Good day, ladies and gentlemen, and welcome to the Hancock Whitney Trustmark Acquisition Announcement 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, Ashleigh Wilshire, Head of Investor Relations. Ashleigh, you may begin.
Thank you, and good morning. Before we get started, I would like to direct your attention to slide two of the presentation and highlight that any forward-looking statements made during today's conference call are given in the context of today only and are subject to important risks as described in the presentation. Actual results and events could differ materially from those discussed here. Please also refer to the additional information discussed in the SEC filings and joint press release for both companies. Participating in today's call are John Hairston, President and CEO, Mike Achary, CFO, Shane Loper, Chief Operating Officer, and Duane Dewey, Trustmark President and CEO. I will now turn the call over to John Hairston.
Thank you, Ashleigh, and thank you to everyone for joining us early this morning. Today, we are pleased to announce the merger of Hancock Whitney and Trustmark, bringing together two strong, high-performing Mississippi-headquartered franchises to create a premier Gulf South regional bank. By combining two highly complementary organizations, we are expanding our scale, strengthening our competitive position, and creating new opportunities for growth across some of the most attractive markets in the South. Together, we will be better positioned to serve our clients, invest in our capabilities, and create long-term value for our shareholders, associates, and communities. The merger establishes Hancock Whitney as a leading Gulf South banking franchise with increased presence and significantly greater scale. We will establish a leading deposit share position across Louisiana, Mississippi, and Alabama, and expand our presence in high-growth markets like Florida, Texas, and Tennessee.
We will hold a top five deposit share position across the top 20 MSAs in our footprint, strengthening our ability to compete, win new relationships, and deepen existing client partnerships. This is also a compelling financial transaction. Mike will discuss the details shortly, but this merger combines two high-performing franchises with strong profitability, robust liquidity, and solid capital foundations. The combined organization is expected to deliver enhanced earnings power and attractive returns, including a projected 1.6% return on assets, a pro forma 2028 ROTCE of 17%-18%, and an efficiency ratio below 50%. Importantly, greater scale enhances our ability to invest in products, technology, and talent, allowing us to better serve clients while competing more effectively against larger financial institutions. At the same time, we remain committed to the relationship-based banking model that has long differentiated both organizations.
We are equally committed to preserving the local leadership, market expertise, and client relationships that have been central to the success of both companies. Five members of the Trustmark board, including its CEO, will join the Hancock Whitney Board of Directors, and we are establishing a Central Mississippi Advisory Board to help support growth and business development opportunities throughout the region. This partnership is built on a strong cultural foundation. We are bringing together two longstanding Gulf South institutions with complementary relationship-driven banking models, shared values, and a common commitment to clients and communities. The combined company will benefit from experienced leadership teams with successful track records of integrating acquisitions and executing strategic initiatives. These strengths give us confidence in our ability to deliver smooth integration and achieve the full potential of this partnership.
Ultimately, this merger is about building a stronger bank for our future, a bank with greater scale and broader capabilities, with deeper presence and enhanced financial strength. By bringing together the best of both organizations, we are creating a franchise that is well-positioned to capture growth opportunities across the Gulf South while continuing to deliver exceptional service and strong returns for years to come. Before I conclude, I want to extend a warm welcome to our Trustmark associates. This is an exciting day for our companies, our clients, our communities, and our shareholders.
We are optimistic about what we can accomplish together and look forward to uniting two strong legacies into a new chapter in our stories of business that will never know completion, and a bank growing and getting even better with, for, and because of the people and places we serve. Together, we will create a stronger institution with greater opportunities ahead, and we could not be more enthusiastic about the future. With that, I will invite Mike to add additional comments.
Thanks, John, and good morning, everyone. As John mentioned, the financial benefits of this combination are compelling and reinforce our confidence in the value creation opportunity for all shareholders. We expect the transaction to deliver strong earnings accretion, enhanced profitability, and attractive returns. On a pro forma basis, we expect to generate approximately 1.6% return on assets, 17%-18% return on tangible common equity, and an efficiency ratio of approximately 50% or better, positioning the combined company among the highest-performing regional banks. Slides 14 through 16 of the investor presentation summarize the transaction structure, key terms, pro forma financial metrics, and underlying assumptions. The transaction is structured as an all-stock merger with a fixed exchange ratio of 0.7463 Hancock Whitney shares for each Trustmark share. Following closing, Hancock Whitney shareholders will own approximately 65% of the combined company, and Trustmark shareholders will own approximately 35%.
The transaction value of approximately $3.2 billion represents approximately 1.8x tangible book value and approximately 12x estimated 2028 earnings, or 7.2x earnings inclusive of anticipated cost synergies. We expect the transaction to be approximately 7% accretive to EPS in 2028 and increase the ROTCE by approximately 120 basis points. While the transaction results in a modest 7% tangible book value dilution at closing, we expect to earn that dilution back in approximately two point eight years. Our integration teams have identified approximately $205.5 million of annual pre-tax cost savings, equal to roughly 35% of Trustmark's projected 2028 cash non-interest expense. These opportunities are supported by detailed execution plans, giving us a high degree of confidence in achieving our targets. We expect to realize approximately 37.5% of the savings in 2027 and reach the full run rate benefit in 2028.
Importantly, our financial outlook excludes any revenue synergies. Given the complementary nature of the franchises and the opportunities to deepen relationships across an expanded footprint, we view future revenue benefits as an upside to our projections. This transaction also preserves our strong capital position. We expect an adjusted CET1 ratio of approximately 11.2% at closing, providing ample flexibility to support clients, invest in growth, and maintain prudent capital management. Subject to shareholder and regulatory approval, we expect to close the transaction late first quarter of 2027, with a systems conversion anticipated in late 2027. Overall, this transaction strengthens our earnings profile, improves operating leverage, enhances returns, and positions the combined company to deliver durable long-term value for our shareholders.
By combining two highly complementary franchises, we will strengthen our competitive position across some of the most attractive markets in the Gulf South, expand deposit market share in key growth corridors, and create additional opportunities to drive sustainable long-term growth. I will now turn the call back to John.
Thank you, Mike. Let's open the call for questions.
We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimal sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Michael Rose with Raymond James. Michael, your line is now open. Please go ahead.
Hey. Good morning, everyone. Thanks for taking my questions. John, maybe we can just step back and just discuss the broader rationale of the deal. Look, if I look at Hancock, really since the sale of the energy portfolio in mid to late 2020, the company has gone through a major transformation, reducing the SNC percentage down to peer levels from above peer levels. Growth has begun to inflect. Just trying to get a better understanding of why this is the right opportunity and why this time, just for the benefit of better understanding the drivers of the deal. Thanks.
Sure, Michael, and thanks for the question. This is John, and thanks for calling out the momentum we've enjoyed the last several years. We have worked very hard to improve profitability to a strong level, to improve efficiency, to get strong capital, to de-risk the loan portfolio, which you called out, and we've now, over the past 18- 24 months, successfully pivoted to organic growth, which was all part of that plan several years ago. While our focus has been on the organic playbook, we have been opportunistic, I think is the word Michael's used, on the road towards adding inorganically if the stars lined up and it made sense for investors and for the long term. So that happened with Sabal Trust out of St. Petersburg in Florida. It happened recently with One Florida in Orlando, and here we are with the stars aligning again.
So in terms of the logic and the strategic rationale, first, the financials and the resultant capacity of the combined company post-synergies to throw off retained earnings is very impressive. I think as you model it, you'll see that capacity and the types of optionality it brings us. The P&L is stronger. The balance sheet is going to look better. Secondly, we know the company very well. We know the Trustmark leadership team. Our board members know each other. We know the business model. We know the markets, having operated adjacently for well over a century, and every market that Trustmark is in is one we're either already in or we wanted to be in. As a result, the markets are very complementary to each other.
Third, from a risk perspective, having just literally completed the One Florida integration. Our integration management office and integration team are already stood up, and as a result, we get a rapid start to the integration, which supports the notion of a Q4 2027 integration, which is pretty quick for an organization of this size. Then finally, and in my opinion, most importantly, we run this company from corporate strategic objectives. We publish those dutifully every January. The CSOs we have for ROA and ROTCE are lofty, and the deal is constructive to supporting and surpassing those. As a result, we have alignment. From my perspective, the why now is because it simply is worth it to get the resultant company coming out of a year of integration work.
You didn't ask about the distraction, but I'll just add a comment to it that while we have about a 20% overlap in markets, we have 80% that are not. For those markets, we expect to continue the same momentum we've enjoyed, continue adding net new bankers, continue adding offices where it makes sense, and just keep moving straight ahead. Thank you for the question. You're welcome to have a follow-up if you like.
Yeah. Just as a follow-up, maybe for Mike, if you could dig a little bit into the cost save opportunity, or excuse me, the potential revenue synergy opportunities. I think you both mentioned technology. That's obviously an omnipresent theme at this point in time, given the adoption of AI and the like. What areas would you potentially look to use some of those cost savings to fund investments in technology? Thanks.
Yeah, Michael. Thanks. I'll get started or begin with the question around the cost saves. Obviously, we've built into the modeling a 35% assumption and estimate around cost savings. That's based on Trustmark's 2028 OpEx per consensus. That's just north of $205 million. The timing for that is just under 38% in 2027. That's about $70 million, and then 100% by the time we get to 2028. One of the things about cost savings, if you think about our company and our history, it's something that we believe we have a core competence around. We're really good at addressing the opportunities to take out and to right-size cost structures. I think we demonstrated that in a pretty significant way when we announced back in 2020 the goal to bring our efficiency ratio down below 55%.
Certainly, some of that was on the revenue side too, but we made a lot of really hard decisions back then to right-size the company's cost structure, which helped put us in a position that we're in today, delivering an ROA of 140 or above. As far as revenue synergies, as you know, typically with modeling around M&A, that's not included in any of the modeling. But certainly, we believe we have opportunities to produce revenue synergies as we bring the two companies together going forward. John or Shane, I don't know if one of you wanted to maybe expound on that a little bit.
Yeah, why don't we let Shane visit about the technology question and just revenue synergies that are unmodeled?
Sure. Thanks, Mike, for the question. When it comes to technology, really, I think about kind of three areas. One is improving execution and efficiency, and we've already identified through work that we've really been doing over the last couple of years some systems and process that technology can be applied to enhance that execution and efficiency and just really help our bankers and our clients have a better experience with the systems and tools that we have. The second area is really increasing capabilities.
Think about payments, digital, ease of use for clients, lots of things on the horizon that a size of company that we will be and the scale that it creates allows us to get those things basically implemented much faster in a more robust fashion so that the clients can have access to things that the biggest banks in the country are producing. And then really, from a third perspective is adding sophistication to products. We've got a number of products that we believe are very good, but with the scale, we believe that we can make them great, and that would be the direction that we would go in on those three. I'm overall energized by the opportunity to build on our really strong core deposit basis.
As Mike said and John said, we've got 70% of the combined top 20 MSAs with top five ranking and 10 of those with top three dominance. The transaction opens new markets for each company and bolsters a lot of markets that we're already strong in. We've got many business segments and product lines that are in common, with only really two that are different or new between the two companies. Trustmark retains servicing rights on mortgages, and on the Hancock side, we have a healthcare business that will be new for Trustmark, and that healthcare business is located in Nashville and really nicely complements the Trustmark footprint that's established in Memphis.
Our strategic aspiration is and will be to be the best bank for privately owned businesses and business owners in the country, and that really starts with elite bankers serving our clients, followed by broad lending capabilities, sophisticated deposit products and tools, and really focusing on that premier wealth management team that we've built over the last probably 8- 10 years to serve that personal life of the business owner. So when it comes to the business and the overall lines that we want to execute as we go forward. We're going to continue to focus on growing the company through those full-service banking clients across all business lines and segments and industries, and feel like this combination gives us the absolute right opportunity to begin to execute across all the geographies and business lines.
Your next question comes from the line of Matt Olney with Stephens. Matt, your line is now open. Please go ahead.
Hey, thanks. Good morning, everybody. Appreciate you taking my question. On capital, I think more recently, Hancock Whitney has talked about a CET1 ratio in that 12%-12.5% range that you're targeting, and looks like you'll be coming in closer to 11% at deal closing. Can you talk more about capital targets, when you expect to get there with the combined franchise, what this means to the stock repurchase program, and any estimates you can provide as far as the Basel implementation that we should anticipate from the combined company? Thanks.
Yeah, Matt, this is Mike. I'll happily address those questions. First on the capital front, when we think about our goals and comfort zones around capital, we've talked about TCE, the threshold is really 8% that we really don't want to go below, but feel confident that we can operate the company in the 9%-9.5% range. On CET1, it's more like 11%, with a target of around 12% or so. So those are metrics that we've talked a lot about the last year or so. With this transaction, we're estimating TCE to be about 8.20% or so at close, and common tier one about 11.20%, as you just mentioned. So those are pro forma numbers at close, and let's just assume the closing date March 31, 2027.
One of the things we've talked about, you heard in the prepared comments, and John expounded on a little bit, was just the earning potential and the earnings power of this combined company. That will manifest itself, we think and believe, in really strong levels of capital that will begin to accrue pretty quickly to the combined company. Just for example, we think by the time we get to 2029 or 2030, our TCE could be just under 11%, and then our common tier one just over 14%. So we're confident that while at close we'll be at the 8.20% and the 11.20%, that we'll be able to build capital pretty quickly as we go into 2028 and 2029. I think you also had a question about buybacks.
Just in terms of how we model the pro forma company, we've got no buybacks assumed through the end of 2027, and then the assumption is that we'll resume a modest level in 2028 going forward. However, with the capital ratios that I just mentioned, that we're planning for in 2029 and 2030, certainly the combined company, I think, has the capacity for a higher level of buybacks than what we've modeled. Hopefully that was helpful. I think I caught all of your questions.
Yeah. Thanks for that, Mike. Appreciate all the color. Then just as a follow-up, Hancock Whitney, the last few years, has been focused on expanding outside of its legacy markets of Louisiana and Mississippi in recent years, improving the overall growth engine. Now with this deal, you add more scale in some of your legacy markets. From an organic growth perspective, any color you can provide as far as what types of levels you're targeting for the combined franchise in terms of organic loan growth, and where will this growth come from? Thanks.
Matt, I'll start on the theme, and then Mike, if he wants to add some more details, certainly can. Thanks for pointing out the success so far with the high-growth markets. We have added a lot of net new bankers in the past several quarters. A goodly percentage, well over half of those, have been in Texas and Florida as we sought to improve and grow our footprint and standings in those markets, so we've been successful there. But we never took our foot off the gas in terms of growing the core markets. As we've talked about on the road before, the higher organic growth markets tend to grow loans on a faster clip than liquidity, given what we'd like to have the cost of that liquidity to be.
So we have been successful raising liquidity in the core and loaning it in the higher growth markets. From a transaction viewpoint, we really don't believe there's a change other than we get a more rapid step in having liquidity to deploy, which supports perhaps a little faster growth rate on the core, on the bookends. Now with the entry to Tennessee, we add Tennessee high-growth markets to that potential. So, we think the deal is constructive to what we were trying to do, and perhaps could give us a little bit more relief in providing liquidity, given the quality of the Trustmark deposit book, to fund loans in the markets that are growing a little faster. Glad to take a redirect if you'd like to be more specific.
So Matt, kind of pivoting back to the growth assumptions that we modeled. So, with all of the assumptions built into the model for both companies, obviously we stuck to using consensus estimates and then reasonable levels thereafter. So, when we think about loan growth for the two companies, it really kind of is in that mid single-digit range individually and then on a combined basis. But, I think as you heard the commentary from John and Shane, the combined company certainly has the potential, I think, to introduce some outperformance in terms of our ability to organically grow our balance sheet. But we have modeled the consensus estimates.
Your next question comes from the line of Jared Shaw with Barclays. Jared, your line is now open. Please go ahead.
Thanks a lot. Good morning.
Good morning, Jared.
Maybe looking at the cost save assumptions, can you give any color around where those would be coming from in terms of potential branch consolidation and the outlook for the core systems conversion? I think Trustmark just recently went through a conversion. Which core are you going to move to?
Sure. I'll get started with the cost savings, and then Shane can address the IT question. Again, in the cost saves that we've talked about, it's 35%, $205 million, or just north of that. As we look at the combined company, obviously, we're very, very confident in our ability to harvest those cost savings at those levels in the timing that we have in the presentation materials. Again, kind of a core competency on our side, very confident of hitting those levels. As far as where that's going to come from, it's obviously the things that people are probably already thinking about and know about. Duplication in the back office, duplication in leadership, those kinds of things. Obviously, on the system side, there's plenty of opportunity for cost savings. Then you asked about the branch network.
We're going to be very, very careful and deliberate around any kind of consolidations of branches. One metric, just to use as kind of context, is when we think about the two organizations, and Trustmark in particular, about 17% or about 30 of Trustmark's branches are within 3 mi of Hancock Whitney branches. It doesn't mean that that's the number. We're going to consolidate the right number, and again, be very careful in terms of how we approach that. But that's just a little bit of context to kind of put that question into. I'll pivot to Shane and let Shane talk about the systems conversion.
Sure. Mike, if I can maybe just reach back to Matt's question. When it comes to growing and bankers, we've talked about 50 net new bankers for the year, and as of year to date, we're at 52. Just thought that was important to bring up, that we're still working on that. We got markets like Jacksonville, Orlando, Tampa, parts of Louisiana and Texas that all are ripe for continued growth and the sophistication of the new size of the company. So feel very comfortable at turning in the numbers that Mike talked about. When it comes to integration, the culture of the two companies is strong and enduring, as John said. Our teams have really been preparing for the next year over the past two years.
Both Hancock and Trustmark have done numerous things that have been pretty big lifts in terms of system uplifts, conversions, integrations, those kind of things. Those events have been executed very well and delivered all the expected results that we had. So when you think about the teams that will be executing that, they are veterans, and veterans know how to navigate challenges and create success. You asked about the direction that we would be going in terms of systems. I mean, we'll be moving to the Hancock Whitney platforms. That will ensure that we can facilitate a very high-quality integration, and we can get it done in the timeframe that we're outlining. Mike talked a little bit about branch consolidation, and I'd just like to make a comment there.
The way that you preserve value with those types of things is that you have to trust your bankers, and you have to assure that they have the support system and teams throughout the integration process. We operate as one bank, a team of experts, and that's kind of our ethos. That's talking about bringing every associate role and expertise together to make sure we service the clients. So our bankers really are some of the most elite in the Gulf South and have deep relationships with our clients.
So as we go through that consolidation process, we'll honor the trust that clients have in us and ensure we keep clients informed and proactively address concerns as they develop. I feel good about that process, and I feel good that we have a well-heeled and a lot of expertise group of bankers and staff to make sure that they wrap arms around clients and we retain them as we go forward. John.
Any additional questions?
Yeah, just maybe pivoting a little bit. With Trustmark's securities restructuring and the sale leaseback from last quarter, it sounds like they're guiding more towards a 4% margin for fourth quarter. When you're looking at your assumptions, is that sort of a good place to assume 4% as we look at consolidating statements for next year?
Yeah, I think it is, certainly by the time we get to 2027. You mentioned the actions that Trustmark took a couple of quarters ago, and so we appreciate those actions. When we get to closing, obviously, we will be very thoughtful in terms of how we combine something like the bond portfolio and look for opportunities to optimize that, if that is available.
Your next question comes from the line of Feddie Strickland with Hovde. Feddie, your line is now open. Please go ahead.
Hey, good morning. Appreciate all the detail on how the cost savings are achieved, but from a modeling perspective, should I expect much of that remaining 60% or so that is coming in 2028, is that kind of in the first quarter or first half of 2028? Just how should I think about how that flows through?
Yeah, Feddie, this is Mike. I think you can assume that most of that will be kind of front-loaded towards the beginning of 2028. So the objective is really with a potential systems conversion in the October, November timeframe, that we will be able to hit the ground running with the integration really in the rearview mirror by the time we get to 2028. The assumption is that really 100% of those cost saves are in place at the beginning of 2028.
Got it. Thanks, Mike. You've been pretty bullish on investment in the region. I know that you had a slide in the deck on that on page nine. Did that play a role in your thinking here of expanding in Mississippi and Alabama versus more on the bookends as you've already talked about in Florida and Texas?
This is John. Thanks for the question. I think it's constructive and supports the notion of the improvement story that we're seeing really between Louisiana, Mississippi, and Alabama in terms of household income growth, of employment growth, continuing improvement in education systems. So the core of that footprint has always been a very reliable and good and profitable area. By seeing an expected improvement in GDP over the next several years, I think it bolsters the value of our franchise because it bolsters the value of those markets. I wouldn't call it the deciding factor by any means. I think the quality of the Trustmark franchise and our ability to make something good happen in the combination was the primary driver, but certainly the notion of an improving core set of states is constructive and supports it.
Your next question comes from the line of Will Jones with KBW. Will, your line is now open. Please go ahead.
Hey, great. Thanks, guys. Good morning.
Morning.
Hey, so maybe one for you guys just on deposit market share. Obviously, a pretty enviable spot you guys will sit in, number two, Louisiana, number one in Mississippi. Just to ask the question, when you bring this deal to regulators, do you anticipate any deposit concentration issues? Just understanding the density that you guys have in those two markets now.
Yeah, I'll start with that one, Will. So yeah, it's a great question, and we're cognizant that there could be a little bit of a question in one market in particular, in Alabama. It's not more than about $150 million in deposits, so certainly not significant at all. And in our conversations with our examiner team, the FDIC, the Federal Reserve, and the state of Mississippi, we kind of highlighted that. So that'll be something that we work through, obviously, with the Fed and the DOJ as we work through the application process.
Yeah, Will, this is John. Just to add a little more color. For companies that are 137 and 127 years old, that their headquarters buildings are only three hours apart by car, you would think that there would be a lot more overlap that would be problematic from an HHI perspective. But because the organizations generally grew adjacent to each other, while there's very helpful overlap, both for synergy and for market share in the Florida Panhandle, in southern Alabama, and in Houston, that's all helpful, but largely, the markets actually were complementary versus completely overlapping.
So fortunately, the position, the two in Louisiana was unaffected, one in Mississippi, we don't expect really any divestiture requirements there. And that small amount in Alabama is actually in southern Alabama above the coastline. So, we're particularly proud of the number seven share in Alabama. It's an important market to us that we've long wanted to have a statewide footprint, and by putting the two banks together, we finally achieve it.
Yeah, got it. That's a fair point.
Yeah, I think on page seven, you had mentioned expansion in the other markets. The overlap in Florida is focused on the Panhandle. So while the share only goes up from 21 to 19 in terms of just the ranking, getting almost over $8 billion in the state of Florida, we were very delighted to get, and it really does springboard our growth there between what we do together with Trustmark and what we just completed with One Florida. So, I think Florida as a more meaningful part of our footprint is going to be a big story over the next four or five years.
Will, I think that's what the real point of the slide was really to show not only the focus and the expansion in kind of what we call the core markets, that's the three states at the top of the page, but then also this continued focus on expanding and growing our franchise in higher growth markets. So, it's a little bit of both, and that's one of the reasons why we felt this was such an attractive opportunity.
Yeah, absolutely. No doubt. Those are all fair points. I appreciate you guys providing all those points of context for us. Maybe just one more for you guys. This is obviously one of the largest deals that Hancock has done for quite some time. Could you talk to us just about your playbook for integration? How you plan to kind of align the two cultures together? What you plan to do maybe around retention and just ensuring that this is a smooth process as we move through 2027 and combine the two companies?
Sure. Shane, you want to tackle that one?
Yeah. From a retention standpoint, I mean, we, like in many other deals, we've already tied down a number of bankers that covers a pretty significant part of the portfolio. Also dealt with some banker retention on the Hancock side. I feel comfortable that we've got that squared away. We worked very closely with the Trustmark leadership to make sure that that was done with the bankers that really were key to the transaction. When it comes to the integration, and I've said a couple of times now that we've got experience, albeit not at this level. I think we've got a very good playbook, and we'll be using some outside expertise to help us.
We will start an integration management office immediately and take a couple of weeks to get that mobilized such that we have all the processes in place that we don't have any stops and starts as we move towards that fourth quarter of 2027 date. With that outside resource, the experience that we've had both on the Hancock and the Trustmark side in recent projects and initiatives, I think we've got a really good plan.
Yeah, I think the only thing I'd add to that, Shane, is Duane and his team have been in place quite a while, a very seasoned group of leaders that are very closely aligned with their bankers. Like Hancock, they have crisp alignment between their credit and their revenue folks, and during the diligence, it was remarkable how similarly we operate. Not just from a values perspective, but also from a leadership style perspective, I think the two organizations really don't operate that much differently in terms of style. I think it'll be a very warm environment as we begin to put all the folks together.
Your next question comes from the line of Casey Haire with Autonomous Research. Casey, your line is now open. Please go ahead.
Great. Thanks. Good morning, everyone. I wanted to touch on the outlook for 2027. I am not sure I heard or read anything about the EPS impact there. More specifically, what is the underlying FOMC outlook? How many hikes and what kind of deposit beta we can expect from the pro forma franchise?
Yeah, Casey, this is Mike. Thanks for the question. We have not given guidance yet for 2027 on an individual basis. Just the things we are looking at certainly is an evaluation of what the rate environment might be for next year. We have got the one rate cut planned for December of this year. As far as next year is concerned, we would probably have a couple of rate hikes, I think, built into those numbers. I think our loan growth expectations, again, would be in the mid single digits, maybe a little bit north of that.
As far as deposit betas, it is going to be what we have kind of guided to in terms of looking at the beta for interest-bearing deposits, loans, as well as total deposits. For total deposits, it is going to be in that upper 30, right around 40% range, about 50% for loans, and then a little bit higher, of course, for interest-bearing deposits. Obviously, we will provide more details around 2027 guidance on our call in January.
Okay, great. Just the M&A environment right now, I mean, there is a post-midterms, there is a thought that the M&A activity is to pick up after it has been a relatively quiet date. Can you guys hear me?
Yeah, you kind of cut off a little bit.
Sorry.
You were talking about the M&A environment post-midterms?
Yeah, exactly. I am just wondering, is there more activity, conversations going on post-midterms? Then just like, I know we will get the S-4 later on this deal, but just wondering, was this privately negotiated or was this more of an auction format?
Yeah. With the midterms and the potential for what might change from a regulatory environment in 2028, I think you are right. I think the next two years will probably be more active, let us say, than the last year or so. As far as this transaction for us, I mean, sure, that was something we thought about, but it was not the driving factor to get it done sooner rather than later. It was just the right time, I think, for the two companies to come together. As John kind of talked about earlier, there has been a long, decades-long relationship with the two companies.
While I think on our basis, I mean, obviously, we did the strategic deal with OFB and do not want to speak for Trustmark, but I am sure that they evaluated opportunities, likely both on the buy side as well as the sell side. As far as this particular transaction is concerned, it was a deal between the two companies that we were able to work out in the fashion that we are describing this morning.
Great. Thank you.
Okay.
Your next question comes from the line of Gary Tenner with D.A. Davidson. Gary, your line is now open. Please go ahead.
Thanks. Good morning. A couple of questions. First, and Mike, I think you may have alluded to this just a few minutes ago, but just from a kind of operating style in the field, I mean, outside the branch overlap or minimal branch overlap, in terms of kind of market or regional leadership and things along those lines, any significant differences that you would want to flag or just from an underlying market leadership perspective—
Okay, Gary. Thank you.
—that they are pretty similar?
Sure. So I will pivot over to Shane and let Shane address that question.
Thanks, Gary. As I said earlier, there are only really a couple of nuanced differences in the two operating models. I think our bankers know each other very well. We have a lot of client overlap that has developed over really probably the last couple of decades as we've operated in the same area. I don't really see any material differences that are going to cause a challenge.
Yeah. This is John. I will say that during the diligence process, and really even before, just as we shared thoughts back and forth between Duane and I on important initiatives, it was pretty remarkable that the list of significant strategic initiatives that Duane's leadership team had completed or were pursuing were in nice alignment with the ones that we had completed and were just a little bit further along, really just due to the size difference. As we look forward to the integration, much of what Trustmark already planned to do is exactly what the playbook will be because we had just completed it.
The remaining work to be done related to integration and in the field are things that had already been socialized throughout the organization. I think perhaps with the scale, we just had the capacity to get it done a little faster. That's part of the reason we really assessed the risk of being relatively low, particularly for a transaction of this size, is because there's not a lot of surprises, not a lot of new things to have to encounter.
Okay. Appreciate that. Then, in terms of kind of different business lines, I think, Mike, you had mentioned the servicing portfolio at Trustmark. Would the working assumption be that that strategy of retaining servicing changes or does not change as we think about modeling going forward?
No, there's no changes planned at this point, Gary. I mean, like all aspects of the business as we pull this together next year, we will evaluate how we want to operate the combined company in terms of things like the mortgage question you just asked. But there's no changes to be announced or talked about today, certainly.
All right. Thank you.
Thank you, Gary.
Your next question comes from the line of Brett Rabatin with StoneX. Brett, your line is now open. Please go ahead.
Hey. Good morning, everyone. Thanks for the question. Really just wanted to ask one. When I think about this transaction, guys, it seems like it's a little bit different than maybe the narrative that I was expecting anyway post-One Florida, is that you might do some opportunistic things, but they'd probably be smaller, and Texas was maybe too expensive, so maybe there wasn't going to be M&A. This feels a little bit different than what maybe I was thinking, but there are certainly some aspects to it that could be really strong drivers for EPS growth in the franchise. What I'm trying to get at is the key kind of variable that's the secret sauce or the driving force behind this transaction.
I guess there are a couple, but one of the things I was thinking about was their cost of deposits is really low like yours is, but it's slightly higher. Their average size of their deposits is actually lower, $36,000 versus $42,000 for you guys. So deposits is one possible driving force on this deal. Scale to invest in technology is another. I was just hoping to get from you guys maybe what brought you guys over the wall, so to speak, of maybe not doing a bigger deal that made this transaction something you really had to do.
I'll get started, Brett, and certainly I think John and Shane may add a little bit. So great questions, but as far as our M&A strategy, we absolutely, I appreciate the nuance that you kind of called out, but one of the things that I think has been really consistent about how we've talked about M&A over the past couple years has really been the notion of opportunistic, certainly in how we look at those opportunities. We also kind of separate the opportunities into deals that potentially are opportunities that are purely strategic. Those would be ones obviously in our expansion markets, so Florida, Tennessee, Texas. Obviously, OFB early this year was certainly a great example of a purely strategic deal. Those tend to be a little bit smaller, as we kind of talked about.
Then it's also fair to say that we have talked about opportunities for scale plays, kind of in places where we have a little bit market share. Those give us the opportunity to add scale to the balance sheet and to take out a certain level of cost. I think this opportunity really brings a little bit of both of those kinds of deals to the table. It probably weighs a little bit more toward the scale side, obviously, but it does give us some strategic opportunities to be a little bit bigger in places that we've talked about wanting to be bigger in. John mentioned the Panhandle. I mean, that's a tremendous market for us, the Panhandle of Florida. We get a little bit of scale in Houston, which is important.
We get a new state in terms of Tennessee with a nice market share in Memphis. We get to be bigger in a core market like Alabama, where we have new markets like Birmingham and Huntsville that will be important to our strategic growth opportunities going forward. We do think that this transaction, while opportunistic, really does kind of fit both of those buckets, if you will, around the kinds of transactions we have been looking for or would be open to. I will pivot to John to—
Yeah. Thanks—
—sure.
—thanks for that, Mike. I agree with your assessment. Brett, when we have been on the road or even on these calls and talked about potential inorganic activity, it really was more of our focus to do the smaller transactions, and we have been able to do that successfully. But we did call out that on a scale play, about a third of the resulting company would be the upper boundary of what we would consider. To be honest, the only organization that fit that profile that we believe was so similar to us and had market overlap that we were very comfortable with and people we were comfortable with was Trustmark. I think the only way we would have done one at the size we are announcing today was because it was this particular team and this particular organization.
You never know whether those stars are going to align or not. Trustmark is a very old, very storied company with a terrific footprint, a great history and legacy. Frankly, we are honored that the board was willing to do the transaction with us, knowing how much they have appreciated what has been built over time. We will absolutely be working hard to make sure that their decision was a good one. We look forward to creating value from the combination.
Okay, that's helpful. Maybe just one other, last one, just around the pro forma management. Will some of the executives at Trustmark be staying on as Vice Chairmans, et cetera, for a year or two post the integration? Or just any thoughts on the senior management at Trustmark and their roles going forward?
Sure, I'll share that. It's a little early to know every single position, but certainly Duane will be staying on as a board member. He'll be standing for election, of course, with all the new board members as we get into the shareholder season next year. But Duane will join the board along with four other of Trustmark board members, given, and really more for succession than risk. But the Section 16 executives will be Hancock Whitney to ensure that the continuity of the organization continues and lowers the risk.
But the driver for that is also just simply because of the runway remaining for a lot of executives there. Duane's built a terrific team and was at a point to where we were either adding some incoming new executives or making a decision to partner with someone. And that decision by management board is to do the partnership. Hopefully I've answered your question.
Your next question comes from the line of Stephen Scouten with Piper Sandler. Stephen, your line is now open. Please go ahead.
Yeah, good morning. Thanks. John, you touched on a lot of why the deal makes sense for Hancock, and obviously I think it is very logical given the footprints and the history and so forth. I am curious, I think you said Duane is on the call, kind of why now made sense for Trustmark as well, and kind of if this is really just the maximization of scale in these markets and the ability to leverage that scale over time, or how we should kind of think about, from both sides of the transaction, what brought this together now?
Well, thank you for the question. A lot of the attributes that the guys have elaborated on throughout the call, I think our board has done a very significant strategic process over time of evaluating both organic growth strategy, smaller acquisition strategies, et cetera. I think, as John mentioned, the stars just aligned at this point in time that the opportunity to partner with a great organization, we have a lot of similar values and strategic characteristics that have been talked about.
I think just the alignment at this point in time, we felt like the scale aspect of it is so important, and it may have taken us a more difficult or at least longer time to gain scale that we need to be competitive that presents the best opportunity for our shareholders, our customers, and our associates. We debated and discussed going an independent path, but at this point in time felt like this was a great opportunity to really reach that scale and accomplish a lot for those respective areas. So, that is pretty much our thoughts.
Yeah, no, that is very helpful. Thanks for that. I guess the other thought I have is this deal just makes so much sense from a leverage perspective in terms of taking two really strong deposit franchises and being able to leverage it into loan growth over time. Both of you guys, institutions have been hiring somewhat more actively as of late. Do these 35% cost saves over the next couple years really allow you to kind of double down on that strategy a little bit, especially in Florida and Texas? Because as we look at this combination, it adds a little bit in those markets, but it seems like the hiring and potential in those markets could be the real leverage point from here. So, how could we think about using those cost saves into maybe escalating some of those plans over time?
Hey, this is Shane. I will take that. Like I said earlier, we are at 52 net new for the year, and I think you are spot on that in the markets where we do not have really heavy overlap of bankers, what we will be focused on integrating those two teams together and getting both sides even more productive. We are going to focus on those markets that I talked about earlier, the Jacksonville, Tampa, Orlando, Houston, Dallas, those markets that are ripe for adding great talent. We have developed a process that we will continue to use to find bankers and then get them quickly onboarded and productive. Yes, we will continue to focus on hiring bankers in those markets.
Your next question comes from the line of Christopher Marinac with Brean Capital. Christopher, your line is now open. Please go ahead.
Hey, thanks. Good morning. Wanted to ask about the credit mark taken on the loan portfolio, Trustmark. Was there a reason it was not higher, just given the level of criticized and classified that Trustmark has reported?
Yeah, Chris, this is Mike. Thanks for the question. No, no particular reason. I mean, we went through an extensive process using partners from EY teamed with our own credit organization, and really independently came up with the estimates around the credit marks that were aligned pretty closely around the numbers that are in the deck.
So that is the $181 million on a gross basis. That is about 1.26% of Trustmark's loans at 9/30. On a pro forma basis, by the time we get to close, we will have an ALLL of $525 million. That is about 127% of end-of-period loans. Then including the unfunded commitment reserve, we will be just north of 140 basis points. As you know, Hancock operates at that kind of level or that level. So we are very confident that an overall ACL in the 140 range is more than sufficient for any kind of credit concerns.
Got it. Thanks for that, Mike. I appreciate that. We've seen slightly higher marks in other deals, but I do recognize these points, and certainly the loss history of Trustmark's been excellent so—
Sure.
—good deal.
No problem.
Well, thanks for taking all of our questions today. Duane, best of luck to you as well.
Thank you very much.
We have reached the end of the Q&A session. I will now turn the call back to John Hairston for closing remarks.
Thanks, Holly, and thanks for everyone signing up for an early call this morning. We look forward to answering more questions on the road. Everyone have a terrific day.
This concludes today's call. Thank you for attending. You may now disconnect.