00:02 Good day, ladies and gentlemen, and welcome to Hancock Whitney Corporation's Third Quarter twenty twenty one 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. 00:20 I would now like to introduce your host for today's conference, Tricia Carlson, Investor Relations Manager. You may begin.

00:31 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. 01:03 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. 01:40 Some of the remarks contain Non-GAAP financial measures. You can find reconciliations to the most comparable GAAP measures in our earnings release and financial tables. The presentation slides included in our 8-K are also posted with the conference call webcast link on the Investor Relations website. We will reference some of these slides in today's call. 02:02 Participating in today's call are John Hairston, President and CEO; Mike Achary, CFO; and Chris Ziluca, Chief Credit Officer. 02:10 I will now turn the call over to John Hariston.

02:14 Good afternoon everyone and thank you for joining us. We're pleased to report another solid quarter despite the impact from the COVID-nineteen Delta surge and hurricane Ida. Net income of one hundred and thirty million dollars or one point four six dollars per share was up forty one million dollars or zero point four six dollars linked quarter. After adjusting for non-operating items in both the second and third quarter's results, EPS for the third quarter was one point four five, up zero point zero eight dollars linked quarter. 02:40 The primary driver of the quarterly increase was a twenty seven million dollars negative provision in the third quarter compared to a negative provision of seventeen million in the second quarter, substantially due to less than two million dollars of net charge offs. Our asset quality metrics have continued to improve and are now among the best in mid-cap group. Criticized and non-performing loans continue to improve and are down twenty nine percent and sixty five percent respectively from one year ago. Our ACO coverage remained strong at just under two percent of total loans. 03:12 With outperforming asset quality ratios and certainly adequate loan loss reserve we are positioned well on credit. At this point, we do not any significant pressure on credit from Hurricane Ida or the remnant Delta surge. Stimulus funding and other programs designed to help businesses navigate the pandemic had worked, and the recent storm was mostly an insured event, thankfully much different that hurricane Katrina sixteen years ago. I should mention my appreciation for the incredible efforts of our team during the Ida recovery as we reopened locations and storm impacted areas on a very rapid basis, while simultaneously feeding nearly forty thousand people in our impacted communities. That only happens with commitment…

05:21 Thanks, John. Good afternoon, everyone. Third quarter's results were in line with our guidance and in some areas exceeded consensus expectations. Core loan growth continued in both our markets and specialty lines across the footprint, with net growth in the Central and Western regions as well as continued increases in equipment finance and healthcare. 05:44 In total, core EOP loans grew two twenty million dollars, partly offsetting four eighty two million dollars in PPP forgiveness during the quarter. As a result, total reported loans were down two sixty two million dollars and ended the quarter at just under twenty one billion dollars. Similar to last quarter, improvement in economic activity across our operating regions led to increased loan pipeline pull through rates and coupled with fewer payoffs and a slight uptick in line utilization rates resulted in four percent linked quarter annualized growth for the quarter. 06:21 As we move into the fourth quarter, we have maintained our guidance for core loan growth of four hundred million dollars to five hundred million dollars and PPP forgiveness of up to five hundred million dollars. We are calling out a risk of higher than normal CRE payoffs in the fourth quarter, but otherwise, our guidance is unchanged. We beat expectations on our NIM guidance with only two basis points of compression in the quarter, and flat net interest income. 06:51 A full quarter's impact from the June redemption of our twenty fifteen sub debt and the impact from a lower cost of deposits added five basis points to the NIM, but a continued shift in the overall earning asset mix and yield, plus a net change in the quarterly level of net interest recoveries compressed the NIM seven basis points. The aforementioned all combined to result in a NIM down two…

09:36 Okay. Thanks, Mike. Let's open the call for questions.

09:42 Certainly. We will now begin the Q&A session. [Operator Instructions] The first question is from Michael Rose with Raymond James. Please proceed.

10:24 Hey, good afternoon. Thanks for taking my questions. Just wanted to start on the efficiency -- Hi, how are you. Just wanted to start on the efficiency ratio target, I think what I've heard since the release tonight, it’s good to see that you guys are committed to it, but I think people are trying to parse out the revenue side because there is a pretty big delta between where consensus in the fourth quarter next year and what the guidance would imply in terms of revenue. 10:53 So, I was just wondering if you could give us a little bit more color on maybe the expectations for fee and then NII growth? Thanks.

11:03 Yes, Michael, this is Mike. So we haven't given any guidance per se for the four quarters of twenty twenty two yet. So, what I would do is, direct you to slide eighteen in the deck where I think we provided some color around what we're thinking in terms of the kind of loan growth to expect not only for the fourth quarter of this year, but also into twenty twenty two. 11:25 And then in terms of how we're thinking about managing the balance sheet, certainly, we've disclosed in a couple of places, both in the introductory comments as well as the deck. This notion of beginning to go back to reinvesting cash flows and maturities back into the bond portfolio and then also this notion of modestly increasing the size of the bond portfolio over the next five quarters. So there isn't an exact amount per se that we're going to increase the bond portfolio by, but certainly if you use a number like one billion dollar or maybe a little bit north of one billion dollar is kind of a placeholder and that would imply two hundred million dollars plus in the next five quarters. 12:06 I think the exact amount that we redeploy liquidity into the bond portfolio will really depend on what happens with rates next year, as well as what happens with our ability to continue the momentum in terms of adding loans to the balance sheet. So I think the recipe for us in the revenue side really boils down to being able to deploy the lion share of the excess liquidity that we have on the balance sheet into a combination of loans and bonds over the course of next year. 12:42 And obviously, I think the guidance around our plans for expenses is pretty self-explanatory, it's the one eighty seven dollars for the fourth quarter of this year and in this notion of that being a run rate as we move into twenty twenty two. So I think also certainly the new banker hires that we've kind of called out, I think have been extremely helpful to our ability to kind of continue the momentum in terms of growing loans and certainly to increase it as we go into twenty twenty two. So that's kind of how we think about the efficiency ratio goal and I think also the pathway. 13:21 So, John, anything else you want to add?

13:23 No, I think you gave some pretty good guidance.

13:29 No, that was great. Thank you. Just one follow-up -- just credit, another positive quarter, criticized classified down NPA is down, big -- not that big, but I guess negative provision again this quarter, any reason to think that assuming credit remains benign and you continue to cure some credits that we would see the reserve level come down and we’re likely to see negative provisions for at least the next couple of quarters. Thanks.

13:58 Yes. I think certainly to go back to the guidance slide, we are calling out the fact that at least on a go forward basis through the fourth quarter to look for reserve releases in the magnitude of what we've done in the last couple of quarters, so call it, twenty seven million dollars twenty eight million dollars or so. And I think certainly, we have some potential to continue that into twenty twenty two. So there's no endpoint out there that we have in mind right now in terms of a level to bring the ACO down to. But just for context, if you go back and look at our day one ACO percentage, it was about one hundred and twenty eight basis points. And if you back out the energy portfolio that we largely sold last year, that brings it down to just under one percent. And I mentioned those numbers not as a target for us to reduce our ACO to, but just for context. So the actual endpoint I think will depend on a lot of things, including how we grow our loan book and then certainly also how the pandemic finally ends and we see our economies, our local economies restored to where they were before.

15:20 That's great. I appreciate you taking my questions.

15:22 Sure.

15:27 Thank you, Mr. Rose. The next question is from Brett Rabatin with Hovde Group. Please proceed.

15:37 Hey, good afternoon, everyone.

15:38 Hi, Brett. How are you?

15:41 Good. Wanted to first ask on the fee income guidance, could we just talk about that for a second in terms of expecting flattish trends in the fourth quarter following some disruption in 3Q, obviously mortgage volumes are somewhat difficult to predict, seasonality is obviously going to be an impact in 4Q, but you obviously had lower numbers this quarter. Can you just talk about how much mortgage plays into that fourth quarter guidance around fee income and other things that might be affecting seasonality in terms of the fourth quarter versus a rebound in activity given the lack of the hurricane this quarter?

16:20 Yes, sure, Brett. This is John. I'll start and then Mike can add color. I mean, obviously, the secondary mortgage fee reduction was the heavy detractor from fee income for the quarter and then Ida. I think Mike shared in the prepared comments around one point two million dollars estimated impacts. So outside of that, the quarter actually had -- pretty much every category has improved net of the Ida damage to it. So, for example, service charge fees were sharply, both for business and for consumer, which was a first material increase of the year due to all the liquidity that was out there and I think that number around three million dollars up from the same quarter previous year, so healthy increase. 17:06 Card fees, which were one of the more heavier fee impacts from Ida just given the transactions happening due to power shortfalls were relatively flat quarter to quarter, so on a net basis we're up a push. Trust and investments were similar given the closures and some of the pushed to off transaction work that would have normally happen in September that didn't, plus the second quarter has the tax prep fees and trust that are pretty good. So push was a win there. So really every category is firming up and doing better to the point that I think as we go into twenty twenty two we have some confidence that outside of secondary mortgage fees we should see some year-over-year improvement.

17:47 Yes. Brett, the other items I would kind of add to that in a way of just a look a little bit additional color is, if we think about the impact that the storm had on our third quarter fees, we're roughly estimating that to be between one million dollars and about one point two million dollars. 18:04 Certainly unsure around how much of that will kind of recaptured in the fourth quarter. I think it’s safe to say, certainly some of that I think could be recaptured. How much of it though is really uncertain. I think the other thing to look to for the fourth quarter is our specialty lines. So things like BOLI and venture capital income some lines similar to that where we can already have a little bit of line of sight to seeing some increases that we'll be able to show in the fourth quarter related to, again, that aggregation of different lines of business that we call specialty lines. 18:43 So certainly, I think if you look at headwinds, mortgage fees, I think is going to be a headwind, but there are also some tailwinds that we think will pick up the slack and offset the further decline in mortgage fees.

19:00 Okay. And then the other big thing I wanted just to make sure I cover it was just around the margin. And I know there's a lot of -- it's difficult to parse all things that might impact that. But I think about the four basis points of pressure in 4Q, there's definitely a better tailwind with the yield curve possibly. Do you think we're getting close to the bottom on the margin? And do you think it bumps along here if you can deploy some liquidity. Obviously, you mentioned one billion dollars in securities, but it seem like there could be some opportunity for it to improve over the next few quarters. And just wanted to see if you might take a stab at maybe some thoughts around that?

19:42 Yes, I think that's absolutely the case. I mean, we're guiding to the four basis points of compression in the fourth quarter and that really is centered around, as much as anything else the drag on the NIM related to the cash we have on the balance sheet. So to the extent that we're able to deploy more of that cash into a combination of loans and bonds, certainly, that helps out the NIM and alleviate some of that pressure. 20:09 We're are also kind of projecting a continuation of our ability to reduce our cost of deposits by around a basis point over the course of the fourth quarter. So certainly if we're able to do that, I think that'll be helpful. But kind of on a go forward basis given the pathway to the efficiency ratio that we kind of talked about earlier, we certainly would expect our NIM to bottom out and potentially be increasing as we go through twenty twenty two.

20:38 And this is John and while it may be more of a net interest income point and simply with NIM the bleed we're experiencing now at PPP forgiveness, if you just presume four hundred million dollars, five hundred million dollars or so of that for the fourth quarter, and guidance around four million dollars to five hundred million dollars in organic growth. We're nearing the point to where the impact of the runoff gets a little closer to a push. So on a net interest income basis as we reach and pass the inflection to where a run off, gets overcome rather the growth than that help us on moving forward.

21:18 Okay. Great. Appreciate all The color.

21:21 You bet. Thank you.

21:25 Thank you, Mr. Rabatin. The next question is from Brad Milsaps with Piper Sandler. Please proceed.

21:35 Good afternoon. Mike just I wanted to follow-up kind of on the balance sheet management question again. I appreciate all the color just kind of thinking about sort of that mid-single digit loan growth target would apply maybe one billion dollars or so one point two dollars of growth over the next twelve months, which essentially kind of replaces a lot of the PPP loans that you have left. You still have upwards close to three billion dollars of cash. It sounds like you might put a billion to work in the bond book but still leave you with quite a bit of funding assuming deposits don't go higher. Can you get to talk through kind of how you're thinking about sort of the remainder the cash excess liquidity that you have on the balance sheet and sort of thoughts around sort of putting that to work as well.

22:27 Yes. I'll go it too Brad. So again, our our goal we think about the next five quarters and kind of margin toward that fifty five percent efficiency ratio was really the deploy as much of that cash as we can again over the next five quarters and the one billion dollars or so that I mentioned related to how we might deploy of that into the bond portfolio. Again, is really kind of a placeholder. So, I think we're prepared to think about that number is kind of a minimum over the next five quarters. And certainly could deploy more into bonds and that I think is also very dependent upon a raising environment. And so if the big environment next year incorporates we're looking at better reinvestment yields related to our new bond purchases, than I think we could certainly deploy more that particular asset category. And again, the loan growth number for twenty two was really a jump off point for where we'll end this year. So, again, our guidance for the fourth quarter is four million dollars to five hundred million dollars and in the mid-single digits would be off that number.

23:37 That's helpful. Thank you. And then just as a follow-up I appreciate all the detail on slide thirteen regarding interest rate sensitivity. It looks like that table is up quite a bit from or some from the second quarter disclosure. I'm just kind of curious what deposit the betas is you guys are assuming to drive some of those numbers on slide thirteen.

24:00 Sure. So, in the way of the deposit date as well I'll shared with you is really just kind of what we experienced the last time rates were up and in the last time rates were down and ironically, both numbers are into the twenty eight percent twenty nine percent range, both in an upgrade environment as well as in a down rate environment. And then on the loan side and then upgrade environment, it's really close to about fifty percent down rates about forty percent.

24:30 Great, Mike. Thank you very much.

24:33 Okay.

24:37 Thank you, Mr. Milsaps. The next question is from Catherine Miller with KBW. You. Please proceed.

24:46 Thanks. And just on the margin conversations. First on the PPP, we've got seventeen point six million dollars left in on unamortized fees. How much of that do think comes in next quarter? And then then a secondary on the margin is how much Premium are you assuming for next quarter as well versus the twelve million dollars that you indicated five ten for this quarter?

25:14 Okay. Glad to Catherine. So you right our unamortized fees at the end of the third quarter were just under eighteen million dollars and really just kind of all things that equal we think in the fourth quarter. And certainly just depends a bit on the level of forgiveness that the level of fees that will amortize in the coming quarter is somewhere around eight million dollars or so. 25:37 And related to your question about premium members in the third quarter, that was down about nine hundred thousand dollars or so and the we were kind of thinking about the fourth quarter, if we look at prepayments certainly, the first month of the fourth quarter they remained elevated, but we could certainly see that moderating in a bit. In the remaining months of the quarter, especially we're considering a little bit of a higher rate environment. 26:04 So, I think the conservative assumption around premium amortization is that it would largely at about the same levels as it was in the third quarter, potentially down a little bit.

26:17 Okay, great. So then as we've got eight million dollars in perfectly fees come in the next quarter, versus million dollars this quarter then really most of that four bits of compression is coming from just PPP running off and it feels like your core in is really stabilizing probably next quarter -- depending on liquidity

26:42 Right. I think that's right, and as I mentioned before, obviously the amount of cash that we're able to deploy, will influence that number a good bit. That you're correct to point out that certainly the runoff off of the PPP loans is having an impact as well. 26:58 So at the end of the third quarter, our PPP loans at about nine thirty five million dollars based on the level of forgiveness that we see in the fourth quarter. We think that'll will be down to something like four hundred maybe four fifty million dollars by the end of the year, and then really by the end of the second quarter I think that forgiveness gain will be largely played out. So at that point, I would imagine we probably have less than fifty million dollars or so.

27:27 Okay, great. And as we move follow-up on scenes, if we look back at service charges, pre covid, you're around an annual run rate of call it eighty six million dollars I look back at twenty nineteen. And so as part of the past towards this higher efficiency ratio, assuming lower efficiency ratio? Does it factor in a rebound in service charges and some other fees.

27:54 It partially does, Catherine, this is John. And some of that is simply because the offset to service charges through some of the analysis work with our else's phase are better are because to so much of a large balance per account relative to normal. We expect that to begin to void off next year as well. So somewhat the stickiness of the deposit size per count. Will, affect how much of a fee increase we have seeing in service charges. Now, obviously, that all changes if we add more counts right of the pace of adding deposit accounts that render fees next year should picked up as digital solution to roll out in Q2. So that would also help for twenty two as well.

28:37 Great. Thank you so that's a great quarter.

28:40 Okay. Thank you.

28:45 Thank you, Ms. Miller. The next question is from Jennifer Demba with Truist Securities. Please proceed.

Q:

29:13 It's a good question. Thanks for asking. Obviously, every bank that we compete with is rather aggressive right now in pricing, particularly in it the thirty six month duration and down space, so that would include all revolving credit as well as shorter duration fixed. And so it's very competitive on price. If Chris, will say anything about structured competition then they can do that one have. But in terms of price, it is rather aggressive, So, I would say that given our liquidity position, we are meeting that competition at price level with thirty six month duration business and down. 29:55 We've been very aggressive in the consumer space and actually even though the consumer whole number shows down, Jennifer. That's really because of the continued run in the indirect portfolio and the Heloc portfolio, the Heloc portfolio of being totally due to continue extra mortgage. So, that's leading into to weighing as rights are going up. And we're actually seeing some good healthy growth and the unsecured evolve in consumer growth, and that's partly because of the price aggressive that we've had in terms of deploy new credit. So that's been an offset to some of the larger credits that are not quite as impressive in new york healthcare and equipment homes.

30:36 Thank you.

30:42 Thank you, Ms. Demba. The next question is from Matt Olney with Stephens. Please proceed.

30:51 Hey, thanks guys. How are you? Going back to the potential to build out the investment securities portfolio, help us appreciate just how large this could be as a percent of earning assets. Did there any policies you have internally or any guidelines you're working through with that?

31:12 Yes, thanks, Matt. So right now, by right now, I mean, the end of the third quarter, the bond book is at about eight point two billion dollars so that's roughly about twenty five point six percent of earning assets. If you keep the level of earning assets static, and we grow, by say, a one billion dollars inclusive of reinvesting cash flows and maturities than that percentage would increase to about twenty eight point five percent So while we don't have any hard and fast policies or all policies around the size of the burn book, I think certainly once you get to around thirty percent that's a level that becomes pretty large for a bank our size in terms of mix of our earning assets. 32:02 But again, one of the implicit assumptions that I'm making is really just kind of keeping the level of earning assets static. So, if you apply a little bit of a growth rate to level of varying assets, then I think we'll stay below that thirty percent level.

32:22 Yeah. That's helpful mike And then going back to the loan growth discussion and I guess Jamie's question as well. Any more color or numbers you can give us behind the loan yields on the more recent production? Just trying to appreciate just what's coming on the book at this point? How much slippage share could be on the overall loan yields? Thanks.

32:46 Yes. So certainly, as John mentioned, I mean I think in many banks are feeling certainly some pressure around our loan yields. And if we look at the third quarter, our production levels, what were really good. In fact, they were up a little bit more than eight percent quarter over quarter. 33:02 And then when we look at the needs, the yield of new loans in the balance sheet. They did drop some of this quarter. They were down about fifteen eighteen basis points or so. Somewhere in the three fifteen range. So certainly there's is some pressure on our overall loan yields, and that was built into the guidance that we gave around the fourth quarter NIM.

33:24 Okay. And just lastly from me, I think you mentioned in the materials anticipate the TCE ratio approaching that eight percent level by year end. I'm curious kind of what that means for the bank and specifically does that unlocking any ability to give more aggressive on the share repurchase plan? Thanks.

33:48 Not specifically. I think those that know our company know that the eight sense threshold there's always something that we've kind of looked at as a target if you will for our Tce and there's nothing magical. I think that happens once we get to that level or exceeded. And by that, I mean the way we think about capital on the way we managed capital really is unchanged. I think once we get to eight percent.

34:17 Thank you.

34:19 You're welcome.

34:23 Thank you, Mr. Olney. There are no additional questions waiting at this time. I would now pass the conference back to John Hairston for closing remarks.

34:33 Okay, thank you, and thanks for right. Thanks everyone for your interest, and we look forward to this and view on the road in the next few weeks. Have a great day.

34:44 That concludes the Hancock Whitney Corporation's third quarter twenty twenty one earnings Conference call. Enjoy the rest of your day.