Q1 2020 Earnings Call

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Good day, ladies and gentlemen, and welcome to the Hancock corporations first quarter 2020 earnings conference call.

Tribal participants are in listen only mode. Later, we'll conduct a question and answer session and instructions will follow with <unk>.

If anyone should car offered assistance. Please press Star then zero on your Touchtone telephone.

A reminder, this call may be recorded I.

I would know introduce your host for today's call first Trisha Carlson Investor Relations manager you may begin.

Thank you and good morning.

During today's call. We may make forward looking statement, we would like to remind everyone to carefully review the safe Harbor language that was published with yesterday's release in presentation and the company's most recent 10-K, 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 remain.

The current economic environment is rapidly evolving and changing.

He called Whitney's ability to accurately project results are predicting exactly the future plans or strategies or predict market or economic development is inherently limited we believed that the expectations reflected or implied by any forward looking statements are based on reasonable assumptions, but are not guarantees of performance or results.

<unk> actual results and performance could differ materially from those set forth in are forward looking statements.

Probably the 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.

In addition, some of the remarks this morning contain non-GAAP financial measures.

I'm reconciliations to the most comparable GAAP measures in our earnings release and financial tables.

Patients' lives 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, where John Harrison, President and CEO, Mike Achary CFO.

And Chris Deluca, Chief Credit Officer, I will now turn the call Liberty John here is done.

Thanks, Tricia and good morning, everyone. We appreciate you joining us on what we know is a very busy day.

Hope all of you and your families are safe and healthy before discussing results for the quarter I'd like to update you on how the company has been operating and addressing the challenges of Cobot 19 as noted on slide five and six we've modified our operations with 98% of our financial centers open and operating by appointment only in the lobbies.

And with fully open drive appliance and approximately 70% of our corporate service area teams are working remotely. We're also assisting our clients via mobile and online banking and in the contact center, we have programs in place to help clients with deferrals waivers and any other type of assistance. We can provide we've funded draws.

So in existing and expanded lines of credits and participated in the SBH Paycheck protection program tranche, one originating almost 4900 loans for a total of 1.7 billion. We have donated two and a half million indirect contributions to communities in associates, including food pantries and personal protection equipment.

A low income neighborhoods defenses for families fighting illegal evictions and a partner with local catering services and nationally recognized chefs and providing meals to healthcare workers on the front line.

We've been through many environmental challenges in our history and while this one is different we're still applying the same core values that have got at our company for over 120 years market I will make a few comments about the quarter and then we'll open the call for questions.

As noted in Yesterdays release, we reported a loss for the quarter of $1.28 cents per share. We're not happy to have reported a loss. However, if you look into the numbers you will see two distinct underlying themes first a blend of solid performance in loan growth with strength in margin net interest income and fee income well managed expenses.

As in solid capital and liquidity levels, we believe pre provision net revenue results provide a picture of that formats.

The second thing is the impact on our first quarter provision and allowance for loan losses related to Cecil Cobot 19 and energy.

Pandemic related pressure in our remaining energy portfolio and potential pressure on markets and loan segments. Most impacted by mandated economic restrictions in our footprint led to a sizable provision for credit losses because of the uncertainty related to cobot not chain. We built will we believe is an appropriate loan loss reserve for potential problems.

We apply specific reserves to credits in our energy portfolio related to both current crude prices and the demand pressure of Cobot 19. We also note on slide 13 that recent resolution of several RBL credits in bankruptcy resulted in larger than anticipated charge offs, which in turn drove higher reserves automating our.

<unk>, we believe the prudent to recognize the possibility of additional energy company challenges in this unprecedented volatile environment. Thus, we are raising the funded energy reserve to nearly 9%.

Moody's Cecil economic models are predicting a prolonged returned to normal economic activity in our region. Those models were used to bill collective reserves for our loan portfolio and are detailed on slide 15 through 18.

Despite the loss for the quarter capital remains solid slide 26 in the deck shows our capital ratios as of March 31, TCV, our internal measure of capital is that our target of 8% and you can see on slide 27 in the deck, we remain well above regulatory minimums, including the capital conservation buffer.

Despite the first quarters lost due to covert 19, and the associated reserve build we've stressed our capital levels through year end 2020 under baseline stress and highly stressed scenarios and in all cases, we have over 200 million to as much as 450 million of capital over and above regulatory minimums include.

So for the capital conservation buffers, while the economic environment is changing rapidly even hourly and we don't know what the future holes. We can say with confidence that we have every intention of maintaining the common dividend at the current level going forward.

As noted in the release and deck, we did complete the I guess or announced last October and while we do have some remaining buyback authority for now we have put any buyback plans on home with that I'll turn the call over to Mike for a few additional comments and details.

Thanks, John Good morning, everyone. As John noted, we reported a loss of 111 million or $1.28 per share for the first quarter included in those results was a provision for credit losses of 247 million or to 24 per share.

We also wrote down 9.8 million or 11 cents per share of equity interest into energy credits. The company received in bankruptcy restructurings.

As mentioned PPNR, excluding the aforementioned equity write downs was black from fourth quarter 2019, but was up nearly 6.5% from the same quarter a year ago.

Also a reminder, that the first quarter of every year seasonally is usually our lowest earnings quarter. So flat PPNR in the first quarter, it's actually pretty good performance.

One of the drivers of that stability from last quarter was our NIM. The reported NIM was down two basis points from last quarter. However, the decline was related to expected accretion run off much of which was related to the recent merger with mid size.

Purchase accounting accretion was down two and a half million linked quarter or about four basis points. The impact of the fed rate cuts in March on our loan yield was in in headwind clip by about seven basis points, our first quarter now.

However, proactive deposit pricing and changes in wholesale funding levels offset most of that damage and positively impacted our NIM by about eight basis points. If we back out the impact of accretion in our core NIM expanded one basis point from last quarter.

The income was another bright spot for the quarter. These were up one and a half million from last quarter, mainly related to one and a half million in tax credit sales and 800000 in BOLI income.

Offsets in areas, such as service charges card fees and trust fees.

All impacted in March as the impacts of coated 19 became more significant with fee waivers and other accommodations.

The company is providing fee waivers for certain products, such as penalty free CD and money market withdrawals as well as other transaction account fees, depending upon the duration of the impact of cobot 19 on our customers fee waivers will impact our results in future quarters.

<unk> expenses for the company were up five and a half million linked quarter and include the 9.8 million in equity write offs noted earlier.

After adjusting for those write offs and the 3.9 million of merger cost for mid South in the fourth quarter expenses were flat linked quarter.

John went through a summary of the provision let me provide just a little bit more color.

We ended the quarter within Hcl at 475 million or 2.21% of period end loans like most others. We did adopt seasonal affective January 1st of 20 Twond.

Certainly a large linked quarter increase of 280 million, 444% of the a triple out at year end under the old incurred loss model. The one we believe is prudent given our exposures in energy and especially in the New Orleans hospitality market.

About 77 million of the 280 million dollar increase was taken on January 1st with the adoption of C. So it was booked through capital.

The remainder was covered by our first quarter provision for credit losses of 247 million.

Given the size of our APC out in provision we have beefed up our disclosures around our loan portfolio you can see those on slides eight through 14 in the earnings deck.

Same applies for our Cecil methodology and provision.

Those disclosures are included on slide 15 through 18.

I wanted to call out slide 17, which isn't easy to grass waterfall, our hcl journey during the quarter, while slide 18 walks through the components of our first quarter provision.

I think it's noteworthy that nearly 50 million of our provision is related to reserves. We are building for specific credits with another 154 million set aside collectively for certain customer segments.

That's nearly 204 million reserves being built this quarter.

We know that no one has a crystal ball and we can't tell the future. So we took a proactive approach to reserving in this environment.

We took into account our Cecil modeling lost projections and what the outlook for our local economies could be.

We believe the impact of coded 19 on our company and region will play out over multiple quarters and so while additional reserving could be required in future quarters. It's too early to know our bina positioned to quantify.

Should that be necessary, we have a solid foundation of PPNR at nearly 500 million annualized and ample capital with our common tier one equity at just over 10%.

And finally before I turn the call back to John I would like to formally spend all previous guidance, whether near term for 2024 for a three year see ourselves.

Given the uncertainty related to co that 19 at this time, we will not provide the level of formal guidance, we've given in the past, but we'll share any expectations as best we can during the remainder of this call.

With that I'll turn the call back to John.

Thank you, Mike, Let's just go straight to questions.

Thank you ladies and gentlemen, if you have a question at this time. Please press star one on your telephone.

It's a withdraw your question you May press the pound key please standby, while we compiled the Q and a roster.

Your first question comes from the line of Kevin Fitzsimmons with D.A. Davidson.

Good morning, everyone. How are you.

I want to Kevin.

I guess I appreciate all the a the detailed disclosure in the deck and your comments. This morning, I guess, the big question and it's admittedly a tough one to answer is.

Is this enough right, Mike and I, just Mike I, just heard you say that you guys took a proactive approach toward modeling and me maybe.

Maybe wait a couch. This is you guys had been through many experiences in the past you've been through.

Reopening in the economy, and helping our customers with Katrina, you've been through energy related.

Crises in the past.

So maybe if you can talk in terms of lessons learned from some of those experiences and how you apply that to.

Deciding to be aggressive in this reserve build or was it more simply plugging in the numbers in the economic forecasts and that's what it spit out.

Hey, Kevin good morning.

Yeah, I think it was really all those things combined so it's kind of in our culture and our DNA strictly to be conservative and proactive when it comes to things like this and we do have had quite a bit of experience.

Going back to Katrina, yes, the oil spill in 2010.

The financial crisis before that now this particular environment. So again, we took a proactive approach we paid close attention to our modeling.

We looked at the Moody's scenarios.

Use the most recent version of those scenarios weighted than we thought appropriately and certainly took into consideration.

You know the impact that this is likely to have on the New Orleans hospitality market as well as all the things going on in energy.

And.

Arrived that where we are now with the Hcl being brought up to the $475 million range and I think as we said in the of the prepared comments.

We believe that this will play out over multiple quarters going forward and certainly I think it's too early to tell whether additional reserving might be required we're prepared to do that if thats the case.

Again, we have lots of capital our common tier one at over 10% and we have a base of PPL PPR of nearly $500 million to to goats.

No we stressed our capital we've looked at our capability and capacity to continue the dividend.

We certainly feel good about that and has every intention of doing that going forward.

So again.

There's a lot of unknowns here.

And we're prepared to do what we need to do the best interest of our company going forward I think it's the best way that we can kind of couch that.

Alright, thanks, Thanks, Mike.

One quick follow up you mentioned about capital and pursue EG one ratio how do you look at the TC ratio sitting here, 8% is that do you guys view that as.

Most likely a bottom for you guys assuming that you know maybe there'll be more reserve building, but not to the magnitude of this quarter and you guys stay profitable and you're not using buybacks and you slowly build that up overtime.

I think I think thats right.

Again time will tell whether we need additional reserving and whether that TCR might drop below.

He level may drop below 80%. So we are prepared to do that we've let that dropped below 8% in the past, but again, we feel good about our capital levels going forward and.

You know things will play out as we go forward.

Okay. Thanks, guys.

Thank you Kevin.

And as a reminder, ladies and gentlemen, if you'd have a question. Please press star one on your telephone.

Okay, and I'm showing no further questions at this time, so with that I'll turn the call back over to President and CEO, John Harrison for closing remarks.

Thanks, Andrew Thanks for handled the call today and thanks, everyone for your interest in the organization, we look forward to this and we didn't export.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect.

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