HANCOCK WHITNEY CORP Q2 FY2024 earnings call

• Solid earnings in second quarter with efforts to improve profitability, reposition balance sheet, and grow capital.
• Net interest income up due to lower deposit costs and higher earning asset yields. Fee income growing and expenses controlled. Net charge-offs and provision for loan losses down but reserves grew.
• Balance sheet repositioning continued with purposeful decrease in SNC balances. Focus on granular full-service relationships contributing to NIM expansion.
• Credit quality metrics normalizing, criticized commercial and non-accrual loans increase at modest pace. Loan portfolio diverse with no significant weakening in sectors/geography.
• Deposits down mostly from broker CDs, DDA mix stabilized. Retail time deposits grew despite maturity concentrations.
• Returned capital to investors with 33% increase in common stock dividend and share repurchases. Capital metrics strong even after returning capital.
• Near-term expectation to maintain balance sheet repositioning, improve NIM, control expenses, and grow fee income. Efforts to control expenses to reinvest in hiring revenue-generating staff for future growth.

Second quarter reported net income was $115 million or $1.31 per share, up $0.07 per share. PPNR was $156 million, or 1.79% of average assets. NIM expanded 5 basis points to 3.37%. Net interest income was up driven by lower deposit costs and improved earning asset yields. Fee income continued to grow. Net charge-offs were down, provision for loan losses was down but reserves grew. Loans contracted slightly with purposeful decrease in SNC balances. Deposits were down mostly due to net reduction in broker CDs, but DDA mix stabilized. Capital metrics were strong with TCE at 8.77% and common equity Tier 1 ratio at 13%. Revenue contribution: NIM, fee income, net interest income are key components with NIM contributing to interest income growth, fees adding to noninterest income.

• Loans expected to be flat to slightly down from 2023 reflecting goal of reducing large credit-only relationships and originating granular loans.
• Deposits expected to be flat to slightly down compared to 2023, migrating away from broker deposits.
• NIM expected to have modest expansion in second half of 2024.
• Expenses expected to grow 2-3% in 2024, inclusive of hiring additional staff.
• Noninterest income expected up 4-5% from 2023's adjusted noninterest income level.
• Allowance and provision guidance unchanged.

• Economic environment uncertainties impacting ability to accurately project results.
• Interest rate changes affecting deposit costs, loan yields, and borrowing mix.
• Credit quality risks including potential changes in criticized loans and non-accrual loans.
• Regulatory changes and approval processes impacting potential M&A activities.

Q: About the pace of loan yield increases in the back half of the year, Mike Achary responded that NIM expansion in second half is modest with a couple of basis points improvement expected in loan yields due to continued repricing of fixed-rate loans and incremental improvements in variable loans.

Q: On expense guidance coming down despite hiring in back half, Mike Achary said that in 2025 there will be annualized impact of hires made in 2024 and beyond, and the company will find ways to control costs in current base to pay for new initiatives including hires, with strategic procurement and outsourcing contributing to cost controls.

Q: On SNC reduction target, John Hairston said about $100 million additional SNC outstanding balance reductions expected in second half of 2024, around $100 million in 2025, aiming for around 9% of SNC outstanding balances as percent of total loans which is near peer normal.

Q: On M&A, Mike Achary said M&A is something not focused on recently but will pay attention to market, would like better valuation and regulatory clarity, and would consider strategic M&A when appropriate.

Q: On DDA mix stability, Mike Achary said confidence comes from stabilization witnessed, talking to customers, and outlook assuming zero rate hikes but rate cuts would help stability.

Q: On increase in commercial criticized loans, Chris Ziluca said downgrade activity diminished, saw some upgrades, downgraded credits need to season and perform before upgrading, and no specific connectivity in criticized loan portfolio to broader portfolio.

Q: On fee income guidance for back half, John Hairston said wealth-related fee income affected by rate environment and portfolio success, secondary mortgage fees may be stronger if rates go down, deposit service charges stable, SBA fee income strong but need luck in market to continue high growth.

Q: On loan demand, John Hairston said CRE had good quarter with strong production and pipeline, but competitors with higher CRE concentrations put pressure on deal prices, consumer and home equity line production light, and outlook mixed.

Q: On line utilization, John Hairston said no significant increase on consumer side, small business lines of credit improving, C&D lines may grow as drag from mortgages diminishes.

Q: On fixed-rate loan yields, John Hairston said it's mix of booked loans and competitive fixed-rate lending for high-quality credits.

Q: On hiring ability, John Hairston said selling points include company stability, profitability, capital to deploy, constructive credit team-banker team environment, and honest communication about company direction.

Q: On CD repricing, Mike Achary said third quarter $2.3 billion CDs maturing coming off at over 5% reprice to ~4.65%, fourth quarter $1.9 billion CDs maturing coming off at 4.83% reprice to ~4.70%-4.75%, assumptions based on zero rate cuts.

Q: On borrowings and securities portfolio, Mike Achary said second quarter borrowings driven by maturing brokered CDs and seasonal impacts, securities portfolio expected to stay flat unless loan/deposit growth differs from expectations and rate levels play into decision.

Q: On criticized loans upgrading, Chris Ziluca and John Hairston said criticized loans linger a bit needing 2-3 quarters of seasoning after issue resolution, and reserves allocated more to commercial real estate currently but portfolio holding up nicely with no immediate need to increase reserve for commercial real estate known issues