Q3 2023 Hancock Whitney Corp Earnings Call

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Participants:
– Christopher S. Ziluca; Executive VP & Chief Credit Officer; Hancock Whitney Corporation
– John M. Hairston; President, CEO & Director; Hancock Whitney Corporation
– Kathryn Mistich
– Michael M. Achary; Senior EVP, CFO & Principal Accounting Officer; Hancock Whitney Corporation
– Brandon Thomas King; Associate; Truist Securities, Inc., Research Division
– Brett D. Rabatin; Head of Research; Hovde Group, LLC, Research Division
– Casey Haire; VP & Equity Analyst; Jefferies LLC, Research Division
– Catherine Fitzhugh Summerson Mealor; MD & SVP; Keefe, Bruyette, & Woods, Inc., Research Division
– Christopher William Marinac; Director of Research and Banks & Thrifts Analyst; Janney Montgomery Scott LLC, Research Division
– Kevin Patrick Fitzsimmons; MD & Senior Research Analyst; D.A. Davidson & Co., Research Division
– Michael Edward Rose; MD of Equity Research; Raymond James & Associates, Inc., Research Division
– Stephen Kendall Scouten; MD & Senior Research Analyst; Piper Sandler & Co., Research Division

Presentation:
Operator: Good day, ladies and gentlemen, and welcome to Hancock Whitney Corporation’s Third Quarter 2023 Earnings Conference Call. (Operator Instructions) As a reminder, this call may be recorded. I would now like to introduce your host for today’s conference, Kathryn Mistich, Investor Relations Manager. You may begin.

Kathryn Mistich: Thank you, and good afternoon. During today’s call, we may make forward-looking statements. We would like to remind everyone to carefully review the safe harbor language that was published with the earnings release and presentation and in the company’s most recent 10-K and 10-Q including the risks and uncertainties identified therein. You should keep in mind that any forward-looking statements made by Hancock Whitney speak only as of the date on which they were made. As everyone understands, the current economic environment is rapidly evolving and changing. Hancock Whitney’s ability to accurately project results or predict the effects of future plans or strategies or predict market or economic developments is inherently limited. We believe that the expectations reflected or implied by any forward-looking statements are based on reasonable assumptions but are not guarantees of performance or results. And our actual results and performance could differ materially from those set forth in our forward-looking statements. Hancock Whitney undertakes no obligation to update or revise any forward-looking statements. And you are cautioned not to place undue reliance on such forward-looking statements. Some of 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. Participating in today’s call are John Hairston, President and CEO; Mike Achary, CFO; and Chris Ziluca, Chief Credit Officer. I will now turn the call over to John Hairston.

John M. Hairston: Thanks, everyone, for joining us this afternoon. Third quarter’s results reflect continued growth in capital ratios, fully funding loan growth with core deposit growth. A slowed remix of DDAs and early but welcome signs of NIM stabilization due to higher loan yields and lower growth in deposit costs. As anticipated, loan growth again moderated this quarter. Total loans were up $194 million, driven mostly by project draws in both multifamily real estate and mortgage. As noted on Slide 7, the net growth in both CRE and mortgage relates primarily to migration of in-process construction projects as they are completed. Demand has continued to slow as higher rates and insurance costs have changed client behavior. Today, we are seeing both commercial and consumers either choose to forgo large purchases or use existing funds and lowered borrowing. Our own internal appetite also continues to moderate as we remain focused on full-service relationships, disciplined pricing and selective appetite in some sectors. Our path to loan growth will be determined by our ability to fund growth with core deposits and lending within our risk appetite. The credit quality of our loan portfolio remains solid, and we continue to be well reserved. Criticized commercial and nonaccrual loans remain at low levels, and in fact, criticized ratios are again at a historical low. Despite the 1 large idiosyncratic charge-off disclosed during the quarter, we have seen no significant or systemic weakening in any sector of the portfolio. That said, we are mindful of the impact of higher for longer rates, inflationary costs in the regulatory environment, thus are proactive in monitoring for any developing risk. Core client deposits grew this quarter, and we continue to maintain our diversified deposit base. Total deposits were up $277 million with the remix continuing from DDAs time deposits and other interest-bearing deposit products. The DDA remix did, however, show signs of slowing this quarter and we ended the quarter with 38% of our deposits in DDAs at the top end of the range contemplated in the mid-quarter update. Promotional CD and interest-bearing money market pricing contributed to the remix this quarter. Our clients do remain rate sensitive, and we don’t expect that will significantly moderate until rates stabilize or start to decline. When looking at our balance sheet, our guidance for both loans and deposits is unchanged, and we see the trends from Q3 continuing through year-end. A quick note on capital. Our TCE was down this quarter to 7.34% due to impacts of higher long-term rates on AOCI. However, we are pleased to report that our Tier 1 ratio ended the quarter above 10% and our CET1 ratio was above 12%. As a reminder, we have no preferred stock shares in our capital stack. As we reflect on the year so far and look into the fourth quarter, we believe our strong deposit base will continue to help support our funding needs. We maintained a robust ACL and continue to build capital which we believe will help us manage successfully during this cycle. October marks Founders Month, and we look forward to continuing our legacy of commitment and service to the people and communities we operate in, as we have for over 124 years. Before turning the call over to Mike, I would also like to take a moment to honor the life of George Schloegel, who joined the organization in the mail room as a high school student, ultimately rising to Chairman and Chief Executive Officer, during his long 52-year career. George passed away unexpectedly and peacefully on October 6, only weeks after giving interviews to various trade organizations on the history and the future of banking. George was a young and particularly vigorous 83 in his passing, and we will dearly miss our long-time friend and colleague. With that, I’ll invite Mike to add additional comments.

Michael M. Achary: Thanks, John. Good afternoon, everyone. Third quarter’s net income was $98 million or $1.12 per share. That was down $20 million or $0.23 per share from last quarter and was primarily related to the previously disclosed charge-off of $29.7 million. PPNR for the quarter was $153 million, down just $5 million from last quarter’s level of $158 million, in part due to a significant slowdown in our NIM compression, the rate of decline in our NII also slowed, while a modest increase in fees were nearly offset by a similar increase in expenses. As mentioned, our NIM compression did slow this quarter to 3 basis points from 25 basis points last quarter, and was better than our previous guide of 5 to 8 basis points of compression. The quarter’s improved NIM performance was driven by a leveling off of deposit cost, a slowing DDA remix, less reliance on wholesale borrowings and better loan yields. Our cost of deposits increased 34 basis points in the third quarter compared to an increase of 49 basis points in the second quarter. Slide 13 provides additional monthly trend detail for the cost of deposits, reflecting the slowdown in each month of the quarter. We expect deposit costs could be up around 18 basis points or so in the fourth quarter and would bring the second half of the year’s increase to around 52 basis points. compared to 90 basis points in the first half of 2023. Our total deposit beta for the third quarter increased to 127% or about 33% cycle to date. We expect the cumulative level will approach 35% by year-end. How much higher the deposit beta goes from there will, of course, depend on the direction of deposit rates next year. On the asset side…

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