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Hancock Whitney Corp
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0:08 [Technical Difficulty] today's conference call, Tricia Carlson, Investor Relations Manager. You may now 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.
1:07 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.
01:46 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.
2:08 Participating in today's call are John Hairston, President and CEO; Michael Achary, CFO; and Chris Ziluca, Chief Credit Officer.
2:17 I will now turn the call over to John Hariston.
2:20 Thank you, Trisha, and happy new year everyone. Thank you for joining us today. We are very pleased to report that fourth quarter results produced a strong finish to a record year. The company grew to over $36 billion in total assets as both loan and deposit growth exceeded expectations. Annual earnings per share were $5.22 dollars compared to a loss in 2020 while operating pre-provision, net revenue totaled $538 million in 2021, an increase of $46.5 million or 9%. Revenue initiatives are progressing, and we’re pleased to report positive quarterly net loan growth for the first time in 2021 with over $650 million in core loan growth, more than offsetting just over $400 million in PPP forgiveness.
3:06 As you can see on slide 7, the growth was across the footprint and in specialty lines of business, reflecting improving economic activity, increased line utilization and contribution of newly higher bankers in growth markets. As a side note, the bankers we detail on slide 20 added around $125 million in new loans during the fourth quarter.
3:26 For the year, core loans grew 4% compared to 2020 and our expectations are for continued growth in 2022 of 6% to 8% with typical quarterly seasonality reflected in our results. I'd also like to point out that despite the impact from the pandemic on our markets and clients, our credit metrics are greatly improved, and today are among the best in class. Criticized commercial loans are down over $100 million or 27% compared to 2020 and in NPLs declined $85 million or 59% from a year ago. With net charge offs returning to historically low levels, we are pleased at how our portfolio has performed during these unprecedented times, allowing us to recapture in 2021. Some of the reserves added in 2020 at the beginning of the pandemic.
4:15 Our capital remains solid with our CET1 ratio virtually unchanged this quarter. The company enjoyed beneficial capital creation from strong earnings, the revaluation of OCI and outsized balance sheet growth resulted in a TCE ratio a little under our target at 8% at year end. During the quarter, we saw deposits for about $1.3 billion that related to seasonal year end deposits and Hurricane Ida related funds. Adding stimulus funding during 2021 and total deposits organically grew almost $3 billion during the year.
4:48 The work we started pre-pandemic coupled with the de-risking efforts in 2020 and put us on a path to achieving updated corpus strategic objectives or CSOs noted on slide 19, including the previously announced half to a 55% efficiency ratio. We are looking forward to carrying momentum from the strong finish to a brighter 2022. Not only for our company before our clients, our associates and communities as we hopefully begin to emerge from today's ongoing pandemic environment. I want to take a moment to thank my colleagues of Hancock Whitney for their perseverance and their dedication to clients and each other as it worked as a team to build momentum through 2021.
5:28 I'll now turn the call over to Mike for further comments.
05:31 Thanks, John. Good afternoon, everyone. Results for the quarter were strong with reported EPS of $1.55 dollars included in the results were $4.9 million were $0.04 per share of net non-operating income items, which were mostly storm related, excluding these non-operating items EPS came in at $1.51 for the quarter with PPNR essentially flat linked quarter.
5:58 As John pointed out, certainly the quarter was a strong finish to a record year for the company. So, I'd like to cover a few important themes that we think drove the results. First, was balance sheet expansion. As mentioned on an EOP basis, we grew core loans $652 million and deposits $1.3 billion this quarter. The deposit growth coupled with PPP forgiveness led to a nearly $1 billion increase in our average excess liquidity, putting that liquidity to work by deploying into loans, bonds, or even funding some deposit runoff is one of the major keys to our success in 2022.
06:40 Needing and indeed in our fourth quarter expense goal was another major theme with expenses coming in at just under $184 million so $3 million below our established goal of $187 million. The past year's efficiency efforts have been significant and impactful and certainly set the foundation for achieving our 55% efficiency ratio goal by fourth quarter of 2022. And the last major theme for the quarter, was continuing improvement in credit. The fourth quarter make six consecutive quarters with quarter-over-quarter improvement in our credit quality metrics to now among the best in class.
7:22 Moving to a few operating comments for the quarter. Our NIM was 2.80% down 14 basis points linked quarter. The impact of the $1 billion increase in average excess liquidity was a significant impact for the NIM and a loan was responsible for 10 basis points of the quarter's compression. Otherwise, the NIM would have been down about four basis points, which would have been consistent with our previous guidance. As mentioned efforts to deploy excess liquidity and to loans and bonds are ongoing. Has talked about rates rising in 2022 continues, we included some enhanced interest rate sensitivity disclosures on slide 15. You'll see expanded details regarding our swap in hedging position, rate floors, as well as historical loan and deposit beta information.
8:17 Please note that we do not have any rate increases built into our 2022 forward guidance, our updated CSO is detailed on slide 19. Any increase in rates in 2022 will be accretive to our guidance. Based on today's rate environment, we do expect the NIM will remain flattish to slightly down from current levels until about mid-year and then begin to widen. Certainly, that is very dependent upon the pace of loan growth as well as overall excess liquidity deployment.
8:50 And finally, we were opportunistic with our buyback authorization and with the quarter's market disruption, we repurchased just under 394,000 shares and an average price of $4898.
9:04 At this point, I'll turn the call back to John.
9:07 Thank you, Mike. Let's just open the call for questions.
09:23 Thank you. [Operator Instructions] The first question comes from Michael Rose with Raymond James. Please proceed.
09:41 Hey, good afternoon guys. Hope you are well. I wanted to start on…
9:45 Good afternoon Mike.
09:47 Good afternoon, which was start off on loan growth, this quarter, really strong ex-PPP looks to be up about 13% annualized, but I wanted to dig into the increase in core C&I, which looked to be up about $600 billion Q-on-Q. Can you give us some color on what drove that and what we should expect as we think about T&I next year, I mean, was it just new clients, was it pickup and utilization? Was it kind of all the above? Thanks.
10:18 Yes. Thanks, Michael. Good question. I'll talk about the first part and then get the line utilization second. So, overall loan production was terrific for the quarter. We're very pleased with it. Pay downs were light or at least lighter than we expected. They were still there, but not quite as large as we anticipated and if you look in the growth, the slab that shows across the markets and the specialties. The core business really enjoyed strong production [Indiscernible] rates across all of our geographies, east, west and Central and then the robust activity and equipment finance and healthcare certainly helps. So, overall loan production was a good bit better at a commitment lever – commitment level rather than our last pre-pandemic year in 2019. So, 21 over 19 was much better stronger. And that reflects I think all the bankers that we've added, the markets we've spread to better tick, a better asset quality and an early push in 2021, which wasn't easy to normalize the cadence of both our front end shop in its supporting areas. So really a lot of credit goes the team for doing that.
11:27 When you get the line utilization that also was a tailwind and just as a reminder, our utilization pre-pandemic was right out in the fourth quarter of 19 a little over 47% and they reached to bottom in first quarter of 21 at a little under 38%, so a pretty big drop. And then since then, we've seen three quarters of increasing utilization leading up to Q4. So, when looking at utilization that certainly was a tailwind, and we expect to see that continue upward through the year and certainly, every quarter might not be as big an increase and utilization is Q4, but certainly would see it going up over time.
12:10 And any additional questions on that Michael and would I cover what you were looking for?
12:14 No, I think that's helpful. Just a big switch to expenses. I think core expenses are down now seven quarters in a row, you guys are guiding expenses to be down looks like another 2% this year, all we keep hearing of those is wage inflation. It looks like you obviously hired some bankers in the back half of the year, I expect that you would hire more. So can you just break down where the incremental cost savings are coming, there's clearly wage inflation in technology cost are on the rise for everybody. So if you can just walk us through what drives that 2% percent decline? Thanks.
12:52 Well, Michael, this is Mike. I think that as we move into 2022, it really is as much as anything else. We've established I think a pretty good runway for expenses with where we landed in the fourth quarter of 2021. So it really is just kind of continuing that level of expenses through the next four quarters or so and we've guided to basically on an annualized basis for expenses to be down around 2% or so between 2021 and 2022.
13:23 We've talked about things like strategic procurement, which I think will help us continue to cut costs as we move into 22 and as we've said, I think many times before, we're really interested in cutting costs not only to become more profitable. I think we've done that work in 21, but it really is to create room within our expense base for continued investments back into the company. So technology investments and then certainly we'd like to continue to higher new bankers as we did primarily in the second half of 21 and then of course, we have the spectrum of inflation and specifically wage inflation and we've accounted for all of those things in the guidance that we've given for 22. So it's really just about execution I think from this point forward.
14:18 Okay, very helpful. And then if I exclude the nonrecurring items, looks like you guys are in an ROA of about mid to high 140 range, that's kind of at the high end of the CSOs, a couple of years out understanding that there's some puts and takes, right? And you're not going to have the negative provision, but also can you just give some color around maybe some broad strokes around what goes into that, especially the ROA target in terms of expectations if you can provide any color on loan growth or NII or any expectations for that? Thanks.
14:57 Yes. So, if you to go to slide 19 here, that’s really the top half of that slide. Is our overall guidance 2022. So I think unless you have any specific question for the most part, most of that information should be pretty straightforward and I think as an aside, if you do the math around each of those items that we're guiding to, when we look at PP&R for 2022, we back out the impact of the PPP loans both in 21 and what remains in 2022. We're looking to actually grow kind of our core PP&R between 10% and 12% in 2022. So well. So that's part obviously, what's built into the CSO that you see at the bottom of slide 19.
15:46 One of the things we did in the table at the bottom of slide 19 is we took 2021, CSOs and [Indiscernible] adjusted with them for the really unusual items of 2021 that really aren't going to be repeating. We believe on a go forward basis. So specifically, we backed out the impact of the PPP loans in 2021 and then also backed out the impact of the negative provisioning, that we did in claim one. And so when you do that, you kind of arrive at an adjusted 21 CSOs and then you see on a go forward basis, but we're projecting for three years down the road.
16:28 Very helpful. [Indiscernible].
16:32 Yeah. Thank you, Michael. Just as an add on, I remember that any rate increases as Mike said in his prepared comments are not built into their CSOs and they're essentially determined to be a run rate in the current environment. Obviously the change in the credit environment economy would be, obviously the right environment economy, would be beneficial if [Indiscernible] 16:52 to rush?
16:57 Appreciate it. Thanks again.
16:59 Thank you.
17:02 Thank you, Mr Rose. The next question comes from Brad Milsaps with Piper Sandler. Please proceed.
17:12 Hey good noon.
17:15 Hi, Brad.
17:18 Thanks for taking my questions. Mike, maybe I wanted to start with the balance sheet and specifically, the liquidity I think at the end the quarter at around $3.8 billion of fed funds and then another $0.5 billion of PPP loans that will come back. I think in the deck, you alluded to the plan investment about $1.5 dollars in the bond book that started in 4Q 2021, just curious if that number in your mind could go higher, it looks like you didn't do a lot of your investing in the bond portfolio to kind of late in the quarter based on the period versus the average, just curious kind of how to think about that cash on the balance sheet, vis-a-vis, a lot of the deposit growth that you had in the quarter, some of that might be temporary given insurance proceeds and public funds?
18:05 Yes, we glad to and thank you for the question, Brad. So, obviously, we're starting the year as you mentioned with kind of excess supported at of $3.8 billion and then certainly on top of that, we have the better part of $500 million of PPP loans that will be forgiven in the first half of 2022. So as we go through the year, the things we've kind of talked about has obviously being extremely important to our ability to deploy that excess liquidity. I think his first and foremost loan growth. So, certainly the loan growth in the momentum related to that loan growth that we've been able to achieve over the last three quarters of 2021, I think puts us in an excellent position to hit the guidance around loan growth that we've given in this document. So that's the 6% to 8% on an end period basis. If you kind of translate that into dollars that's between $1.24 and $1.65 billion of loan growth that we're looking at guiding to for next year.
19:09 So obviously, the preference in terms of deploying that excess liquidity is really loans first and that's what we intend to do. Related to the bond portfolio what we had talked about last quarter, beginning with the fourth quarter was growing bond book by about $300 million in the quarter, so that's where the $1.5 billion comes from. For 2022, that would be about $1.2 billion. I have answered your question about how we look at that certainly as we go through the year. That number certainly could change and again, that's something well, I think we'll evaluate each and every quarter as we go through the year, depending upon the kind of loan growth we're getting whether we had any deposit runoff to fund from that excess liquidity and then certainly what the reinvestment yields might be, related to the bond portfolio. Certainly with today's activity specifically in the 10-year, if that continue to use certain model, certainly the reinvestment yields that I think will be available on the bond portfolio will certainly be better than what we achieved in the fourth quarter, which was around 158 basis points or so.
20:21 So that really is how we kind of think about managing the balance sheet and then specifically deploying that excess liquidity in 2022.
20:32 Great. That's helpful. And Very helpful. Thank you. And from our one follow-up on slide 8 where you guys talk about new loan production yield. Do you think 3Q, it was sort of the bottom there and you'll continue to see improvement. I'm kind of curious, kind of the mix of the new stuff you're putting on is that – is that mostly variable? Is it a good percentage fixed rate or is it kind of more reflect your current mix? Just, so I wanted to get a sense of how the back book can reprice as rates move higher hopefully throughout the year?
21:10 Sure. This is John. I'll start with that. In terms of the loan growth that occurred in Q4, it was mostly variable as you suggested. The driver for the difference of 10 bps 3Q to 4Q though it was really mix. It wasn't that the rate environment really improved that much. Really at all, it was more in the mix of what we delivered and so if you look at the two primary sources of growth, which would be your core markets like we have on the left side of the page. Just mentioned in the regions and then the right side towards specialty, the higher percentage of the total net growth a number that is generated and the core markets will drive a mix it's better and a little higher yielding, so there was no real change in risk appetite, no change in strategy. We just simply had a higher production level less paydowns in the core market. So anytime that happens, that's going to be more beneficial to new money, I mean, new to bank rate. So to the extent that occurs in the next several quarters, that bodes well for the starting only in those credits. That answer your question or would you like to ask anything to clarify.
22:19 And then Brad, I think you asked about the mix of the production in the fourth quarter, roughly speaking. It was about two thirds variable, one-thirds fixed. So, certainly I think that sets us up for potentially rising rates in the future.
22:35 Great. Very helpful. Thank you guys. I'll back in queue. I really appreciate it.
22:40 You bet. Thank you.
22:42 Thank you, Mr. Milsaps. The next question comes from Brett Rabatin with Hovde Group. Please proceed.
22:51 Hey, good afternoon, everyone.
22:55 Hi, good afternoon.
22:58 Wanted to, I first just go back and enlarge and appreciate all the color on slide 15 as it relates to the sensitivity. Maybe we talk about just the expectations for the margin and if you look at the 3.2% gradual number for 100 basis points and 7.3 for media. I think about your balance sheet, and I think about the repricing and what you're doing in the bond portfolio and the liquidity that you're expecting to deploy. It would seem to me like if the Fed does raise in March and you're having some reduction in the public funds seasonality in 2Q, would seem like your margin could be on a pretty good path for the back half of the year. I know the guidance is related to note that hikes, but assuming we had three throughout the year, it was curious if maybe you would give us some thoughts on the margin path, particularly in the back half of the year?
23:56 Yes, Brett, this is Mike. And yes, certainly the guidance that we're giving really is absent any kind of increase in rates and that really does this call for kind of this notion that flattish NIM for the next couple of quarters and then certainly begin to widen in the second half of the year and I think that widening primarily comes from as we mentioned earlier, the deploying that about excess liquidity really primarily into loans and then secondarily into the bonds. But certainly if we do get rate hikes this year and certainly that's looking like more and more of a certainty each and every day, you'll notice it's bottom of 15, we have seen historical information about our rate made is both in loans and deposits from the last time, we had risen grade environment and you can see I think we did pretty good on loans, but the beta of about 48% and on the deposit side, that's actually total deposits. It's about 25%. So, if those numbers can kind of translate into similar type of betas discovery and then again, without giving any specifics at this point, I would certainly think that we'd be able to see our initiatives begin to rise sooner than this year and then in the back half of the year, the cumulative impact of the deployment that we've talked about, will certainly be I think pretty accretive to the NIM.
25:26 So, I know that's not a whole lot the way of specifics, but at this point, it's pretty consistent I think for the guidance, but the add on with the impact of our rates might be.
25:39 And this is John. The only thing I'd add is a note that the PPP contra to NIM that occurs to have, it seems like it's been every quarter, there's been a number as the PPP if you run office impact him, that really the terms immaterial in the second half of the year. So some of that inflection [Technical Difficulty] of others – of other guidance at the 6% to 8% of ended period loan growth has a lot of different moving parts, Jennifer included in it, if but one of those inputs is expected paydowns, if rates begin to move up then the impact on cap rates and on PE multiples of take outs, which have been the two primary sources of paydowns for us. You'd expect those to begin to diminish. I would not really having at least a significant impact on production. So, in a rising rate environment, we enjoy the benefit of to NIM because deposit betas is absolutely lag loan betas and then secondly, we think we'll see more utilization on lines. It's hard to predict right now, but that could go up through the year.
26:47 And thirdly, would be what I just mentioned in terms of paydowns we're getting to diminish. I think we got the expense number pretty tight might as it is it [Indiscernible] given the work that we've all done. So I think the a chance of an upside date is probably going to be more in revenue because of what happens the balance sheet and NIM.
27:08 Yes, I'd agree, John. I think certainly as a little bit of a wildcard when it comes to deposits. Deposits have been pretty, I would say erratic that just hard to kind of project or predict this last year as you can see that were guiding to flat to down and certainly, we have lots of excess liquidity and any kind of deposit outflows that might occur and it also puts us in a position, whereas rates do rise, we can lag those increases expand some degree, but run off.
27:42 The other category that I would mention certainly this risk I think with expenses. It just kind of goes without saying, but in this environment, if we do more investments that we're counting on at this point, hire more bankers, our assumptions around inflation or wage inflation. We're on the low side and then certainly there would be some risks on the expense side, but at this point, I would at all describe that as a significant risk. I think we've accounted for all those items in terms of our plan for next year, so just playing out a few things that could be perceived as risk.
28:25 Thanks so much.
28:29 Brett. Thank you.
28:32 Thank you Ms. Demba. The next question comes from Catherine With KBW. Please proceed.
28:40 Thanks. Good afternoon.
28:43 Hi, good afternoon, Catherine.
28:46 Just one follow-up on the CSO goals. As we move through the next new year or two, and we are in an environment where we continue to see rate hikes. Will you update your CSO to reflect a higher rate environment, because I would imagine in that environment, your objectives could vary feasible go a lot higher than this, 135 to 145 or is that just kind of give you flexibility there's kind of expense growth or other kind of changes or kind of other offsets that offset a much higher spread growth in that kind of environment?
29:34 Yes Catherine. Good question. And typically when we publish our CSOs, again, there are three year goals down the road, and we typically update those at least on an annual basis. So, I would expect us to do that a year from now. I don't know that we'll update the CSOs as we go through 2022. I think that's just probably a little dependent on actually what occurs a what kind of rate increases we did and what we think those impacts will be, but as of now the game plan would be to update the CSOs on an annual basis.
30:10 In terms of our guidance for 2022, as we go through the year, I think we'll update those based on circumstances both in general as well as external.
30:21 Catherine, this is John. The only thing I'd add to what Mike shared is the purpose of all that detail on page 15 is to try to give the building blocks of what the impact of a better environment maybe after given the baseline so depending on how quickly you think rates go up and what you estimate for both loan and deposit betas given what the balance sheet looks like today, it should be pretty straightforward to model that just based on what you think the market's is going to do. So, that was really why we shared all that details as we recognized the CSOs are flat, and I think the whole markets pricing and rate increases these days for March and we try to give as much detail as we could do the math, [Indiscernible] helpful.
31:05 Yep. It definitely is and it shows, I think there's significant upside to where you're putting your objectives if you do think that they’re going to be rate hikes I guess I was just trying to think through just like how much upside there could be? Because if you can get to, what’s called the midpoint on 140 ROA without any rate hikes and that's pretty amazing if we think about how asset sensitive you are and if you assumed that there four to six hikes come in, so I just didn't want to get two ups on, I think within that objective, just to be off sets and for example, you may invest more, right? All of sudden, we do have rate hikes and your margin is expanding more than maybe you may change your kind of expense goals and I was just kind, just kind trying to think about how cute you want to get how much upside that really is to that midpoint of the 140 ROA?
32:00 Yes, I think those are all the right things to think about. The other thing is certainly when we notice begin our planning process probably in the fall or late fall, anybody was really expecting rate increases of 2022 and look here, we are now with potentially three four or pick a number. So, the environment has changed pretty dramatically pretty quickly and as we know in the pandemic if things can change, both externally and internally in that manner or so.
32:37 Got it. Very helpful. Thank you so much for all the details.
32:46 You bet, Catherine. Thank you so much.
32:48 Thank you Ms. Miller. The next question comes from Kevin Fitzsimmons with D. A. Davidson. Please proceed.
32:55 Hey, good evening everyone.
32:59 Yeah. Good evening, Kevin.
33:02 Just a couple of quick ones, most of the questions have been asked and answered. The ACL to loan ratio still quite strong here at 1.80%, I see the guidance for 2022, talks about continuation of modest reserve releases. So would you define modest reserve releases as what you've been given that you're using the more continuation kind of what you've done in the last three quarters or so, that kind of piece or yeah and to that end, I mean, just if you can update us or refresh us on where that settling point might be for that reserve and when you might you get there I know it's a hard thing in terms of budgeting, but just try to help us how to things through it. Thanks.
33:54 We glad too Kevin. So related to really your first question, yes, for the past two quarters, our reserve releases have been $29 million this quarter, but $28 last quarter. So certainly pretty consistent, I think, and charge offs as well over 700,000 this quarter, and that's down from just under $2 million last quarter. So when we say that our kind of program related to modest reserve releases will continue. It really does may, I think continue at something year at this level. Certainly, there are lots of factors that go into that. The level of future charge offs, the microeconomic environment, but those assumptions might be on a go forward basis what's happening about own portfolio, at least of which or not least of which what's going on with the pandemic and various surges of variants. So all those things kind of go into the modeling that we very carefully do around what we end up reporting each and every quarter. So certainly, the next couple of quarters again to answer to that question, I would point you to reserve releases in the neighborhood of what we've done in the last couple of quarters and would suggest that that guidance is probably good for the next couple of quarters.
35:19 Related to the last part of your question and again, we've given this information in past quarters, and it really is just to provide some context, it's not to suggest at these levels that we think will settle at, but if we go back and look at our day one CSO, that was about 128 basis points. If you kind of make the adjustment for the energy portfolio that we sold, in the second quarter of 2020 that goes down to just under 100 basis points. So again, that's really just for contacts, it's not to suggest that the aim is to get the aim of the intent to get to those levels.
35:58 What level we aim eventually settle out before the provisioning maybe goes to zero and then we begin to build, will depend on a multitude of variables I think it's just really probably too difficult to make that kind of call right now. So, again, the kind of wrap up the guidance is for reserve leases around the magnitude that we've done in the last couple of quarters – for a couple of quarters.
36:26 Okay. That's helpful Mike. Thank you. And just one quick follow on, you mentioned how you guys took advantage of the market disruption and stepped in and repurchase shares given the dip we saw in the TCE ratio, and that stock has done better. Is it less likely to expect as active and approach to our buybacks here in the next few quarters?
36:53 Yes. I don't think so. I think that'll depend a lot again on future market disruptions and certainly with the volatility in the market you saw that, for example on a day life today. The fact that our TCE ratio is where it is right now. Isn't a major hindrance to us, hindrance that prevents us from doing repurchases on a quarterly basis, for example the magnitude that we did in the fourth quarter. So again, we'll continue to be opportunistic I think how we approach the buyback and again, the fourth quarter was a good example what kind of what that means.
37:35 Okay. Thanks very much.
37:39 Thank you.
37:41 Thank you, Fitzsimmons. The next question comes from Christopher Marinac with Janney Montgomery Scott. Please proceed.
37:49 Thanks. Good afternoon. Just want to follow back up on the return on tangible common, look out three years. John and Mike if you're able to hit the 15% or beat it, the capital that throws off, what does that mean for capital distributions and how do you think of that kind of on a cumulative basis?
38:10 Well, I'll start off and John certainly add color a bit. But for now, if we think about our capital priorities, it really is first and foremost earning support for our dividend and then we certainly would like to continue to grow capital support our organic loan growth and after that, we begin to look at things like potentially increasing the common dividend and that's something we evaluate really on a quarterly basis with our board. So, nothing is planned right now, but certainly I think as we go through potentially this year, that's something we could look at a little bit more intently and then certainly buybacks and continue to be opportunistic in terms of buybacks. So that really is kind of the way I think we think about capital deployment right now.
38:58 But if I think about your question maybe go down the road a little bit further, if we are able to achieve these kinds of goals and these levels of profitability, certainly we'll be building I significant levels of capital and at that point, I certainly think that one of the things that we'd like to do is look at maintaining our dividend payout ratio at levels that might eventually lead to higher levels of dividend increases and then again, potentially where our valuation is looking at continuing buybacks or maybe doing something a little bit more impactful. But again, all of that is really hypothetical, based on certainly us achieving these goals and targets on a go forward basis.
39:49 Great. That's helpful. I guess just related, is there any lower bound on the CET1 ratio as time passes not necessarily in 2022, but just in a big picture?
40:02 Lower band in terms of a level that we would want to go below.
40:07 Correct. Yes.
40:08 I mean, yes, I mean we, again, we look at this in a way that we'd like to continue building our ratios and I think we've like that common tier 1 to, really being no lower than around where it is right now, so I called it would be 11% level. I think it's probably a good parameter. [Technical Difficulty]
40:29 And I just had a question about the guide for to be flat this year over last. Is that, are you taking a more conservative view on service charges returning to levels that we saw maybe pre-COVID within that guide or is that more of a kind of statement on the downside? Risk we have on the mortgage line. Kind of trying to think through [Indiscernible] pieces.
41:11 Sure, it's a good question and the guidance really Catherine is a blend of one big put and one big take and that is management year-over-year in the secondary mortgage business just simply because production is expected to decline even if the rates were at right now, I think the refi boom although it was a little bit of uptick in refi business. In Q4 at least it was for us. We anticipate some stabilization in first quarter and then kind of bleed down for the rest of the year. So that would be a headwind and that on the hit – that’s the headwind on tailwind side. Our card fees, merchant fees is really anything related to business card ventures continued to outperform on the upside and then well to some degree outperformance once you get past the reduction from the sole mutual fund complex. So when you put those altogether, it gives you a clinical push, but obviously the rate environment can change that. It make it a little better or a little worse. So moving roll together, we got to the push where we’re being calling to get to a flattish description and that was just the way the math came together. But certainly, the environment could yield an upside if it lines up a little bit better than we are focused.
42:31 Okay, great. That's helpful. Thank you.
42:34 You bet. Thank you for the follow-up.
42:37 Thank you, Ms. Miller. There are no other questions waiting at this time and I would like to pass the conference back over to John Hairston for additional remarks.
42:48 Well. Thank you very much for moderating and thanks to all of our friends on the sell side for choosing us to attend the call and we certainly appreciate our my side investors are [Indiscernible] hope to see on the road in parts sometime this year. Everyone have a great day and be safe.
43:06 That concludes the Hancock Whitney Corporation's Fourth Quarter 2021 earnings conference Call. Thank you for your participation and enjoy the rest of your day. Goodbye.