Hancock Whitney Corporation (NASDAQ:HWC) Q4 2023 Earnings Call Transcript January 16, 2024
Hancock Whitney Corporation misses on earnings expectations. Reported EPS is $0.58 EPS, expectations were $1.1. Hancock Whitney Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Michael Rose – Raymond James:
Catherine Mealor – KBW:
Casey Haire – Jefferies:
Brett Rabatin – Hovde Group:
Brandon King – Truist Securities:
Matt Olney – Stephens:
Christopher Marinac – Janney Montgomery Scott:
Stephen Scouten – Piper Sandler:
Ben Gerlinger – Citi:
Operator: Good day, ladies and gentlemen, and welcome to Hancock Whitney Corporation’s Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference is being 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 Hairston: Thank you, Kathryn. Happy New Year, everyone, and thank you all for joining us today. We are pleased to report a strong end to 2023 with a very solid fourth quarter. The results reflect our successful bond portfolio restructuring, remarkable growth in our capital ratios, hopefully in the NIM compression and improvement in PP&R, fee income and expenses after adjusting for the significant items we previously discussed in the mid-quarter update. We hope to carry this momentum into 2024, which will be a year to celebrate our 125 year legacy of commitment by our associates to clients and to the communities we serve. As anticipated, we have revised our three-year Corporate Strategic Objectives or CSOs, and have provided updated guidance for 2024, both of which are detailed on slide 22 of the investor deck.
Starting with the balance sheet, loan balances were relatively flat this quarter as loan demand once again was tepid in Q4, similar to the last several quarters. Under the surface, however, the team was successful at producing loans at a volume necessary to hold our own and overcome a more select credit appetite, continued focus on pricing, and in replacing large credit only relationships with granular relationships. Business banking continued to impress on both sides of the balance sheet and consumer lending volume has begun to cover the remnant of pandemic recovery paydowns. As we look forward into 2024, we expect loan demand will return after rates begin to soften mid-year, and therefore much of our loan growth is anticipated in the second-half of the year.
Credit quality metrics were flat quarter-over-quarter, with criticized commercial and non-accrual loans at very low levels. As mentioned in the mid-quarter update, charge-offs began to normalize in Q4, but we still see no significant weakening in any portfolio sector. Despite impressive AQ ratios, we continue to be mindful of the current and potential macroeconomic environments. We are proactive in monitoring risks and we continue to maintain a solid reserve of 1.41%. Total deposits were down $630 million this quarter, driven primarily by the maturity of $567 million in broker deposits. We were able to use the proceeds from the bond portfolio restructuring to delever these higher cost deposits. Aside from that, client deposits were roughly flat with prior quarter.
Seasonal inflows of public funds did occur as expected. The DDA remix continued, but pleasantly at a slower pace. We ended the quarter with 37% of our deposits in DDAs and we’re pleased to finish Q4 at the top end of the range contemplated in the mid-quarter update. Retail time deposits grew and interest-bearing transaction and savings accounts were stable thanks to the promotional pricing we offered on CDs and money market accounts. Our clients remain rate sensitive and we really don’t expect a significant moderation until rates begin to decline in the second-half of this year. Mike will make a few comments in a moment regarding our future expectations for rates. In 2024 we expect low-single-digit growth in our deposit balances year-over-year used to fund loan growth.
Another bright spot for the quarter was growth in all of our capital ratios. Our TCE grew to over 8% due to lower, longer-term yields and the benefits of our bond portfolio restructuring. Our total risk-based capital ratio reached 14% this quarter, and we remain well-capitalized, inclusive of all AOCI and unrealized losses. As we look back on 2023 and forward into 2024, we believe we have positioned ourselves to effectively navigate the operating environment this year. Our deposit base has been remarkably stable and we expect it will continue to support our funding needs. Our ACL is quite robust and our capital levels grew throughout the year, which we feel will help position us for success in 2024. With that I’ll invite Mike to add additional comments.
Mike Achary: Thanks, John. Good afternoon everyone. Fourth quarter’s reported net income was $51 million or $0.58 per share adjusting for the three significant items this quarter that were previously disclosed: net income would have been $110 million or $1.26 per share, that’s up about $12 million or $0.14 per share from last quarter. Adjusted PPNR was $158 million, up $5 million from the prior quarter. Both NIM and NII were flat with fees up and expenses down. So a good quarter in an otherwise challenging environment that drove a nice increase in PPNR over last quarter. As mentioned, we saw no NIM compression this quarter and our NIM was flat at 3.27%. This was better than our original guidance for the quarter of 3 to 5 basis points of compression.
As shown on slide 15 in the investor deck, our strong NIM performance was driven by higher loan yields, approximately one month’s impact from our bond portfolio restructuring transaction and continued slowing of our non-interest bearing deposit remix. Deposit costs for the company were up 19 basis points to 1.93%, but we’re pleased that the rate of growth in deposit costs has continued to level off. This resulted in a total deposit beta of 36% cycle-to-date. We expect deposit betas will move up modestly in the first-half of the year, but we will be proactive in reducing deposit costs when rates begin to come down, which of now we’re expecting in the second-half of 2024. On the earning asset side, our loan yield improved to 6.11%, up 10 basis points from last quarter with the coupon rate on new loans at 8.15%, so up 12 basis points from last quarter.
As John mentioned, a continued point of emphasis is improving our loan yields going forward. The increase in our new loan rate did slow somewhat this quarter and reflected the flattening of the Fed funds rate, as well as lower long-term rates. In part due to the bond portfolio restructuring transaction, our securities yield was up 10 basis points to 2.47% for the quarter, while the yield for the month of December was 2.57%. As a reminder, we expect an annualized benefit to NIM of about 13 basis points from the restructuring transaction. As we think about our NIM in 2024, we believe modest NIM expansion is possible with single-digit expansion in the first-half of 2024 and potentially a bit more in the second-half of the year. As a basis for our guidance we’re assuming the Fed will cut rates 3 times at 25 basis points each beginning in June of 2024.
We continue to expect some ongoing headwinds from the continued deposit remix, which has slowed, but we also see tailwinds as we move into 2024. The projected rate cuts will allow us to reprice CD maturities lower in the second-half of the year, and we expect higher loan and securities yields will help offset the impact of any deposit remix. Fee income adjusted for the significant items was up this quarter, the fourth consecutive quarter of the income growth beginning with the fourth quarter of 2022. We benefited from strong activity in investment and annuity income this quarter and we remain focused on finding opportunities to grow fee income. Our guide for fee income in 2024 is continued growth of between 3% and 4% from the adjusted non-interest income in 2023.
Expenses excluding the special FDIC assessment were down this quarter, reflecting lower incentive expense. We expect expense growth of between 3% to 4%, which is a welcome decline from 2023’s growth rate as we continue to work hard to control costs throughout the company. We had continued to reinvest back into the company, will continue to do so, but at a bit slower pace as we allow technology and other investments to mature. And finally, all aspects of our forward guidance, including our revised CSOs, are summarized on slide 22 of our earnings deck. I will now turn the call back to John.
John Hairston: Thanks, Mike. Let’s open the call for questions.
Operator: [Operator Instructions] Your first question comes from the line of Michael Rose from Raymond James. Please go ahead. Your line is open.
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