Hancock Whitney Corporation (NASDAQ:HWC) Q1 2024 Earnings Call Transcript April 16, 2024
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).
Operator: Good day, ladies and gentlemen. Welcome to Hancock Whitney Corporation’s First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this call may be recorded. 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, and thanks everyone for joining us today. We are pleased to report a solid start to 2024, which marks our 125th anniversary of helping people achieve their dreams under a charter our founders established in 1899. The first quarter results reflect our efforts to continue to grow capital and to reposition our balance sheet, all while maintaining solid profitability and earnings. Fee income and expenses were both flat this quarter, demonstrating our ability to take advantage of fee income opportunities and at the same time control expenses. Net interest income was down slightly this quarter, driven by lower average earning assets due to the impact of a portfolio restructure. The decrease was partially offset by a more attractive mix of earning assets, stabilization in deposit costs, and lower short-term borrowings.
We ended the quarter with no wholesale borrowings except the remaining brokered CDs. Our continued focus on repositioning our balance sheet and prudent pricing efforts has led to NIM expansion. We are delighted with these results and believe we are well-positioned to take advantage of future rate decreases should they happen this year. Loan growth was modest this quarter and in line with what we expected for the first half of the year. We continued our focus on more granular full relationship loans and are deemphasizing large loan-only relationships. The team was successful at producing the loan volumes necessary to overcome our more select credit appetite and achieve overall growth with mortgage driving the growth this quarter. Loan pricing remains a top priority and we believe focusing on more granular credit deals will drive improved pricing on new loans.
As expected, our credit quality metrics continued to normalize during the quarter and net charge-offs were modest. Despite the uptick in criticized commercial and non-accrual loans, we remain in the top quartile of our peers. Our loan portfolio is diverse and we still see no significant weakening in any specific portfolio sectors or geography. We remain proactive in monitoring portfolio risk and are mindful of potential macroeconomic environments. We continue to maintain a solid reserve of 1.42%, up slightly from the prior quarter. We are pleased with our deposit growth during the quarter of $86 million, which included the maturity of $195 million in brokered deposits. Excluding the impact of brokered deposits, client deposits were up $281 million this quarter.
We saw growth in money markets and in CDs due to promotional pricing we offered on both of these account types. The DDA remix continued, but overall pace continues to slow. We ended the quarter with 36% of our deposits in DDAs. We are also proud to report continued improvement in all of our capital ratios. Our TCE grew to 8.62% and our common equity Tier 1 ratio ended the quarter at 12.67%. Our capital metrics continue to be supported by our solid earnings. We remain well capitalized, inclusive of all AOCI and unrealized losses. A quick note on guidance. We did not make any updates to our guidance this quarter, which Mike will further address in his commentary next. As we look forward to celebrating our 125th year and beyond, we believe we continue to position ourselves to effectively navigate any operating environment.
With that, I’ll invite Mike to add additional color.
Mike Achary: Thanks, John. Good afternoon, everyone. First quarter’s reported net income was $109 million or $1.24 per share. We did accrue an additional net charge of $3.8 million, or $0.04 per share for the FDIC special assessment this quarter. Excluding this item, net income would have been $112 million, or $1.28 per share. Adjusted PPNR was $153 million, down about $3 million from the prior quarter, but in line with expectations. Our NIM did expand 5 basis points this quarter, but NII was down mostly due to a smaller average earning asset base. Fees and expenses were in line and flat with last quarter. As mentioned, we saw NIM expansion this quarter with NIM of 3.32%, up 5 basis points from the prior quarter. As shown on Slide 15 of the investor deck, our NIM performance was driven by higher securities yields following our bond portfolio restructuring last quarter, a slower rate of deposit cost increases in NIB remix, improved funding mix, and then finally higher loan yields.
NII was down primarily due to lower average earning assets following the bond portfolio restructuring, but the decline was partially offset by improved earning asset mix and lower levels of wholesale funding. In fact, we ended the quarter with zero FHLB advances. After the brokered CD maturity of $195 million this quarter, we only have $395 million remaining. Those mature in May. Our intent as of now would be to not renew the May brokered CD maturities. Deposit costs were up 8 basis points to 2.01% from 1.93% in the fourth quarter. The month of March actually came in a bit lower at 2%, an indicator that we have reached a peak this quarter and deposit costs may begin to turn over. The moderation in deposit cost was driven by slower DDA deposit remix, higher growth and lower cost interest bearing transaction accounts and the brokered CD maturity.
Our total deposit beta remains at 37% cycle to date. The most significant driver of deposit costs going forward will be repricing activity on CDs. On the earning asset side, our securities yield was up 9 basis points to 2.56%, primarily due to the full quarter’s realization of the bond portfolio restructuring transaction. The yield in the month of March was 2.58% and we expect to see further yield improvement with portfolio reinvestments this year. We expect just under $600 million in principal cash flow from the bond portfolio over the next three quarters. Those cash flows will come off at around 2.9%, could get reinvested at yields of around 200 basis points higher. Our loan yield improved to 6.16% this quarter, up 5 basis points linked quarter.
The rate of yield growth on loans has slowed as much of the impact of 2023’s rate hikes were fully priced in during the fourth quarter. However, we remain focused on maximizing loan pricing. As we think about our NIM in 2024, our guidance remains unchanged and includes three rate cuts at 25 basis points each in June, September, and December this year. We continue to expect modest NIM expansion across the next three quarters. Headwinds include some level of continuing deposit remix, which has slowed, but we do expect that any rate cuts will be a tailwind as we are able to reprice CD maturities lower in the second half of the year. Fee income was flat this quarter as we benefited from strong activity in investment and annuity income. Expenses excluding the special FDIC assessment were up less than 1% this quarter, reflecting our focus on controlling costs throughout the company.
As noted, we have not changed our forward guidance this quarter, which is summarized on Slide 22 of the investor deck. However, we have included a disclosure around what we believe the impact on PPNR will be if there are no rate cuts this year. Lastly, a quick comment on capital. As John mentioned, our capital ratios remain remarkably strong and continue to grow. In our efforts to manage capital in the best interest of our company and our shareholders, we may pivot to looking at our common dividend and the potential resumption of buybacks under our current authority at some point later this year. I will now turn the call back to John.
John Hairston: Thanks, Mike. Let’s open the call for questions.
See also 10 Best Password Managers in 2024 and 14 Best 52-Week High Stocks To Invest In Now.
To continue reading the Q&A session, please click here.