Q3 2023 Hancock Whitney Corporation Earnings Call

Good day, ladies and gentlemen, and welcome to Hancock Whitney Corporation's third quarter 'twenty twenty-three earnings conference call.

At this time all participants are in a listen only 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 Catherine message Investor Relations manager you may begin.

Thank you and good afternoon.

During today's call. We may make forward looking statements, we would like to remind everyone to carefully review the safe Harbor language that was published with the earnings release and presentation and in the company's most recent 10-K and 10-Q, including the risks and uncertainties identified therein.

You should keep in mind that any forward looking statements made by Hancock Whitney speak only as of the date on which they were made.

As everyone understands the current economic environment is rapidly evolving and changing.

Hancock Whitney's ability to accurately project results or predict the effects of future plans or strategies or predict market or economic developments is inherently limited.

We believe that the expectations reflected or implied by any forward looking statements are based on reasonable assumptions, but are not guarantees of performance or results.

And our actual results and performance could differ materially from those set forth in our forward looking statements.

Hancock Whitney undertakes no obligation to update or revise any forward looking statements and you are cautioned not to place undue reliance on such forward looking statements.

Some of our 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 Harrison, President and CEO , Mike Agri, CFO and Crystal they've got a chief credit Officer, I will now turn the call over to John Harrison.

Thanks to everyone for joining us this afternoon.

Third quarter's results reflect continued growth in capital ratios fully funding loan growth with core deposit growth.

Oh and remix of <unk> and early but welcome signs of NIM stabilization due to higher loan yields and lower growth in deposit costs.

As anticipated loan growth again moderated this quarter.

Total loans were up $194 million driven mostly by project draws in both multifamily real estate and mortgage.

As noted on slide seven the net growth in both CRE and mortgage relates primarily to migration of in process construction projects as they are completed.

Demand has continued to slow as higher rates and insurance costs have changed client behavior.

Today, we are seeing both commercial and consumers either choose to forego large purchases or use existing funds in lieu of borrowing.

Our own internal appetite also continues to moderate as we remain focused on full service relationships disciplined pricing and selective appetite in some sectors.

Our path to loan growth will be determined by our ability to fund growth with core deposits and lending within our risk appetite.

The credit quality of our loan portfolio remains solid and we continue to be well reserved.

Criticized commercial and nonaccrual loans remain at low levels and in fact criticized ratios are again at a historical low.

Spike the one large idiosyncratic charge offs disclosed during the quarter, we have seen no significant or systemic weakening in any sector of the portfolio.

That said, we are mindful of the impact of higher for longer rates inflationary cost in the regulatory environment. That's a proactive in monitoring for any developing risks.

Core client deposits grew this quarter and we continue to maintain our diversified deposit base.

Total deposits were up $277 million with the remix continuing from DDA to time deposits and other interest bearing deposit products.

The DDA remix did however show signs of slowing this quarter and we ended the quarter with 38% of our deposits in D. As at the top end of the range contemplated in the mid quarter updates pre.

Promotional C D and interest bearing money market pricing contributed to the remix this quarter.

Our clients do remain rate sensitive and we don't expect that will significantly moderate until rates stabilize or start to decline.

When looking at our balance sheet, our guidance for both loans and deposits is unchanged and we see the trends from Q3 continuing through year end.

A quick note on capital our TCE was down this quarter to 734% due to impacts of higher long term rates on OCI. However, we are pleased to report that our tier one ratio ended the quarter above 10% and our CET one ratio was above 12% as a reminder, we have no preferred stock shares in our capital stack.

<unk>.

As we reflect on the year, so far and looking to the fourth quarter. We believe our strong deposit base will continue to help support our funding needs. We maintained a robust ACL and continue to build capital, which we believe will help us manage successfully through this cycle.

October marks founders of months and we look forward to continuing our legacy of commitment and service to the people and communities. We operate in as we have for over 124 years.

Before turning the call over to Mike I would also like to take a moment to honor the life of George slope, who joined the organization in the mailroom as a high school student ultimately rising to chairman and Chief Executive Officer. During his long 52 year career, Georgia passed away unexpectedly and peacefully on October 6th only weeks out.

After giving interviews to various trade organizations on the history and future of banking George was a young and particularly vigorous 83 of his passing and we will dearly missed our longtime friend and colleague with that I'll invite mark to add additional comments.

Thanks, John and good afternoon, everyone.

Third quarter's net income was $98 million or $1 12 per share that was down $20 million or 23 per share from last quarter and was primarily related to the previously disclosed charge offs of $29 7 million.

P P N O or for the quarter was $153 million down <unk> 5 million from last quarter's level of $158 million.

In part due to a significant slowdown in our NIM compression the rate of decline in our NII also slowed while a modest increase in fees were nearly offset by a similar increase in expenses.

As mentioned, our NIM compression did slow this quarter to three basis points from 25 basis points last quarter and was better than our previous guide of five to eight basis points of compression.

The quarter's improved NIM performance was driven by a leveling off of deposit costs are slowing D. D. A remix less reliance on wholesale borrowings and better loan yields.

Our cost of deposits increased 34 basis points in the third quarter compared to an increase of 49 basis points in the second quarter.

Slide 13 provides additional monthly trend detail for the cost of deposits.

Collecting the slowdown in each month of the quarter.

We expect deposit costs could be up around 18 basis points or so in the fourth quarter and would bring the second half of the year's increase to around 52 basis points compared to 90 basis points in the first half of 2023.

Our total deposit beta for the third quarter increased to 127% or about 33% cycle to date, we expect the cumulative level will approach, 35% by year end how.

How much higher the deposit beta goes from there will of course depend on the direction of deposit rates next year.

On the asset side of the balance sheet, our loan yield improved to 6.01%. This quarter that was up 20 basis points linked quarter.

The coupon rate on new loans increased to 8.03% and was up 63 basis points from last quarter.

Previous quarter's increase was 52 basis points. So momentum is building with our new loan rates as.

As we've mentioned throughout the quarter, increasing our loan yields has been a focus point for the company and will continue to be so going forward.

As we look forward to the fourth quarter, we do expect an additional three to five basis points of NIM compression.

We're assuming that the fed will not raise rates in the fourth quarter and therefore stays at five 5% through year end.

We expect ongoing headwinds from the continued D D. A remix, albeit at a slower pace as well as the impact of CD maturities in the fourth quarter. We do however continue to see positive tail winds from continued stabilization in deposit costs and higher loan yields.

Net charge offs with $38 3 million this quarter or a 0.64% of average loans of which 50 basis points group was related to the idiosyncratic charge off mentioned earlier.

<unk> were down slightly during the quarter, but still ended the quarter with a robust ACL to loans of 140 basis points.

This quarter was our third consecutive quarter of fee income growth from the fourth quarter of 2022.

Our service charges on deposit income improved and we benefited from a strong quarter of income from our specialty lines of business. Our guide for fee income is unchanged this quarter and we expect a slight decline in the fourth quarter.

Expenses for the company were relatively stable this quarter, we remain confident in our annual guide for 2023, and currently expect expenses in the fourth quarter to be down from the third quarter's level and.

And finally, all aspects of our forward guidance are summarized on slide 20 of our earnings deck I will now turn the call back to John .

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

Thank you if you have a question. Please press star one on your telephone keypad to withdraw your question simply press Star one again.

Your first question comes from the line of Michael Rose with Raymond James Your line is open.

Hey, good afternoon, everyone. Thanks for taking my questions.

Just wanted to start on the reserve release this quarter.

Certainly understand the credit I appreciate you guys disclosing that beforehand.

But just given.

We are seeing some slowing kind of across.

The economic landscape and people seem to be getting more cautious just can you describe the factors that drove that reserve release understand the criticized classified came down non performers came down that is.

All great, but why not just kind of build reserves here I just wanted to kind of pick your brain.

The rationale thanks.

Yeah I'll start Michael This is Mike and then certainly Chris John can add some commentary as well.

No reason other than we felt the reserve, where we where we ended the quarter at 140 basis points was certainly robust enough for our view of credit and our view of the economy and all the factors that go into determining the reserve going forward.

So we did release $9 8 million $5 $8 million of that overall release was related to the one credit. So I guess the net release was really just $4 million.

So that would have been another basis point or two related to the OCI to total loans. So that basically was our thinking and also you know.

The levels of our commercial criticize in Npls in our view of those asset quality metrics going forward also played into it but again I think the bottom line is the 140 ACL to loans. We feel is certainly robust enough so Chris or John if you want to add anything non buffers that cover.

That makes sense Mike.

Yes, I appreciate it I appreciate that the net amount there maybe.

Maybe just as my follow up.

I just wanted to talk about.

The margin and specifically you had talked previously about potentially restructuring the securities portfolio. It looks like the the FDIC charge will hit in the fourth quarter. I think you had previously discussed maybe not wanting to do it and that if you were going to do a restructuring not in the same quarter.

As.

As that charge was going to hit but I just wonder if you had any updated thoughts there and then just what gives you kind of confidence that given that the margins are already down three bps that you can.

Kind of maintain at around these levels in the fourth quarter. Thanks.

Yeah. So first on the NIM guidance. So the guidance for the fourth quarter is really for our NIM to potentially compress another three to five basis points and if.

If we think about that level of compression and we think about it in terms of you know.

Positives or negatives, so tailwind or headwinds.

Positives are the tail wins you know.

It really is this notion of deposit cost really begin to stabilize and of course, we saw that begin to happen.

In earnest over the course of the third quarter. So you may have heard from the earlier comments, we expect our cost of deposits to potentially be up about 18 basis points or so in the fourth quarter.

And that's in relation to the 34 that we saw in the third quarter. So some some definite stability there the.

Other thing we think is a positive is this notion of higher loan yields.

So if we look at the new coupon rates, we talked about those exceeding 8% really for the first time in quite some time, but if we kind of look at how those have grown over the past couple of quarters third quarter to second quarter. We were up 63 second quarter to first quarter, we were up 52 basis points. So.

We definitely believe that there is some momentum building with respect to the new loan rates.

We've also talked in the past about our fixed rate loan portfolio repricing up and if you look at that trend I think there is a slide in the appendix included if you look at that trend, it's a pretty solid dozen basis points or so for the past couple of quarters. So we certainly expect that fixed rate loan portfolio to continue.

Repricing.

As far as the headwinds of the things that are really driving the little bit of compression that we expect in the fourth quarter.

One of the positives this quarter, we thought was the DDA remix slowing a bit.

38%.

This quarter compared to 40 in the previous quarter.

Talked about the end of the year, arriving somewhere around 36% or so so it's still a negative or a drag on our NIM.

But some definite slow and in that regard.

Probably the biggest thing thats impacting the compression that we expect in the fourth quarter CD maturities. So we have about 1 billion four of Cds that will be maturing in the fourth quarter.

Those Cds will be coming off at about 434% and then repricing at around 492% or so.

So that difference in terms of those Cds repricing.

A significant factor this quarter and most of those Cds just under a $1 billion are actually maturing in the front part of the quarter. So the month of October . So we will have that impact for most of the fourth quarter.

Related to any bond portfolio restructuring.

In our view, that's still something that we're considering is certainly on the table, whether that's something we execute in the fourth quarter or maybe even in the first quarter remains to be seen.

You are right, we do have the.

The potential for the FDI FDIC special assessment in the fourth quarter that certainly looks like it will be in the fourth quarter, but there again, we thought it was going to be in the third quarter as well and it got pushed to the floor. So we'll see.

So really nothing more on the restructuring. Other then it certainly is something that we continue to consider and look at.

Thanks for taking my questions. It seems like Youre anticipating that question, Mike I appreciate all the color.

Thanks, guys. Thanks, Michael This isn't my first call.

Okay.

Your next question comes from the line of Brett Robertson with hub Group. Your line is open.

Hey, good afternoon, everyone. Thanks for the questions wanted to start with the non interest bearing DDA and just you know obviously it continues to atrophy, a little bit and you talked some about how thats impacting your guidance is there.

Any update on where you think that might settle in terms of balances and how you have or do you have any visibility of operating accounts that maybe you think that they have reached their bottom.

Just hoping for any color on an update on DDA thoughts.

Yeah Brett.

Start and John can certainly are I might want to add some additional color, but again as I mentioned, a little bit earlier, we're expecting that DDA remix so that noninterest bearing.

Percent to probably end the year somewhere around 36% or so.

When we when we conclude the fourth quarter and talk about guidance for next year.

I think we'll have a little bit more clarity around where we think that trajectory will take us as we go through 'twenty four so more on that.

Obviously next quarter, but we.

We're encouraged by what we're seeing and what kind of transpired this quarter.

So if you look at the percentage declines quarter over quarter.

Second quarter compared to first we were down about five 5% and that slowed to about four 5% or so in the third quarter.

And if you look at the makeup of our DDA base really about two thirds, a little bit less than two thirds of that is commercial customers and we saw an even more significant slowing in those balances so about 7% in the previous quarter and a net slowed to a little bit under 4% in the.

Fourth quarter. So it absolutely is happening I think across our customer base, but obviously more so on the commercial side. So.

So John anything you want to add to that that was a good answer and Brett. This is John the only thing I would add is.

We still point towards a trajectory that shows we reached the pre pandemic average account balances sometime around the end of second quarter or third quarter next year.

So where that lands and it's not really possible to say, that's when and totally ends but at least we'll be at a marker that was pretty steady for several years prior to the pandemic beginning so.

When Mike mentioned the end of year looking like we should be close to 36% that's actually a little better than the low end of the range that we gave.

Just a few months ago. So the the updated target for the end of the year is maybe a little more attractive.

Operator: Good day, ladies and gentlemen, and welcome to Hancock Whitney Corporation's third quarter 2023 earnings conference call. At this time, all participants earn a listen only 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.

Then where we were recently so that's really the.

The diminishment of the mix change that we've encountered so far so in terms of where it settles, it's really tough to say clearly through the crystal ball, but if we presume that the target is reached when we get to the pre pandemic average balances that would suggest a continued slowing maybe not every quarter, but are slowing to get you to.

Kathryn Mistich: I would now like to introduce your host for today's conference, Kathryn Mistich, investor relations manager. You may begin. Thank you, and good afternoon.

Somewhere around a target in the second quarter third quarter of next year.

If that's okay.

Yes, that's helpful.

Operator: During today's call, we may make four 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 10K and 10Q, including the risks and uncertainties identified therein. You should keep in mind that any four 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.

And then the other question I wanted to ask was just around you guys referenced Mike.

Slide on loan repricing and slide 24, you have that four to 12 months.

Back in <unk> and the.

Composition is different than three months or less obviously with that having more consumer and it. So I'm just I'm just curious thinking about.

As we're trying to model your loan portfolio increases over the next year in terms of the existing book does that weighted average rates.

Operator: 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 four 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 four looking statements. Hancock Whitney undertakes no obligation to update or revise any four looking statements, and you are cautioned not to place undue reliance on such four looking statements.

I assume the weighted average rate for that four month to 12 month bucket is it's going to be somewhat less than the 805, given partly of consumer benefits in the three months or last piece.

Yes, I think the I think that's right and certainly in the three months or less is where the really the lion's share of our variable rate loans are so so that's obviously dependent upon the direction of rates, but I think you have that right.

So with a number closer to seven or closer to eight.

<unk> be the right number for that 12 million for the 12 month bucket.

Prices.

Operator: 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 A.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.

Well the way we look at it on a quarterly basis. If you go back to this quarter.

The new loan rate was just north of 8% and then we have that broken out on a previous slide between fixed and variable. So we have here on 24 is just a little bit longer look.

Of how we view the loan portfolio and how it could reprice over the next next couple of years obviously.

Operator: Participating in today's call are John Harrison, President and CEO, Mike Ackery, CFO, and Chris Oluka, Chief Credit Officer.

And Brett this is John but we.

Just one point that may be helpful or at least interesting.

John Hairston: I will now turn the call over to John Harrison. Thanks everyone for joining us this afternoon. Third quarter results reflect continued growth in capital ratios, fully funding loan growth with core deposit growth, a slowing remix of DDAs, and early but welcome signs of them stabilization due to higher loan yields and lower growth into deposit costs. As anticipated, loan growth again moderated this quarter. Total loans were up $194 million, driven mostly by project draws in both multifamily real estate and mortgage.

We're seeing really better than expected performance in terms of our bankers, having success with clients explaining.

The linkage between the renewal rate and the new loan rate and the volume of compensating balances and what those rates are so we gladly give up a few bps on loan yield to get substantial compensating deposits and operating accounts, particularly on the business side.

Even more so when you get to the middle market side as we get cooperating accounts. So.

Either one of those is net positive to NIM and to profitability. So I think the maturity of the banker core has been impressive so far in <unk>.

John Hairston: As noted on slides 7, the net growth in both CRE and mortgage relates primarily to migration of in-process construction projects as they are completed. Demand is continued to slow as higher rates and insurance costs have changed client behavior. Today we are seeing both commercial and consumers either choose to forego large purchases or use existing funds in lieu of borrowing. Our own internal appetite also continues to moderate as we remain focused on full service relationships, discipline pricing, and selective appetite in some seconds.

That's what lead maybe to the NIM compression not being quite as bad this quarter.

As we had initially feared a quarter ago.

Okay, great appreciate the color.

Net.

Your next question comes from the line of Casey Haire of Jefferies. Your line is open.

Thanks, Good afternoon, everyone.

I guess.

John Hairston: Our path to loan growth will be determined by our ability to fund growth with core deposits and lending within our risk appetite. The critical quality of our loan portfolio remains solid and we continue to be well-reserved. Criticized commercial and non-acrual loans remain at low levels and in fact criticize ratios or again at a historical low. Despite the one large idiosyncratic charge off disclosed during the quarter, we have seen no significant or systemic weakening in any sector of the portfolio.

Touching on expenses.

So last quarter, you guys talked about.

The efficiency ratio above 55.

So it puts you guys at a different defcon level or we're now at 56, obviously, some more NIM pressure on the wages.

Any more updated thoughts about.

Addressing operating leverage on the expense side of things.

Sure as we go into 2024, I think that will become.

Something that we look at has intently, if not more intently going forward.

John Hairston: That said, we are mindful of the impact of higher-for-longer rates inflationary caused in the regulatory environment, thus so proactive in monitoring for any developing risk. Core client deposits grew this quarter and we continue to maintain our diversified deposit base. Total deposits were up 277 million with the remakes continuing from DDA to time deposits and other interest-bearing deposit products. The DDA remakes did, however, show signs of slowing this quarter and we ended the quarter with 38% of our deposits in DDAs at the top end of the range contemplating in the mid-quarter update.

But in terms of the fourth quarter.

Our expense increase for the second half of the year. Obviously, there is no change in our guidance.

We're looking at coming in at about 8% increase year over year and certainly as we look into 2024, we would think that that level would come down means.

Meaningfully in terms of expense increases year over year.

So the 8% is not where we want to be the 56% plus efficiency ratio is not where we want to be so those are certainly things that.

John Hairston: Promotional CD and interest-bearing money market pricing contributed to the remakes this quarter. Our clients do remain rate-sensitive and we don't expect that will significantly moderate rate until rate stabilized or start to decline. When looking at our balance sheet, our guidance for both loans and deposits is unchanged and we see the trends from Q3 continuing through year-end. A quick note on capital, our TCE was down this quarter to 7.34% due to impacts of higher long-term rates on AOCI.

We think about and we will address going forward.

Okay very good.

And then just circling back on the bond book repositioning.

Yes.

Youre not the only ones talking about this obviously, but.

Just wondering it's very difficult to gauge what you guys could potentially do from the outside you obviously have a very strong.

<unk> ratio.

As with the unrealized losses up is below that 8% level that you guys want I'm just wondering.

John Hairston: However, we are pleased to report that our Tier 1 ratio into the quarter above 10% and our CT1 ratio was above 12%. As a reminder, we have no preferred stock shares in our capital stack. As we reflect on the year so far and look into the fourth quarter, we believe our strong deposit base will continue to help support our funding needs. We maintain a robust ACL and continue to build capital, which we believe will help us manage successfully through this cycle.

You do you have the potential is there enough low hanging fruit to restructure of the bond book and get that lean into that CET, one ratio and get that TCE above eight.

With like a reasonable sort.

Sort of earn back.

Yes, I think so Casey certainly and again like we said I mean, that's a transaction that we've been thinking about and considering.

John Hairston: October marks founders month and we look forward to continuing our legacy of commitment and service to the people and communities we operate in as we have for over 124 years. Before turning the call over to Mike, I would also like to take a moment to honor the life of George Slogan who joined the organization in the mail room as a high school student ultimately rising to chairman and chief executive officer during his long 52 year career.

And that's certainly not off the table, it's something we're going to continue to look at it intently in the fourth quarter and potentially into the first quarter. So.

As soon as we get to the point of executing on a transaction like that.

We'll be sure to let everyone know.

But right now I think it's premature to talk about too much in the way of details I know that you guys would like us to be more explicit in terms of exactly how we're thinking about it but.

John Hairston: George passed away unexpectedly and peacefully on October 6th, only weeks after giving interviews to various trade organizations on the history and future of banking. George was a young and particularly vigorous 83 in his passing and we will dearly miss our long time friend and colleague.

We have to be cognizant, providing too much detail.

And any FDA FD lines, so again.

I think we'll leave it at this is something that continues to be under consideration and we'll go from there.

Mike Ackary: With that, I will invite Mike to add additional comments. Thanks, John.

Mike Ackary: Good afternoon, everyone. Third quarter's net income was 98 million or $1.12 per share. That was down 20 million or 23 cents per share from last quarter and was primarily related to the previously disclosed charge off of $29.7 million. PPRR for the quarter was $153 million, down just $5 million from last quarter's level of $158 million. In part due to a significant slowdown in our NIM compression, the rate of decline in our NII also slowed while a modest increase in fees were nearly offset by a similar increase in expenses.

Okay very good yeah, no just just curious.

And then just circling back on.

<unk>.

I guess actually on.

Credit quality.

I am one of the slides you mentioned the focus has switched from traditional office to medical office.

Just wondering what.

It reads almost as if you are a little bit concerned about what youre seeing in medical office, which I understood to be a pretty strong asset classes, just some color on what's driving that.

Yes, Mike This is Chris Luca.

Bobby a misunderstanding in the wording of the language.

As an asset class for many years now we've been a little bit more cautious about general purpose office and typically more focused on medical office as an asset class.

Mike Ackary: As mentioned, our name compression did slow this quarter to three basis points from 25 basis points last quarter and was better than our previous guide of five to eight basis points of compression. The quarter's improved in performance was driven by a leveling off of deposit cost, a slowing DDA remix, less reliance on wholesale borrowings and better loan yields. In the third quarter, compared to an increase of 49 basis points in the second quarter.

And clearly as you indicate medical office, especially depending on the type of medical work. That's done in the office environment is much stronger than any general purpose office, but as an asset class overall, we're definitely cautious in general on that we actually saw a little bit of a decline in our overall.

S exposure not not a huge amount, but about a couple of percent type levels.

Mike Ackary: Slide 13 provides additional monthly trend detail for the cost of deposits, reflecting the slowdown in each month of the quarter. We expect deposit costs could be up around 18 basis points or so in the fourth quarter and would bring the second half of the year's increase to around 52 basis points compared to 90 basis points in the first half of 2023. Our total deposit beta for the third quarter increased to 127% or about 33% cycle to date.

Order over quarter as we related to <unk>.

Shifting our focus away from that as an asset class within commercial real estate.

Got you. Thank you.

You bet. Thank you.

Your next question comes from the line of Stephen Scouten with Piper Sandler Your line is open.

Okay.

Yes, thanks, everyone appreciate it.

I guess, one more question kind of around capital usage, I mean, you guys kind of outlined your capital priorities in your slide deck.

Mike Ackary: We expect a cumulative level will approach 35% by year end. How much higher the deposit beta goes from there will of course depend on the direction of deposit rates next year. On the assets side of the balance sheet, our loan yield improved to 6.01% to this quarter. That was up 20 basis points length quarter. The coupon rate on new loans increased to 8.03% and was up 63 basis points from last quarter.

And I would kind of view the potential for this securities restructuring.

So why are we the thing that I'm not really sure I guess, maybe below organic growth above dividends is kind of what I'm hearing, but can you talk about how you think about the math versus a buyback at this point I mean, it seems like with your stock at.

115, a tangible or something like that.

It might be more attractive at these levels. So just kind of curious how youre thinking about the various uses of capital, especially relative to the other.

Mike Ackary: The previous quarter's increase was 52 basis points so momentum is building with our new loan rates. As we mentioned throughout the quarter, increasing our loan yields has been a focus point for the company and will continue to be so going forward. As we look forward to the fourth quarter, we do expect an additional 3 to 5 basis points of them compression. We're assuming that the Fed will not raise rates in the fourth quarter and therefore stays at 5.5% through year end.

Yes, yes, Steven So again on slide 18, as you mentioned, we have kind of the priorities and.

We're careful in terms of how we think about those in.

Really haven't changed or adjusted those priorities. So I think.

They really do speak for themselves and.

You asked about buybacks and certainly buybacks is is something we think about and consider but I don't know that in this environment, it's something that.

Mike Ackary: We expect ongoing headwinds from the continued DDA remakes all be it at a slower pace as well as the impact of seeding maturities in the fourth quarter. We do however continue to see positive tailwinds from continued stabilization and deposit cost and higher loan yields. Net charge offs with 38.3 million this quarter or 0.64% of average loans of which 50 basis points was related to the idiosyncratic charge off mentioned earlier. Reserves were down slightly during the quarter but still ended the quarter with a robust ACL to loans of 140 basis points.

We're going to rise to.

The level of actually executing on buybacks right now I'm not sure that.

The environment in terms of how examiners look at that in the context of bank failures back in March.

In the context of wanting to continue to kind of build capital going forward really fit right. Now so certainly aside from those things buybacks are an attractive way to deploy capital and we've done that in the past.

Dare say at some point in the future. We will we will re enter that method of deploying capital.

So.

Back to the bond restructuring that is and could be an attractive way of deploying some capital again not going to go into too much in the way details of that but.

Mike Ackary: This quarter was our third consecutive quarter of fee income growth from the fourth quarter of 2022. Our service charges on the positive income improved and we benefited from a strong quarter of income from our specialty lines of business. Our guide for fee income is unchanged this quarter and we expect a slight decline in the fourth quarter. Expenses for the company were relatively stable as quarter. We remain confident in our annual guide for 2023 and currently expect expenses in the fourth quarter to be down from the third quarter's level. And finally all aspects of our forward guidance are summarized on slide 20 of our earnings back.

That's out there and it's under consideration as Conor mentioned.

Yes, I guess I guess my question is more like as you evaluate those I mean is there.

Is there an earn back calculation is that what youre thinking about or it sounds like maybe maybe more of a bond restructuring or other things to be more palatable to regulators versus share repurchase I'm just trying to understand the dynamics of what creates that priority stack well in.

In terms of a bond restructuring.

The way, we would think about that is having an earn back our payback.

Somewhere in the 24 little bit less than 30 month range, we think that makes sense.

Close those kinds of transactions at the point of serious execution.

John Hairston: I will now turn the call back to John. Thank you Mike.

Operator: Let's open the call for questions. Thank you. If you have a question, please press star one on your telephone keypad. To withdraw your question, simply press star one again.

Got it got it that's helpful.

Then if we could talk about this Nick exposure briefly.

I think what is it two point.

$8 billion I think you noted at 930.

Michael Rose: Your first question comes from the line of Michael Rose with Raymond James. Your line is open. Hey, good afternoon, everyone. Thanks for taking my questions. Just wanted to start on the reserve release this quarter. You know, certainly understand that the credit appreciate you guys disclosing that beforehand, but just given, you know, we are seeing some slowing, you know, kind of across the the economic landscape and people seem to be getting more cautious.

Can you give us any more detail there in terms of what percentage of those loans you guys might be the lead on or if there is a geographic focus primarily within that book and kind of.

Michael Rose: Just can you describe the factors that drove that reserve release? Understand that, you know, criticize classified came down, you know, not performers came down. That's all great. But why not just, you know, kind of build reserves here. I just wanted to kind of take your brain as to, you know, the rationale. Thanks.

Obviously, we saw just one kind of go bad and that doesn't mean, there is some greater issue, but that becomes clear.

I think for some so just wondering if you can give us any color that might provide.

If you will.

Yes. This is Chris Luca.

Yes, geographically, obviously, we're more focused on the markets that we generally operate in so kind of Texas to Florida.

But we also do have.

A healthcare specialty group that does participate in some transactions that would have more of a national focus.

Mike Ackary: Yeah, I'll start, Michael. This is Mike and then certainly Christopher John can add some commentary as well. You know, no real reason other than we felt the reserve where we, where we ended the quarter at 140 basis points was certainly robust enough for our view of credit. And our view of the economy and all the factors that go into determining the reserve going forward. So we did release 9.8 million, but 5.8 million of that overall release was related to the one credit.

So so theres a little bit of a mix there there really isn't any sort of.

In a geographic or industry focus we took a deeper look into that and kind of anticipating this call I'll mention discussions on it since we highlighted here on the page on page eight.

But we feel pretty good overall about the snick book and I certainly can understand the question given what happened recently, but as I think we've all indicated it is a bit idiosyncratic and I think that the final chapter of that book hasn't been written yet anyway. So we'll learn more over time, but.

Mike Ackary: So I guess the net release was really just 4 million. So, so that would have been another basis pointer to related to the OCL for total loans. So that that basically was our thinking and also, you know, the levels of our commercial criticize and NPLs and our view of those asset quality metrics going forward also played into it. But again, I think the bottom line is, you know, the 140 ACL to loans, we feel is certainly robust enough.

But we we.

We have.

In the buildup of liquidity during the pandemic period there we.

Deployed some of that excess capacity.

In that area.

And as we kind of look forward since many of those relationships don't necessarily have full service.

Operator: So Chris or John, if you want to add anything, that makes sense, Mike. All right. Yep. Appreciate it. Appreciate the net amount there.

Opportunities.

I'll look to dial that back over time.

Okay, that's extremely helpful.

Operator: Maybe just as my follow up, just wanted to talk about, you know, the margin and specifically you talked previously about potentially restructuring the securities portfolio looks like the SCIC charge will hit in the fourth quarter. I think he had previously discussed maybe not wanting to do it in the, you know, if you were going to do a restructuring, not the same quarter as that charge was going to hit. But just wanted to get any updated thoughts there. And then just what gives you kind of confidence that given the margins already down three bits that you can kind of maintain around these levels in the fourth quarter. Thanks. Yeah.

Reserve against those loans, I mean kind of in line with the 128 loan loss reserve overall.

Or is it maybe.

Yes, I guess, the commercial reserves like $1 30, as well so is it kind of fair to assume within that range of commercial loans.

Yes, I mean, we don't necessarily segment the portfolio that way when we're deriving our reserve estimates so they're generally sprinkled in with our C&I based on there.

Asset quality.

Yes, David Thanks, John .

To add maybe a little more clarity.

As rates begin to go up last year.

Mike Ackary: So first on the, the NIM guidance, so the guidance for the fourth quarter is really for our NIM to potentially compress another three to five basis points. And if we think about that level of compression, we think about it in terms of, you know, positives and negatives, hotel wins ahead wins. The positives of the tail wins, you know, really is this notion of deposit costs really begin to stabilize. And of course, we saw that begin to happen, you know, in earnest over the course of the third quarter.

We knew as we got into the second half of this year that the desire for any type of and not just snake Ms Syndications and general growth would begin to get upside down just given the cost of funds right, we'd want to preserve that liquidity for use in core growth and clients that have a.

Little deeper wallet share with us so the dial back that Chris mentioned, a few minutes ago that was going to happen with or without the aforementioned idiosyncratic.

Mike Ackary: So you may have heard from the earlier comments, you know, we expect our cost of deposits to potentially be up about 18 basis points or so into fourth quarter. You know, and that's in relation to the 34 that we saw in the third quarter. So some, some definite stability there. The other thing we think is a positive is this notion of our loan yield. So if we look at the new coupon rates, we talked about those exceeding 8% really for the first time and quite some time, but if we kind of look at how those have grown over the past couple of quarters, third quarter to second quarter we got 63, second quarter to first quarter we got 52 basis points.

Bad news on that one credit so we expected to top out somewhere around the 15% of commercial loan levels, that's where it topped out and the expectation is that it would dial back in terms of percentage and probably absolute exposure.

As we repatriate those credits with smaller slices or maybe a few less credits that were in coupled with the amortization and redeploy the liquidity gains from that and the things that have a little bit more of an annuity as value over the long term. So I want to make sure we are clear.

That one charge off had nothing to do with our posture on syndications thats really around the balance sheet.

Got it that's really helpful point of clarification. Thanks, so much for the color guys.

Mike Ackary: So we definitely believe that there is some momentum building with respect to the new loan rates. We've also talked in the past about our fixed rate loan portfolio repricing up. And if you look at that trend, I think there's a slide in the appendix included, if you look at that trend, it's a pretty solid dozen basis points or so for the past couple of quarters. So we certainly expect that fixed rate loan portfolio to continue repricing up.

You bet. Thank you.

Your next question comes from the line of Brandon <unk> with <unk> Securities. Your line is open.

Hey, good evening.

Good evening.

Yes, so I appreciate the guidance on the CD renewal rates, but I just wanted to get a sense of how those renewal rates have trended over the last.

A couple of months have we seen some stabilization in what that renewal rates have been in already anticipating any potential increases going forward.

Mike Ackary: Now, as far as the headings and things that are really driving the little bit of compression that we expect in the fourth quarter, you know, one of the positives this quarter, we thought was the DDA remix slowing a bit, 38% this quarter compared to 40 in the previous quarter. You know, we've talked about the end of the year arriving somewhere around 36% or so. So it's still a negative or a drag on our NIM, but some definite slow in that regard.

Yes, Brandon this is Mike.

They have again as I mentioned with respect to deposit rates in total.

Things are that have absolutely stabilize as we've gone through the last four five months or so leading up to the third quarter.

But specifically if we look at the CD maturities again in the third quarter. We've got the bill in the third quarter, we had just under $1 billion for that matured at $3 95, and re priced at about $4 75. So there was an 80 basis point.

Mike Ackary: But probably the biggest thing that's impacting the compression that we expect in the fourth quarter is CD maturities. So we have about a billion four of CDs that will be maturing in the fourth quarter of those CDs will be coming off at about 4.34% and then repricing it around 4.92%. So that difference in terms of those CDs repricing up, you know, be a significant factor this quarter. And most of those CDs just under a billion are actually maturing in the front part of the quarter, so the month of October.

Difference there in the fourth quarter, we think that difference will shrink to about 58 basis points.

That's the difference between the rate that the Cds are maturing and where we think they will.

They will renew at and then just taking a peek into the fourth quarter I'm sorry, the first quarter of next year, we think that difference will shrink even more to about 23 basis points.

Mike Ackary: So we'll have that impact from most of the fourth quarter related to any bond portfolio restructuring. In our view, that's still something that we're considering is certainly on the table, whether that's something we execute in the fourth quarter or maybe even in the first quarter remains to be seen. You're right, we do have the potential for the FDI, the FDIC special assessment in the fourth quarter that certainly looks like it'll be in the fourth quarter.

The stable stabilization of deposit rates is really coming to life. So to speak in terms of our Cds reprice as we've gone through not only the last quarter, but looking ahead to the next couple of quarters.

Okay very helpful.

And then on credit quality I noticed that accruing loans 90 days past due.

Modify loans still accruing there was a noticeable increase in those two items I just wanted to get some more details around what was going on there.

Mike Ackary: But there again, we thought it was going to be in the third quarter as well, and it got pushed to the fourth. So we'll see. So really nothing more on the restructuring other than it certainly is something that we continue to consider and look at.

Yes, I mean, just at a high level a lot of those are loans that we were working through of maturities and so they end up kind of crossing over in that process.

Michael Rose: Thanks for taking my questions. It seems like you were anticipating that question, Mike. I appreciate all the color. Thanks Michael. This isn't my first call.

Processing of maturity or arranging image the maturity to be extended and it's normal for us.

Yes.

Okay.

Brett Rabatin: Your next question comes from the line of Brett Rapidin with Hubdick Group. Your line is open. Hey, good afternoon, everyone. Thanks for the questions. One is to start with the non-interpreterian DDA and just, you know, obviously it continues to add to feel a little bit and you talk some about how that's impacting your guidance. Is there any update on, you know, where you think that might settle in terms of balances and how you have, or do you have any visibility of operating accounts that maybe you think that they've reached their bottom?

Especially on those will end up paying off.

Or you're just being rewritten and then getting back to payment status of maturity oftentimes drives it falling into a quote unquote past due bucket that may not otherwise really be past due.

Okay.

And what about the modifier is that same switch for modified loans as well.

Yes, yes.

Okay.

To be clear, Brian This is a little picky distance away.

We obviously report things, but alone can be passed you without necessarily having a payment passenger you right just because of his past maturity.

Brett Rabatin: I'm just hoping for any color on an update on DDA thought. Yeah, Brett. I'll start in, and John, certainly, or I might want to add some additional color, but again, as I mentioned a little bit earlier, we're expecting that DDA remix so that not interest bearing a percent to probably in the year somewhere around 36% or so. When we conclude the fourth quarter and talk about guidance for next year, you know, I think we'll have a little bit more clarity around where we think that trajectory will take us as we go through 24 or so more on that, you know, obviously next quarter, but, you know, we're encouraged by what we're seeing and what kind of transpired this quarter.

So they sometimes will crossover the inner core and Thats. The reason for that so there is there's not really a linkage between.

Call out reserve.

Appetite and that amount of past to using less payment itself is like so that makes sense yes.

No real concern there.

Okay. So we should be expecting that to kind of trend lower going forward. It goes up and down based on timing.

And.

I don't know if its still this way Chris can correct me, if I'm wrong, but there is a fair amount of seasonality in some of the book on the middle market side. So theres larger numbers of renewals that occur in different parts of the year and typically in the second and third quarter is when we seem to have a little bigger buckets of those that all of our new and unfortunately, we're all kind of stack it and Ah.

Brett Rabatin: So if you look at the percentage, the clients quarter of a quarter, a second quarter compared to first, we were down about five and a half percent, and that's low to about four and a half percent or so in the third quarter. And if you look at the makeup of our DDA base, really about two thirds, a little bit lower. Less than two thirds of that is commercial customers, and we saw an even more significant slowing in those balances, so about seven percent in the previous quarter, and then that's low to a little bit under four percent in the fourth quarter.

Quarter, so yes.

Everything doesn't come together perfectly that will sometimes drag over the first day of the Quorum, Therefore get reported that way Chris.

Chris Matt is that still accurate yes, okay.

So at this time.

Alright. Thank you very much for taking my questions you bet. Thanks for asking.

Your next question comes from the line of Catherine Mealor with <unk>. Your line is open.

Brett Rabatin: So it absolutely is happening. I think across our customer base, but obviously more so on the commercial side. So Johnny, that was a good answer, and this is John, the only thing I would add is we still point towards a trajectory that shows we reach the pre-pandemic average account balances sometime around the in the second quarter or third quarter next year. So where that lands, and it's not really possible to say that's when it totally ends, but at least we'll be at a marker that was pretty steady for several years prior to the pandemic's beginning.

Thanks.

Follow up just to the deposit cost discussion.

Seasonality around your public fund balances and any impact that might have on your NIM guidance for next quarter.

Yes, I'd be glad to Catherine so.

So we have a pretty robust public fund business.

Those deposits average around $3 billion or so as you look through the year typically those deposit inflows will begin to ramp up a bit in the fourth quarter. So they can range from about 150 to about $175 million in the fourth quarter and as we get into the new year they begin to.

Brett Rabatin: So when Mike mentioned the end of the year looking like we should be close to 36 percent, that's actually a little better than the low end of the range that we gave just a few months ago. So the updated target for the end of the years may be a little more attractive than where we were recently, so that's really the diminishment of the mix change that we've encountered so far. So in terms of where it settles, it's really tough to see clearly through the crystal ball, but if we presume that the target is reached when we get to the pre-pandemic average balances, that would suggest a continued slowing, maybe not every quarter, but it's slowing to get you to somewhere around a target in the second quarter or third quarter of next year. If that's helped. Okay.

To kind of trail off as the municipalities begin to kind of allocate and spend those dollars. So every one of those relationships are contractual.

Brett Rabatin: Yeah, that's helpful.

And the vast majority are tied to primarily <unk>.

Spreads to short Treasury bills. So there is a bit of an impact in the fourth quarter in terms of the deposit inflows, but then also related to deposit rates.

And.

The dynamic around our public fund book was was built into the guidance. We gave for the fourth quarter in terms of deposit cost and potential NIM compression.

Okay Perfect and then my other question just on loan growth just.

Loan growth has slowed as it has for everybody in the back half of this year just can you just give us some.

Mike Ackary: And then the other question I wanted to ask was just around you guys reference Mike the slide on loan repricing and slide 24. You have that four to 12 months bucket and the composition is different than the three months or last, obviously, with that having more consumer in it. So I'm just curious thinking about, you know, as we're trying to model your loan portfolio increases over the next year in terms of the existing book.

Color around the new ones that you are putting on it typically what kind of credit peer comfortable lift type of credits that you are.

I am doing less maybe at an initial peak it how youre thinking about loan growth how it can look as we move into next year and at higher for longer scenario.

Okay. Thanks for the question, it's John I'll, let Chris speak to sector appetite and then I'll come back on just sentiment and whatnot. So.

Chris on just sectors and focus their appetite for or not yes, I mean again, we're obviously very mindful of the sectors that are potentially most impacted by higher interest rates the wage employment challenges.

Mike Ackary: Does that weighted average rate? I assume the weighted average rate for that four to 12 months bucket is going to be somewhat less than the 805 given partly a consumer that's in the three months or less. Yeah, I think that's right and certainly in a three month or less is where the really the line share of our variable rate loans are. So that's obviously dependent upon the direction of rates, but I think you have that right. So what we have here on 24 is just a little bit longer look of how we view the loan portfolio and how it could reprise over the next couple of years obviously.

And then just higher operating costs and in some instances the customer is able to pass them on and others that may be more challenge to be able to do so I mean.

Clearly when we look at consumer discretionary I think we're obviously a little bit more thoughtful about what we're looking at there things like hospitality.

And then even the asset classes that we sort of talked about earlier about office.

And retail both retail as a C&I product in C&I as a.

<unk> product is something that.

We continue to be a little bit more.

Later on I guess in that regard.

We have pretty robust discussions and a lot of the larger credits go through kind of a pre screen process and so there's a lot of healthy debate before we look to either.

John Hairston: Brett, this is John, but we just from one point to maybe helpful or at least interesting is we're seeing really better than expected performance in terms of our bankers having success with clients explaining the linkage between the renewal rate and the new loan rate and the vibe of compensating balances and what those rates are. So we'd gladly give up a few bips on loan yield to get substantial compensating deposits and operating accounts, particularly on the business side.

<unk>, an opportunity, where maybe even renew an opportunity in those areas or in general.

Katherine any question back on that before I give you some more <unk>.

Well, the one follow up and this might be where youre going junky results.

On that mortgage onetime close product I know that you said your loan growth over the past year. Just curious if that's something you would expect to flourish and just look at the pipeline into next year still kind of keeping you kind of at a level of growth.

John Hairston: And even more so when you get in the middle market side as we get cooperative accounts. So either one of those is net positive to them and profitability. So I think the maturity of the banker core has been impressive so far. And I think that's what led maybe to the name compression not being quite as bad this quarter as is with initially fear, you know, quarter ago.

Yes.

I'll start there, but thanks for asking about it so the onetime close product.

I've said this a couple of times in the commerce, just because sometimes people forget about it but you had originally comes into construction.

Classification, because its in construction.

Designation until.

The completion of the project and the owner takes residence so.

That amount of <unk>.

Balance sheet and the construction project is clearly in the I'll call. It fourth quarter of the football season, the fourth quarter the football game and so we will still see some mortgage growth net and probably.

Brett Rabatin: Okay, great. Appreciate the color. You bet.

Casey Haire: Your next question comes from the line of Casey hair of Jeffries. Your line is open. Thank you.

Operator: Good afternoon, everyone. I guess touch your own expenses. So last quarter, you guys talked about, you know, the, the efficiency ratio about 55, you know, kicks off, it puts you guys at a different death con level, or you know, we're now at 56 and obviously some more. And then pressure on the wages.

Another I would say two quarters, maybe before it begins to playing over and we've seen mortgage portfolio shrinkage in the second half of the year. So it'll give some net growth overtime and the mortgage category and there is still enough projects on the multifamily construction side that will be drawing down in <unk>.

Operator: Any more updated thoughts about addressing operating leverage on the expense side of things? Well, sure, as we go into 2024, I think that'll become, you know, something that that we look at has intently, if not more intently going forward. But in terms of the fourth quarter and our expense increase for the second half of the year, obviously there's no change in our guidance. We're looking at coming in at about 8% increase here over here.

Covering the outflow from Morgan, So I would expect to see the construction of the CND category continue to grow a bit and then as we get into next year that to somewhat becomes a contra to the drivers for those two things are totally different so often go to to multifamily.

Operator: And certainly as we look into 2024, we would think that that level would come down meaningfully in terms of expense increases year over year. So the 8% is not where we want to be. The 56% plus efficiency ratio is not where we want to be. So those are certainly things that we think about, and we'll address going forward.

Operator: Okay, very good.

We get a lot of questions on the road about market by market absorption rates rental rates and the difference in <unk> versus <unk> are people doing specials and most of the markets that show any degradation whatsoever in absorption or in pricing is primarily in the <unk> and in some markets three star.

Ari projects were about 95%.

One and two star.

Across our whole footprint in the markets, where we have any meaningful concentration we are still seeing absorption.

Both in absolute absorption and then when we and the market would support absorption of additional projects coming online. So if we were down in the one and two star business, then we'd be maybe a little more concern. So are our app, our appetite for multifamily really hasnt waned that much the problem.

Casey Haire: And then just circling back on the bond book, repositioning, you know, you're not the only ones talking about this obviously, but just wondering, it's very difficult to gauge what you guys could potentially do from the outside. You obviously have a very strong CT one ratio. So your TCE is with the unrealized losses up is below that 8% level that you guys want.

As the number of investors and developers who are interested in doing additional projects given the cost of money and the cost of property insurance that.

Mike Ackary: I'm just wondering, you know, do you have the potential, is it, is there enough low hanging fruit to restructure the bond book and get that, you know, lean into that CT one ratio and get that TCE above eight with like a reasonable sort of earn back. Yeah, I think so, Casey, certainly, and again, like we said, I mean, that's a transaction that we've been thinking about and considering. And that's certainly not off the table.

It has somewhat waned so it's not really our our appetite as much as the opportunity has come down and the type of projects that we do see.

Really just don't screen within our current risk appetite so.

We're expecting equity in the deal for expecting commitments in terms of construction cost and ensure ability and then really only from proven developers so.

Those folks are a little bit on the sideline waiting for a little better environment I think to come in a year or two so once you move outside of that.

Mike Ackary: It's something we're going to continue to look at intently in the fourth quarter and potentially into the first quarter. So, you know, as soon as we get to the point of executing on transaction like that, you know, we'll be sure to let everyone know. But right now, I think it's premature to talk about too much in the way of details. I know that you guys would like us to be more explicit in terms of exactly how we're thinking about it.

It's curious but at this point in time, our consumer our home equity line products, which is all consumer is at the lowest utilization I remember it to be and you would think with the average deposit account balances, but getting to applying towards pre pandemic levels. You would see that utilization began to come up but the bottom line is people.

<unk> as many big ticket purchases today as they were a year and certainly two years or three years ago.

Mike Ackary: But, you know, we have to be cognizant of providing too much detail, you know, and crossing any FD lines. So, again, I think we'll leave it at, you know, this is something that continues to be under consideration and we'll go from there.

And they primarily used home equity lines for those purchases at least in our book because they've got the tax benefit of doing that and right now they're just slowed that theyre slowing down they have slowed down on big ticket purchases. So were seeing that utilization trade down a little lower at some point in time, that's going to flip back.

Casey Haire: Okay, very good. Yeah, no, just curious.

Operator: And then just certainly back on the, I guess, actually, no, on credit quality.

And it probably flips back when there's this notion that rates.

They are not going to go up anymore are they begin to come down slightly and so as long as the fed can negotiate into a safe land I didn't say softening asset safely I think I'll have a such thing as a soft landing.

Chris Ziluca: I'm one of the slides you mentioned the focus has switched from traditional office to medical office. Just wondering what it reads almost as if you're a little bit concerned about what you're seeing in medical office, which I understood to be a pretty strong asset class, just to some color on what's driving that. Yeah, this is Chris Luka. That's probably a misunderstanding in the wording or the language. You know, as an asset class for many years now, you know, we've been a little bit more cautious about general purpose office and typically more focused on medical office as an asset class.

Chris Ziluca: And clearly, as you indicate, medical office, especially depending on the type of medical work that's done in the office environment is much stronger than any general purpose office. But as an asset class overall, we're definitely cautious in general on that. We actually saw a little bit of a decline in our overall office exposure, not a huge amount, but about, you know, a couple of, you know, four percent type levels quarter over quarter, as we, you know, really, you know, shipped our focus away from that as an asset class within commercial real estate. Gotcha.

But as long as they can get to a safe landing then I think we'll begin to see loan growth opportunities pick up a bit.

Chris Ziluca: Thank you. You bet. Thank you.

Sentiment I think rich is that conclusion.

Was that helpful color or did you want to hear maybe a little something there was that was really helpful. I'd like to thank Brandon.

Commentary.

The target.

First I just thought it's been over years.

Yes.

Very helpful. Thank you Dan.

You bet you bet.

Your next question comes from the line of Kevin Fitzsimmons with D. A Davidson your line is open.

Hey, good afternoon, everyone.

Most of my questions have been asked and answered I E.

Just as a follow up on the bond restructuring topic and I understand the sensitivity was without with not getting specifics.

But maybe Mike you can help us understand just the different variables.

That are at play you are in your guys heads determining.

When you pull the trigger whether to pull the trigger I mean, I imagine its rates your capital levels.

Steven Scouten: Your next question comes from the line of Steven Scouton with Piper Sandler. Your line is open. Yeah, thanks everyone. Appreciate it. I guess one more question kind of around capital usage. I mean, you guys kind of outline your capital priorities and your slide back. And I would kind of use a potential for this securities restructuring. Somewhere with that, I'm not really sure. I guess maybe below organic growth above dividends is kind of what I'm hearing.

For care.

Curves I know months ago, there was more of a sensitivity about in the wake of bank failures.

Thanks, probably hesitant to go out and sell.

Sell securities because it might create.

Create some misperception, but that's.

That's far enough in the rearview now so just just without getting into specifics just curious.

All of those variables play or maybe its just more is it an internal discussion or debate about whether it's the right thing to do because I guess, there would be different opinions about that so just.

Mike Ackary: But can you talk about how you think about the mass versus a buyback at this point? I mean, it seems like with your stock it, you know, one 15 exchangeable or something like that. It might be more attractive at these levels. They're just kind of curious how you're thinking about the various pieces of capital, specifically relative to the buyback. Yeah, yeah, Stephen. So again, on slide 18, as you mentioned, we have kind of the priorities.

I wanted to see your thoughts on that thanks.

Sure be glad to Kevin so.

I think as a company, we think and believe that Philip from a philosophical point of view, it's the right thing to do in terms of potentially selling some bonds and reinvesting the proceeds.

Mike Ackary: And, you know, we're careful in terms of how we think about those and, you know, really haven't changed or adjusted those priorities. So I think they really do kind of speak for themselves. And, you know, you have to buy buybacks and certainly buybacks is something we think about and consider. But I don't know that in this environment, it's something that, you know, we're going to rise to the level of actually executing on buybacks right now.

The consideration becomes this notion of whether you pay down debt, whether it's brokered Cds or home loan borrowings or you reinvest all of the proceeds back into the bond portfolio or some combination of those two so those are the things that we kind of think about and talk.

Certainly.

The charge that you might consider taking us.

Is something that that's out there for discussion and analysis.

Mike Ackary: I'm not sure that, you know, the environment in terms of how examiners look at that in the context of bank failures back in March and in the context of wanting to continue to kind of build capital going forward really fit right now. So, you know, certainly aside from those things, buybacks are an attractive way to deploy capital. And we've done that in the past. And I dare say at some point in the future will reenter that method of deploying capital.

The impact that that has on our earnings the impact that has on our capital.

Really doesn't have much of an impact on TCE immediately because youre selling NFS bonds, but.

Certainly on a regulatory ratio basis.

It is something that can be impactful going forward. So those I think are the things we think about I mean.

Certainly if you look at.

The volume of bonds that you could sell for any given charge that's less now than when it was before you had the significant increase in.

Mike Ackary: So, you know, back to the bond restructuring. I mean, that is could be an attractive way of deploying some capital. Again, not going to go into too much in the way details of that. But, you know, that's out there and under consideration is kind of mentioned. Yeah.

In the Treasury curve so.

Thats something thats, a little bit of.

Steven Scouten: I guess my question is more like, as you evaluate those, I mean, is there an earn back calculation? Is that what you're thinking about or it sounds like maybe, maybe more of the bond restructuring or other things could be more palatable to regulators versus share. So, I'm just trying to understand the dynamics of what creates that priority. Well, in terms of a bond restructuring, the way we would think about that is having an earn back or pay back, you know, somewhere in the 24 little bit less than 30 month range. We think that makes sense. And, you know, pull those kinds of transactions to the point of serious execution. Got it. That's helpful.

Part of the overall equation, just where those rates are going to go over the next couple of weeks months quarters those kinds of things so.

Again.

Those are the things I think we think about and consider in terms of a transaction like that.

I'll wrap up those comments by just stating again, it's under consideration.

Since we effected transaction, we'll let everyone know certainly.

Okay. That's all I had thanks very much.

You bet Kevin.

Your next question comes from the line of Christopher <unk> with JMS. Your line is open.

Chris Ziluca: And then if we could talk about the SNCC exposure briefly, I think what is it? 2.8 billion, I think you noted at 930. Can you give us any more detail there in terms of what percentage of those loans you guys might be the lead on or if there's a geographic focus primarily within that book and kind of, you know, obviously, we saw just one kind of go bad. And that doesn't mean there's some greater issue, but that becomes the fear, I think, for some, so just wonder if you can give us any color that might provide comfort issue.

Hey, Thanks, Good afternoon, I had a question for Chris on credit quality, and particularly from how you stress test C&I and CRE and whats the difference between today's criticized level and sort of what they would be on a stress scenario and how much of that would move the.

Reserve.

Yes. Good question, we constantly look at different <unk>.

<unk> of stress testing.

On the commercial real estate side some of the things that we'll look to stress test is not only the impact of kind of re.

The writing of interest rates on from the loans that would have to reprice.

Chris Ziluca: Yeah, this is Chris Luka. Yeah, I mean, geographically, obviously, we're, you know, more focused on the markets that we generally operate in, so kind of Texas to Florida. But, you know, we also do have, you know, a, you know, healthcare specialty group that does participate in some transactions that would have more of a national focus. So, so there's a little bit of a mix there. There really isn't any sort of, you know, geographic or industry focus.

The current rate environment, but we also look and stress test net operating income and the impact that that might have on the individual's ability to debt service cover.

And then we.

We also on us on the C&I basis, we tend to see.

Stress test more of the probability of default on those individual borrowers.

And we use that information to really kind of inform us as to how we view our reserving. It's there is no direct linkage into the reserving.

Chris Ziluca: You know, we took a deeper look into that, you know, kind of anticipating this call and some discussions on it since we highlighted it here on the page on page eight. But, you know, we feel pretty good overall about the snake book. And I certainly can understand, you know, the question given, you know, what happened recently. But, you know, as I think we've all indicated it is a bit idiosyncratic. And I think the, the final chapter of that book hasn't been written yet.

But it is part of the evaluation process as we go through our quarterly assessment of reserves and reserve levels.

At this point in time, and what I've, what I've been pleasantly surprised with is that.

When we have done stress tests and these different slices. The results haven't been as alarming I guess as I would've thought that would've been.

Chris Ziluca: Anyway, so we'll learn more over time. But, but we, you know, we have, you know, in the build up of liquidity during the kind of pandemic period there, you know, we deployed some of that excess capacity in that area. And as we kind of look forward since many of those relationships don't necessarily have full service, you know, opportunities. You know, we'll look to dial that back over time.

And that gives me comfort that there is probably a little bit more cushion in there at least in kind of a normal stressed environment, obviously, a few stress them for.

Something more significant.

A severe scenario youre going to see a lot more in the way of theoretical defaults and losses, but we don't really anticipate that we do do those stresses just to kind of understand the outer boundaries, but we tend to focus on the realistic stresses that might.

John Hairston: Okay, that's extremely helpful. And is the reserve against those loans? I mean, kind of in line with the 128 loan loss reserve overall, or is it maybe, you know, I guess the commercial reserves like 130 as well? Does it kind of fair to assume it's in that that range of commercial loans? Yeah, I mean, we don't necessarily segment the portfolio that way when we're deriving our reserve estimates. So they're, you know, generally sprinkled in with our C and I based on their, you know, as in quality.

Then help us think about our reserving levels and approaches.

Okay, Great. That's helpful and then Chris just a follow up on the snack conversation in the disclosure in the slides are there other loans that would be kind of like club deals that are not the snakes definition, but our.

Non organically originated.

By hand cockpit that you have above and beyond the 11%.

John Hairston: Yes. Maybe a little more clarity. As rates begin to go up last year, we knew as we got into the second half of this year that the desire for any type of not just stick with syndications and general growth would begin to get upside down, just given the cost of funds, right? We want to preserve that liquidity for use in core growth and clients that have a little deeper wallet share with us.

Yes definitely there is.

Not even probably more than a handful of accounts that fall into that category. That's kind of a normal course that you. Do is you are presented with an opportunity that may be a little bit larger than you'd like to do but you want to support that relationship you will bring in a partner.

And vice versa.

So called club deals.

And that to us is.

Oftentimes with with banks that we regularly Trey.

John Hairston: And so the dial back that Chris mentioned a few minutes ago, that was going to happen with or without the aforementioned idiosyncratic bad news on that one credit. So we expected to top out somewhere around the 15% of commercial loan levels. That's where it topped out. And the expectation is that it would dial back in terms of percentage and probably absolute exposure as we repatriate those credits with smaller slices, or maybe a few less credits that we're in.

Trade with as it were rather than kind of the broadly syndicated transactions, which oftentimes are led by much larger institutions.

With those loans have a higher default rate across the cycle or is it kind of too early to comment on those.

Yes, I mean, I don't view them any differently to be honest with you.

And I don't I don't see them as having any materially different default rate.

John Hairston: A couple with the amortization and redeploy the liquidity gains from that and the things that have a little bit more of a new attached value over the long term. So I want to make sure we're clear that that one charge off had nothing to do with our post from syndications. That's really around the balance sheet. Got it.

Okay, great well. Thank you for all the information that <unk> great.

You bet. Thank you thanks for the top country patients.

There are no further questions at this time I will turn the call back to John for closing remarks.

Thank you Sir for moderating today and thanks, everyone for your interest we look forward to seeing you on the road soon.

Steven Scouten: That's a really helpful point of clarification. Thanks so much for the color, guys. You bet. Thank you.

Have a great night.

This concludes today's conference call. Thank you for joining you may now disconnect your lines.

Brandon King: Your next question comes from the line of Brandon King with truest securities. Your line is open. Hey, good evening. Good evening. Yeah, so I appreciate the guidance on, you know, the CB renewal rates, but I just wanted to get a sense of how those renewal rates have trained it over the last couple of months. Have we seen some stabilization in what the renewal rates have been and are anticipating any potential increases going forward?

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Brandon King: Yeah, Brandon. This is Mike and, you know, they have, again, as I mentioned with respect to deposit rates in total, you know, things have absolutely stabilized as we've gone through the last four or five months or so, you know, leading up to the third quarter. But, but specifically if we look at the CD maturities, again, in the third quarter, we've got the on the third quarter, we had just under a billion for that matured at 3.95 and reprised at about 4.75.

Brandon King: So there was an 80 basis point difference there in the fourth quarter. We think that difference will shrink to about 58 basis points. And again, that's the difference between the rate that the CDs are maturing and where we think they will, they will renew at and then just taking a peek into the fourth quarter. I'm sorry, the first quarter of next year, we think that difference will shrink even more to about 23 basis points.

Yes.

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Thanks.

Brandon King: So the stabilization of the deposit rates is really coming to light so to speak in terms of our CDs, reprised as we've gone through, not only the last quarter, but looking ahead to the next couple of quarters.

Brandon King: Okay, very helpful. And then on credit quality, I noticed that a crewing loans 90 days passed through and modified loans to accruing there was a noticeable increase in those two items. Just wanted to get some more details around what's going on there. Yeah, I mean, just at a high level, a lot of those are loans that, you know, we're working through maturities. And so they end up kind of crossing over in that process of processing maturity or arranging the maturity to be extended in the normal force.

Brandon King: Okay, so so the anticipation that those will end up paying off or or being or just being rewritten and then getting back to, you know, payment status and maturity oftentimes drives it falling into a quote unquote past due bucket that may not otherwise really be passed to. Okay, and what about the modify is that same switch for the modified loans as well. Yes, yeah. Okay, so to be clear, Brandon, this is a little picky just in the way we obviously report things, but a loan can be passed you without necessarily having a payment passed you, right?

Brandon King: Just because it's past maturity. So so they sometimes will cross over the end of core and that's the reason for that. So there's there's not really a linkage between call it reserve appetite and that amount of past use unless the payment itself is like that makes sense. Lewis, but no real concern there. Okay, so we should be expecting that to kind of turn lower. It goes up and down based on timing and I don't know if it's still this way, Chris can correct me if I'm wrong, but there's a fair amount of seasonality in some of the book on the middle market side.

Brandon King: So there's larger numbers of renewals that occur in different parts of the year. And typically in the second, third quarter is when we seem to have a little bigger bucket of those that all were new and enforce that they're all kind of stack it in a quarter. So if everything doesn't come together perfectly, they will sometimes drag over the first day of the quarter and therefore get reported that way. Chris Mads, that's so accurate. Yeah. Okay.

Brandon King: So it's just time.

Brandon King: Thank you very much. Take my questions. You bet. Thanks for asking.

Catherine Mealor: Your next question comes from the line of Catherine Mealor with KBW. Your line is open. Thanks. Let's follow up just to the deposit cost discussion. Can you remind us seasonality around your public fund balances and any impact that might have on your name got it for next quarter? Yeah. We go ahead to Catherine. So we have a pretty robust public fund business. Those deposits average around three billion or so as you look through the year.

Catherine Mealor: Typically those deposit inflows will begin to ramp up a bit in the fourth quarter. So they can range from about 150 to about 175 million in the fourth quarter. And as we get into the year, they begin to kind of trail off as the municipalities begin to kind of allocate and spend those dollars. So every one of those relationships are contractual. And the vast majority are tied to primarily spreads to short treasury bills.

Catherine Mealor: So there is a bit of an impact in the fourth quarter in terms of the deposit inflows but then also related to deposit rates. And the dynamic around our public fund book was built into the guidance we gave for the fourth quarter in terms of the public fund. And then my other question just on what on loan growth just, you know, loan growth is slowed as it has for everybody. The back half of this year just can you just give us some.

Catherine Mealor: All around the new ones that you are putting on, you know, typically what kind of credit to your comfortable with type of credits that you are. I'm doing less of and maybe an initial peek at how you're thinking about loan growth. How it could look as we move into next year and a higher for longer scenario. Okay, thanks the question is John, I'll let Chris speak to sector appetite and then I'll come back on just sentiment and whatnot.

Catherine Mealor: So Chris on just sectors in focus or appetite for or not. Yeah, I mean, you know, again, we're obviously very mindful of the sectors that, you know, are potentially most impacted by higher interest rates, you know, the wage and employment challenges and then just higher operating costs. And you know, in some instances, the customer is able to pass them on and others that may be more challenged to be able to do so.

Catherine Mealor: I mean, you know, clearly when we look at consumer discretionary, I think we're obviously a little bit more thoughtful about, you know, what we're looking at there, you know, things like hospitality. And then even the the asset classes that we sort of talked about earlier about office. And retail, both retail as a CNI product and CNI as a I create product is something that, you know, we continue to be a little bit more, you know, tighter on, I guess, in that regard.

Catherine Mealor: You know, we have pretty robust discussions and a lot of the larger credits go through kind of a pre-screen process and so there's a lot of healthy debate before we look to either, you know, pursue an opportunity or maybe even renew an opportunity in those areas or in general. Catherine, any question back on that before I give you some more, or would you, you'll make it? Well, once all of them, this might be where you're going, John, too, is also just on that mortgage one time closed product.

Catherine Mealor: I know that's been a piece of your loan growth over the past year and just curious, if that's something you would expect to slow, as you just look at the pipeline into next year, or still kind of keeping you kind of at a level of growth over the next year. Yeah, I'll start there. Thanks for asking about it. So the one time closed product, and I think I said this a couple times in the comments just because sometimes people forget about it.

Catherine Mealor: But it originally comes into construction classification because it's an in-construction designation until the completion of the project and the owner takes residence. So that amount of balance sheet in the construction project is clearly in the, I call it fourth quarter of the game, we're in football seats at fourth quarter of the football game. And so we'll still see some mortgage growth net. And probably another, I would say two quarters maybe before it begins to plane over and we see mortgage portfolio shrinkage in the second half of the year.

Catherine Mealor: So it'll give some net growth over time in the mortgage category. And there's still enough projects on the multifamily construction side that will be drawing down and covering the outflow from mortgage. So I would expect to see the construction of the C&D category continue to grow a bit. And then as we get into next year, that too, somewhat becomes a contra. Now the drivers for those two things are totally different. So I'll then go to multifamily.

Catherine Mealor: You know, we get a lot of questions on the road about market by market absorption rates, rental rates, and the difference in ask versus book or people doing specials. And most of the markets that show any degradation whatsoever absorption or in pricing is primarily in the one two and in some markets three star category projects. We're about 95% one in two star. So across our whole footprint in the markets where we have any meaningful concentration, we're still seeing absorption both in absolute absorption and then in the market with support absorption of additional projects coming online.

Catherine Mealor: So if we were down in the one and two star business, then we'd be maybe a little more concerned. So our appetite from multifamily really hasn't waned that much. The problem is the number of investors and developers who are interested in doing additional projects given the cost of money and the cost of property insurance, that is somewhat waned. So it's not really our appetite as much as the opportunity has come down.

Catherine Mealor: And the type of projects that we do see really just don't screen within our current risk appetite. So, you know, we're expecting equity in the deals, we're expecting commitments in terms of construction costs and insurability, and then really only from proven developers. So those folks are a little bit on the sideline waiting for a little better environment, I think, to come in a year or two. So once you move outside that, it's curious, but at this point in time, our consumer, our home equity line products, which is all consumer, is at the lowest utilization I ever remember it to be.

Catherine Mealor: And you would think with the average of positive account balances, beginning to plane towards pre-pandemic levels, you would see that utilization began to come up. But the bottom line is people aren't doing as many big ticket purchases today as they were a year and certainly two or three years ago. And they primarily use home equity lines for those purchases, at least in our book, because they got the tax benefit of doing that.

Catherine Mealor: And right now they've just slowed down. They have slowed down on big ticket purchases. So we're seeing that utilization trade down a little lower. At some point in time, that's going to flip back. And it probably flips back when there's this notion that rates are either not going to go up anymore, or they begin to come down slightly. And so as long as the Fed can negotiate into a safe land, I didn't say soft land.

Catherine Mealor: I said safe landing. I don't know if it's such a thing as a soft landing, but as long as they can get to a safe landing, then I think we'll begin to see low growth opportunities pick up a bit as sentiment, I think reaches that conclusion. Was that helpful color, or did you want to hear maybe a little something? It was. That was all really helpful. I like the safe landing, commentary. Yeah, that's the target. We're up for it. We can point it first. The soft landing phrase has been overused. I just really helpful. Thank you, John. Thank you, Matt.

Catherine Mealor: Your next question comes from the line of Kevin Fitzsimmons with DA Davidson. Your line is open. Hey, good afternoon, everyone. Most of my questions have been asked and answered. I just as a follow-up on the bond restructuring topic, and I understand the sensitivity without with not getting specifics. But maybe Mike, you can help us understand just the different variables that are at play or in your guys' heads and determining when to pull the trigger, whether to pull the trigger.

Catherine Mealor: I mean, imagine it's rates, it's your capital levels and comfort there, the curve. I know months ago there was more of a sensitivity about in the wake of the bank failures that banks probably were hesitant to go out and sell securities because it might create some misperception, but that's far enough in the rear view now. So just without getting into specifics, just curious how those variables play or maybe it's just more, is it an internal discussion or debate about whether it's the right thing to do because I guess there would be different opinions about that. So just wanted to see your thoughts on that. Thanks.

Kevin Fitzsimmons: Sure, be glad to, Kevin. So I think as a company, we think and believe that from a philosophical point of view, it's the right thing to do in terms of potentially selling some bonds and reinvesting the proceeds. You know, the consideration becomes this notion of whether you pay down debts, whether it's broken CDs or home loan borrowings or you reinvest all the proceeds back into the bond portfolio or some combination of those two.

Kevin Fitzsimmons: So those are the things that we kind of think about and talk about, certainly, you know, the charge that you might consider taking is something that that's out there for discussion and analysis. You know, the impact that that has in our earnings, the impact that has in our capital really doesn't have much of an impact on TCE immediately because you're selling AFS bonds. But, you know, certainly on a regulatory ratio basis, you know, it is something that can be impactful going forward.

Kevin Fitzsimmons: So those are think of the things we think about. I mean, you know, certainly if you look at, you know, the volume of bonds that you could sell for any given charge, that's less now than when it was before you had the significant increase in the treasure curve. So, you know, that's something that's a little bit of a part of the overall equation, you know, just where those rates are going to go over the next couple of weeks, months, quarters, those kinds of things.

Kevin Fitzsimmons: So, you know, again, those are the things I think we think about and consider in terms of a transaction like that. And, you know, I'll wrap up those comments by just stating again that it's under consideration. And, you know, if we affect a transaction, we'll let everyone know certainly. Okay, that's all I had. Thanks very much. You're back, Kevin.

Christopher Marinac: Your next question comes from the line of Christopher Marinac with JMS. Your line is open. Hey, thanks. Good afternoon.

Christopher Marinac: I had a question for Chris on credit quality and particularly from how you stress test C and I and CRE and what's the difference between you today's criticize level and sort of what they would be on those stress scenario and how much of that, you know, would move the reserve. Yeah, good question. I mean, we constantly look at different slices of stress testing. You know, on the commercial real estate side, some of the things that will look to stress test is not only the impact of kind of re, you know, writing of interest rates on the loans that would have to reprise under the current rate environment, but we also look in stress test that operating income is and the impact that that might have on the individual's ability to debt service cover.

Christopher Marinac: And then we also on the CNI basis, we tend to stress test more of the probability of default on those individual borrowers. And we use that information to really kind of inform us as to how we view our reserving. There's no direct linkage into the reserving, but it is part of the evaluation process as we go through our quarterly assessment of reserve and reserve levels. You know, at this point in time, I mean, what I've, what I've been pleasantly surprised with is that, you know, when we've done stress tests in these different slices, you know, the results haven't been as alarming, I guess, as I would have thought they would have been.

Christopher Marinac: And that gives me comfort that there's, you know, probably a little bit more cushion in there, at least in kind of a normal, stressed environment. Obviously, if you stress them for, you know, something more significant, you know, a severe scenario, you're going to see a lot more in the way of, you know, a theoretical defaults in losses, but we don't really anticipate that. We do do those stresses just to kind of understand the outer boundaries, but we tend to focus on the realistic stresses that might then help us think about our reserving levels and approaches. Okay, great. That's helpful.

Christopher Marinac: And then Chris, just follow up on them, the SNCC conversation and disclosure in the slides. Are there other loans that would be kind of like, you know, club deals that are not the SNCC definition, but are, you know, sort of non organically originated by Hancock that you have above and beyond the 11%. Yeah, definitely there's, you know, you know, ham, not even probably more than a handful of accounts that fall into that category.

Christopher Marinac: That's kind of the normal course that you do as you are presented with an opportunity that may be a little bit larger than you'd like to do, but you want to support that relationship you'll bring in a partner and vice versa, those, you know, so-called club deals. And that to us is, you know, oftentimes with banks that we regularly trade with as it were rather than kind of the broadly syndicated transactions, which oftentimes are led by, you know, much larger institutions, with those loans to have a higher default rate across a cycle or is it kind of too early to comment on those? I mean, I don't view them any differently to be honest with you and I don't see them as having any materially different default rate.

Christopher Marinac: Okay, great. Well, thank you for all the information this afternoon. It's been great. Thank you. Thanks for the talk. Thank you.

John Hairston: There are no further questions at this time. I will turn the call. I'll back to John for closing remarks. Thank you, Sarah, for moderating today. Thanks everyone for your interest. We look forward to seeing you on the road soon. Have a great night.

Operator: This concludes today's conference call. Thank you for joining. You may now disconnect your lines.