look terribly attractive to us and so we oughtpted to get out and use the liquidity for other purposes. So that that's, that's the reason it's adortising.

Speaker 29: gotyou, Thank you.

Speaker 6: Your betad. Thanks the question.

Speaker 2: Thank you for your question. The next question is from the line of Brad mill stes with Piper Sandler line is now open.

Speaker 2: A good evening.

Speaker 20: The grab.

Speaker 22: Mike, I just wanted to follow up on Casey's a bond question. Just curious, it look like the yield stayed relatively flat. Link orter, though you're doing some reinvesting there- not buying a lot of new- But just could you comment on that, the abilities to see that maybe some what's there as well? Is it kind of anything sort of stuck in this range?

Speaker 23: No i- thanks to the question bread and no, I don't think we're stuck in that range- that the yield on the bond portfolio was up two basis points, quar of a quarter. We did buy about three hundred seventy two million dollars of bonds. That contributed obviously to the growth as well as reinvested any maturities are paydowns. The new bonds that we bought came on at three hundred and forty 2, So certainly a very, very nice yield. I think part of the is a lot of those purchases tended to happen later in the quarter, So the impact in the second quarter was a little bit muted. I think you'll see a little bit more of a significant yield pick up in in the coming quarter.

Speaker 22: Okay very helpful. And then just the follow up on the loan beta discussion.

Speaker 33: Is there any reason this cycle you wouldn't think you would see, you know, sort of a 48% looking beta, as you saw last cycle? Just, you know the the rate increases are coming So quickly you think it will be difficult to pass them home or some of the weight computted away. Or in your mind you think you can sort of achieve that sameing beta that you saw last time around.

Speaker 5: Yes absolutely on the loan book. Our intent is to have our loan beta match the last time when we were in a upgrade cycle and really right now have no reason to believe that it would be any different.

Speaker 24: And so far our experience is proving that out. But obviously we're early.

Speaker 2: There in. Thank you for that. And maybe just one final one for me. There are a lot of kind of puts tatake on fees. This quarter you kind of have the seasonal, you know trust lift from tax prep fees. A couple of things went the other way. Looks like the guidance would imply that quarterly fees, or as they flapped them here can. Can you guys kind of discussed, just you know, a little color on that I I assume you think there's some offsets coming to, maybe the, the trust, the seasonal trust fees coming back down. But just kind of curious any additional color there would be great, Thank you.

Speaker 6: Great observation and thanks for that question. The cards, investments and trust business all had pretty outsized performance in Q2. The account services number was a little down, but we would expect that to bounce back. And the third quarter- So I think just from a put and take I think we ll probably see- is, unless we see a little bit more business, that we think trust would be down by the amount that was in the, the seasonal tax, planning fees, and then the account services category ought to be that amount or maybe better So. So I think your overall observation is accurate. It'll just be delivered a little differently. The only category in there that. That that's really challenge, I think, for the third quarter, fourth quarter, really a secondary more. It's simply because the environment, not a, not a lack of interest or our activity assisted. On the secondary side, which rates being whetherthey over 6%, it's a little bit more muted in terms of how much were sell.

Speaker 2: Great Thank you, guys appreciate all the color.

Speaker 2: Thank you for your questionthe next question is from the line of Michael rules with rayd James elline is now open.

Speaker 34: afterno everyone. Thanks for taking my question. Just just two quick ones, just on credit. So go. Things are really good right now. Any sort of signs on the horizon that would give you any sort of pause on? You guys have done a lot of de risking, get again of energy scaling back on the consumer. That gave you trouble a couple of years ago. Losses have been really low. The past four quarters mbas are down substantially criticized, classified pretty stable to trending lower. Any reason to think that we would see, at least in the near term, a pickup in charge-off level at this pointthank?

Speaker 35: Yes Michael chrisstal lua, I don't at this point in time. I think we know, obviously we're at a very low level from the historical perspective on our asset quality. So you, it's hard to imagine that it's going to get a lot lower just because we're really bouncing essentially on the bottom. But from a chargeoff perspective, you know, they tend to be kind of lagging indicators and we don't really see a lot of that in the immediate future. Obviously, it really just depends on exactly how the current environment, as it relates to inflationary pressures and supply chain issues, impact individual customers and then also whether or not a recession really starts to take hold or not. But you know this point in time, you know. You know we've done a lot of due diligence on our portfolio. We have a lot of routines in place to surveill exactly what's going on with our customers and with individual segments. So we're feeling confident at least being able to identify issues and deal with them earlier in the process.

Speaker 2: It's helpful. Maybe just one final one for me, just on the three -year csos: the footnote around not including future rate increases was not in the slide deck this quarter. I didn' know if there is anything to read into it. Obviously, if you look at in the futures curve, I mean there is some expectation that we could see some rate cuts, any plans to update those? I typically do that annually and then just wanted to confirm that those targets do not include rate increases.

Speaker 36: Yes Michael, this is Mike. Yes, the csos. I'll confirt with you that they continue to not include any assumptions around higher rates.

Speaker 24: And as far as update in the CSO, as you're correct, we typically update those on an annual basis, So you'll certainly see an update when mewe release earnings after the fourth quarter.

Speaker 2: ok great thanks for taking my questions.

Speaker 37: ok you.

Speaker 2: Thank you for your question. The next question is from the line of catherfirine mueer will KBW air line. Is that L?

Speaker 1: Thanks good evening one.

Speaker 38: hiither, how are you?

Speaker 39: goodmy follow question on just the size of the balance sheet. You gave guidance that you think pnr is going to be up 16% to 18% year-over-year and so as I think about I think we've gotten a lot of the different components of that. We've got kind of where margins going in the back half of the year we've got loan growth. We've got fees and expenses. So think the one missing piece of that as maybe just the size of the balance sheet and so is it fair to assume.

Speaker 3: Within that ptpnr guide. We're kind of keeping the securities portfolio relatively flat and then but being a pretty significant decline in your excess liquidity. Is there A- I guess it is A- question is: is there a level that you think the excess liquidity will hit by year end? Kind of bak you into that guidance.

Speaker 5: Yes happiness, this is Mike. So, as I kind of mentioned before, I really do think we're at the point where we've kind of returned to more traditional ways of managing the balance sheet, and by that I mean, you know, without the benefit of all the excess liquidity that we had going into the quarter. So we deployed a lot of that excess liquidity, this courtter that we started with the better part of three point one billion and ended with just under nine billion. Of course a bunch of that was deployed in terms of growing loans. We continue to grow the bond book, we funded deposit outflows and then we we had the better part of a billion dollars of our home loan dance were called during the quarter. So so that broad us to the the level that I mentioned at June thirtieth and then from there going forward, I think the broad assumptions you just kind of articulated, you know, absolutely makes sense and is consistent with really how we're looking at the second half of the year. So the excess liquidity, I think probably over the course of the next quarter what will be largely gone- and you know, the balance sheet again at that point I think kind of operates in a more traditional fashion, potentially with some level of botle funds by the end of the year.

Speaker 1: Great okay, that's helpful. And then, if we think about the June margin, what? Where were loan yields for the month of jue?

Speaker 2: Don't have that with me again. For the quarter it was with 386 and certainly I think the information we gave around the month of June shows continued margin expansion as well as kind of what we're expecting in the month of July in 335 or so.

Speaker 32: Got got and I'm assuming they miss that's coming up, iguess. I'm just trying to figure how much of that kind of 335 that we're going to get in, three Qs coming from the full quarters in fact, of the excess liquidity versusum you know, documated into what's happening with lenn and security security. I think that's. I didn't really move a lot this quarter. Yeah, a major, a major part of it is really, you know, LIBOR resetting after the big rate Hi that that recently happened.

Speaker 40: Yeah.

Speaker 40: Okay I think everything else was either. Thank you so much, great quarter.

Speaker 41: Thank you.

Speaker 2: Thank you for your question. The next question is from the linewn of Christ grimmar, not with have. Jay Montgomery, your line is now man.

Speaker 42: Good evening Mike and timam. I wanted to ask about the scenario where the wars all expire next year once the Fed funds rate gets no 350. can customers take on floors today? What can you sort of get through and how do you envision the environment where there the Fed stock raising rates for perhaps rate started to go back down?

Speaker 19: Yes it's a great question. You know, it's amazing to here, just six or eight months, have we're contemplly women rates really begin to rise. We're actually talking about being all the way through our floors in the space of, you know, next quarter. So that's we've had to rapidly figure out what we actually can do. So what's reported So far- and this is literally in the last two or three weeks- is that we're able to get floors, but we haven't been far enough into having those conversations with clients to set any kind of an expectation into 2020 three So'll I'll be able to give you a better answer to that probably in in a couple three months, when get to the end of this quarter. We obviously are trying to set it and it's not a hard conversation given where rates are. But it's really too early to be able to tell right now.

Speaker 43: That's say gh, and I guess just a general question related is: do you presume that the general mix between floating and variable would be the same or do you think you're able to perhaps influence that mix of these next few quarters?

Speaker 44: Another good question. So if you look at the can, which Page it is what we show, the breakdown between variable and fixed rates? Has it Page 7? Page seven of the deck you'll see the last five quarters or so. That shows how is fixed, how much is variable. The second quarter of this year was the highest percentage and the highest number variable loans that we book and the fixed amount was the lowest centage and and one of the lower numbers. So certainly the trend toward a higher variable mix happen and if you look back over time we probably are at the most variable rate, this percentage of the book that we we've been at, you know, in our modern history. So that was purposeful and it serv is pretty well right now. Now, as you see by the NIM expansion as we move forward, I suspect third quarter will probably be- probably be again we're a month in- even more pronounced to, given the pricing competitive that we saw in June and the effect on the pipeline I mention and entwering oneof the earlier questions- and then in terms of the fourth quarter or probably go back down to the average of the tru of the previous three So that's a little bit of crystal ball work and it has a lot to do with with who we hired, where we hire and and how much progress we make and marking as some of the disrupted organizations four variable right loans. But we like keep in that percentage pretty high. We'll H the rest on the downside as we get into Twenty 3, Twenty four

Speaker 2: Great that's really helpful, John . I appreciate that. That just the last quick one from like is just on the CT one capital ratio with buybacks in future quarter. Growth kind of caused that number to come down, or would you imagine that 11 per cent leveer case stay stable?

Speaker 5: I absolutely believe that we can keep that level, 11 or higher, as we go forward through the second half of the year. Really, the reason it was down slightly Coral quridor was really an increase in our risk-weighted assets as we traded excecess liquidity for loans primarily. So, given the excess liquidity is probably played out, you probably won't have that trade to that same extent going forward. But answer wer the question, 11% plus is absolutely where we think we'll operate that ratio and it going forward.

Speaker 2: Good Thank you all very much for the time today.

Speaker 6: You bet. Thank you for questions.

Speaker 2: Thank you for your question. The next question from the line of Matt oldie was steden inkc. Your line is now open.

Speaker 45: Yeah thanks for taking the question. Just want to go back to the deposit discussion. On deposit, John y, you gave us good guidance on deposit balances.

Speaker 46: Help us appreciate the mix of deposits and directionally, what you expect. I think the N I B balances are now 49% of total deposits. If we go back a few years ago it was 39%, So quite the improvement over the last two or three years. Would love here more about your expectations of maintaining that mix it and I B's around these current levels.

Speaker 19: Sure I'll start and myike can jump in. Historically, you know, I think you called out the correct number a few years ago and when we talk around the table, around where we think that will settle as the ren of the I, the hurricane money, that the ren, that of the P P P, what it is, either invested working capital or spent on enhancements or news for some other purposes, it would be conceiable to see that mix in the in the mid, the low forty's. At the same time we continue to add a good bit of variable rate loan business and when we do that we expect to get operating accounts along with it in the, the VaR bulk of all that is in D D a, So So I think a four handle is is a reasonable expectation. May I state 49.5 or and that kind of range, but but a mid 40 to something that we would love to target as we move forward. myike any, I agree completely, joh. I think the 40 nine, fifforty percent as a traordinarily high, you know and may not be sustainable in a higher rate environment. So a lot of the dynamics that John just describe probably depends on how high rates go and how long before they start to come down again down the road. But certainly believe and think that you know it all said and done through this rate cycle that we're somewhere don't know, would's say 40, two to 40, five percent, somewhere in that range. In the days when we ran 39 we had a little bit less density in the C and I variable rate book. We have more clients and we have more markets to generate those typesofclients and more bankers in those markets and we had just a few years ago. So you know I'd be disappointed if we were turned all the way back down to world for, given the change in the book and I would expect that the enhancements in the loan book to generate better mix overall in deposits as we get to the the to a more normal cycle season.

Speaker 47: And so I to follow up on that. Yes, that makes sense. You mentioned the insurance proceed is one of the impacts there. Are you seeing the insurance proceeds move out yet and if not, when you expect to see more that impact?

Speaker 5: We do. We are and not to get too far in the geographic leadeds. But you know the storm really had in the lower parishes of Louisiana and the bulk of the real devastation you know where you see buildings destroyed in that that sort of thing those take two or three years for that liquidity to really flow out. The impact of the storm in new Orleans and then Jefferson parish proper was really tied more to rooftop damage and that sort of thing that gets repaired in side 12 month period I exsense. So So a chunk of it it's in new Orleans is largely already spent and the chunk of it that is down in homeland area of of the as we call the lower parish, it's still underway and it probably will go another year, year and a half.

Speaker 2: ok that's helpful. Thank you, guys.

Speaker 26: You betad, Thank you.

Speaker 2: Thank you for your question. There are no additional questions waiting at this time, So I'll pass the conference back to John harrrisstton for closing remarks.

Speaker 48: Thanks Matthew, for running the call. Thanks to everyone for your interest and dialing in late in the day after a long day. We hope you have a terrific and look forwardto SEN road.

Speaker 43: That concludes the conference call. Thank you for your participation. You may now disconnect your lines.