Q3 2021 Hancock Whitney Corp Earnings Call
Good day, ladies and gentlemen, and welcome to Hancock Whitney.
Corporations third quarter 2021 earnings conference call at this time, all participants are in a listen only mode Les.
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 Trisha.
<unk> Carlson Investor Relations manager you may begin.
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.
<unk> 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.
<unk> 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.
Seriously 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.
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 Harrison, President and CEO.
Mike Acary, CFO and Crystal Luca Chief Credit Officer, I will now turn the call over to John Hurston.
Good afternoon, everyone and thank you for joining US we're pleased to report another solid quarter. Despite the impact from the COVID-19, Delta surge and hurricane item net income of $130 million or $1 40.
<unk> per share was up $41 million or <unk> 46 cents linked quarter after adjusting for non operating items in both the second and third quarters results EPS for the third quarter was $1 45 up eight cents linked quarter. The primary driver of the quarterly increase was a $27 million negative provision in the third quarter.
Compared to a negative provision of $17 million in the second quarter substantially due to less than 2 million of net charge offs, our asset quality metrics have continued to improve and are now among the best in mid cap group criticized and nonperforming loans continued to improve and are down 29% and 65% respectively.
Six from year ago, our ACL coverage remained strong at just under 2% of total loans with outperforming asset quality ratios and certainly an adequate loan loss reserve, we're positioned well on credit at this point, we do not anticipate any significant pressure on credit from hurricane either or the remnant Delta Serge.
This funding and other programs designed to help businesses navigate the pandemic kind of worked and the recent storm was mostly an insured event thankfully much different that hurricane Katrina 16 years ago I should mention my appreciation for the incredible efforts of our team during the auto recovery as we reopen locations in storm impacted areas on a very rapid basis.
From wall simultaneously feeding nearly 40000 people and are impacted communities that only happens with commitment and with teamwork both of which were strongly exhibited by my colleagues in Hancock Whitney before I turn the call over to Mike I'd like to note that this quarter's results and our near term guidance are the building blocks for our plans in 2022 slide.
Jean and 18 in the Investor deck provide a good background for our path to a 55% efficiency ratio today, we reported another good quarter of organic loan growth in line with guidance and expect another quarter of solid growth to end the year, we kept expenses flat linked quarter. Despite inflationary pressure and are committed to hitting the 100.
$87 million target for the fourth quarter as well as the 750 million target for 2022 deployment of excess liquidity into loans and then modestly into securities as rates begin to rise is key to our continuing success, we expect to harvest additional efficiencies to be a strategic procurement and operational effectiveness gains.
Due to technology deployment and as a means to offset wage inflation and the addition of new bankers as shown in the top right quadrant of slide 18, we are hiring bankers in new and in growth markets across our footprint and have recently added 15, new bankers in those markets with more to come in 2022, and finally, we are able to execute from a position.
With TCE projected back to 8% or better by year end, a derisked balance sheet successful results from efficiency efforts and hopefully with economic and biological challenges in the rearview mirror I will now turn the call over to Mike Agri for further comments. Thanks, John Good afternoon, everyone third quarter's results were in line with her.
Our guidance and in some areas exceeded consensus expectations core loan growth continued in both our markets and specialty lines across the footprint with net growth in our central and western regions as well as continued increases in equipment finance and health care.
In total core E L P loans.
A strong 220 million, partly offsetting $482 million in PPP forgiveness during the quarter.
As a result total reported loans were down $262 million and ended the quarter at just under 21 billion.
Similar to last quarter improvement in economic activity.
Drew tests, our operating regions led to increase loan pipeline pull through rates and coupled with fewer payoffs and a slight uptick in line utilization rates resulted in 4% linked quarter annualized growth for the quarter as we move into the fourth quarter, we have maintained our guidance for core loan.
To your crowd of $400 million to $500 million.
PPP forgiveness of up to $500 million.
We are calling out a risk of higher than normal CRE payoffs in the fourth quarter, but otherwise our guidance is unchanged.
Beat expectations on our NIM guidance with only two basis points.
Loan growth in the quarter and flat net interest income.
A full quarter's impact from the June redemption of our 2015 and sub debt and the impact from a lower cost of deposits added five basis points to the NIM, but it continued shift in the overall, earning asset mix and yield plus a net change in the quarter.
Compressed level of net interest recoveries compressed the NIM seven basis points. The aforementioned all combine to result in a NIM down two basis points.
Moving forward, we expect the impact from continued levels of liquidity and lower rates the pressure on margin.
We'll work hard to offset those headwinds.
Quarterly continuing to deploy excess liquidity into loans modestly invest in the bond portfolio as rates rise and monitor our hedge positions to improve interest rate sensitivity.
We currently expect an additional four basis points of compression in the fourth quarter with net interest income down slightly.
On a linked quarter basis.
The details of fees and expenses are pretty self explanatory. So I'll just hit a few highlights.
Hurricane Ida and the resulting evacuation, which resulted in waivers and loss of activity in certain markets did impact overall fees in the quarter, we expect those.
<unk> to return to normal year end seasonal levels in the fourth quarter.
Secondary mortgage fees were the biggest driver of the linked quarter decline in fees.
Both the storm and the second quarters change and delivery methods for the primary drivers for the decline.
Overall, we expect mortgage fees to slow.
<unk> is the boom in refi business begins to subside.
Operating expenses were flat linked quarter as efficiency initiatives announced earlier. This year are maturing and are reflected in our results. We are maintaining our guidance for our fourth quarter expense level of $187 million and are committed to.
<unk> rate for 2022 as a reminder, both fees and expenses had nonoperating items this quarter and are detailed on slide 24.
One note for the quarter on capital, we did buyback a modest amount of stock in the third quarter and repurchased just over 56000 shares of common.
To that rock at an average price of $44 49 per share.
In closing I'd like to call out a few slides in the deck for additional information.
Slide 13 has details on our interest rate sensitivity and hedge positions slide 17 notes, our current and near term guidance.
And slide 18 helps detailed strategies for a path to a 55% efficiency ratio.
With that I'll turn the call back to John.
Okay. Thanks, Mike, Let's open the call for questions.
Certainly we will now begin the Q&A session. If you would like to ask a question.
And so please press star followed by one on your Touchtone keypad.
If for any reason you would like to remove that question. Please press star followed by two.
Again to ask a question press Star one as a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
Well pause here briefly to allow questions to generating kit.
Yeah.
The first question is from Michael Rose with Raymond James. Please proceed.
Hey, good afternoon, thanks for taking my questions.
We will start on the efficient Hey, how are you I'm just wondering if starting the efficiency ratio target I think you know what.
I've heard.
As it relates to nice good to see that you guys are committed to it but I think people are trying to parse out the revenue side, because there is a pretty big delta between.
Where consensus is in the fourth quarter next year.
Just wondering what the what.
What the guidance would imply in terms of revenue. So I was just wondering if you could give us a little bit more color on you know.
Maybe the expectations for fee and NII growth. Thanks.
Yeah. Michael This is Mike So we haven't given any guidance per se for.
Year before.
Four quarters of 'twenty two yet so what I would do is direct you to slide 18 in the deck, where I think we provided some color around what we're thinking in terms of the kind of loan growth to expect not only for the fourth quarter of this year, but also into 'twenty two and then in terms of how we're thinking about managing.
For <unk>.
Certainly we've disclosed in a couple of places both in the introductory comments as well as the deck.
This notion of beginning to ease.
Go back to reinvesting cash flows and maturities back into the bond portfolio and then also this notion of modestly increasing the size of the bond.
The battle in the over the next five quarters. So there isn't an exact amount per se that we're going to increase the bond portfolio by that.
If you use a number like $1 billion or maybe a little bit north of $1 billion is kind of a placeholder.
It would imply 200 million plus for the next five quarters I think the exact.
<unk> port for Mt.
We redeploy liquidity into the bond portfolio will really depend on what happens with rates next year.
As well as what happens with our ability to continue the momentum in terms of.
Are there any loans to the balance sheet.
So I think the recipe.
Recipe for us from a revenue side really boils down to being able to deploy the lions share of the excess liquidity that we have on the balance sheet into a combination of loans and bonds over the course of next year.
And obviously I think the guidance around our plans for expenses is pretty.
Active going it's sorry, it's $4 87 for the fourth quarter. This year and then this notion of that being a run rate as we move into 2022.
So I think also certainly.
The new banker hires.
That we've kind of called out I think <unk> been extremely helpful to our ability to kind of continue.
Felt like minimum in terms of growing loans.
Certainly to increase it as we go into 'twenty two.
So that's kind of how we think about the efficiency ratio go and I think also the pathway.
So John anything else you want to add no I think you gave us some pretty good guidance.
Yes, that's great color Mike.
No that was great. Thank you just one follow up just credit another positive quarter criticized classified down NPA is down.
Big.
Not that big but I guess negative provision again this quarter any reason to think that.
Assuming credit remains benign and you continue to hear some credits.
And the more we would see.
The reserve level come down and we'd likely to see negative provisions for at least the next couple of quarters. Thanks.
Yeah, I think I think certainly if you go back to the guidance slide.
Calling out the fact that at least on a go forward basis.
During the fourth quarter to look for.
The Herb Alicia reserve releases.
And the magnitude of what we've done in the last couple of quarters, So call it 2720 $8 million or so.
And I think certainly we have some potential to continue that into 'twenty two into 2022.
So.
There is no.
There is no.
More resilient out there that we have in mind right now in terms of our level to bring the ACL down too.
Just for context. So if you go back and look at our day, one ACL percentage. It was about 128 basis points and if you back out the energy portfolio that we largely sold last year that brings it down to just.
And 1% and I mentioned those numbers not as a target for us to reduce our ACL too, but just for context. So the actual endpoint I think will depend on a lot of things, including how.
How we grow our loan book and then certainly also.
How the pandemic.
And finally.
And and and we see our economies are local economies restored to where they were before.
That's great I appreciate you taking my questions.
Sure.
Thank you Mr Rose.
The next.
Michigan is from Brett Robinson with Hawaii.
Please proceed.
Hey, good afternoon, everyone.
How are you.
Good wanted to first ask on the fee income guidance could we just talk about that for a second in terms of expecting.
<unk> trends in the fourth quarter. Following some disruption in <unk>, obviously mortgage volumes are somewhat difficult to predict seasonality is obviously going to be an impactful impact in <unk>, but you obviously have lower LOE.
Lower numbers this quarter.
Can you just talk about how much mortgage plays into that.
<unk> fourth quarter guidance around fee income and other things that might be affecting seasonality in terms of the fourth quarter versus a rebound in activity given the lack of the hurricanes this quarter.
Yes, yes sure Brad This is John I'll start and Mike can add color.
I mean, obviously the <unk>.
Secondary mortgage pay reduction was the.
Yeah.
The tractor from fee income for the quarter, and then item I think Mike shared in the prepared comments around million to estimated of impacts so.
Outside of that the quarter actually had.
Much every category.
An improved net of the ATA damage too. So for example.
The head charge fees.
We're sharply up both for business and for consumer which was our first material increase of the year.
You had all the liquidity was out there and I think that number is around $3 million up from the same quarter previous year. So healthy increase card fees, which were one of the more heavier fee impacts.
Service Armada, just given there were no transactions happening due to power shortfalls were relatively flat quarter to quarter. So on a net basis.
We're a push.
Trust and investments were similar given the closures and some of the pushed off transaction work that would have normally happened in September that Didnt plus.
Plus the second quarter has the tax.
These interests that are pretty good so push was a win there so really every category.
Is firming up and doing better to the point that I think as we go into 'twenty. Two we have some confidence that now outside of secondary mortgage phase, which should see some year over year improvement.
Yeah Brett.
The.
The items that would kind of add to that in a way of just a little bit additional color is if we think about the impact that the storm had on our third quarter fees were roughly estimating that to be between $1 million and about $1 million.
Certainly I'm sure around how much of that will kind of recapture in the fourth quarter.
The other I think safe to say certainly some of that I think could be recaptured how much of it. Though is is really uncertain I think the other thing to look to for the fourth quarter as our specialty lines, so things like boldly and venture capital income and some lines similar to that.
You can.
<unk> have a little bit of a line of sight to seeing some some increases that we'll be able to show in the fourth quarter related to.
Again net of gratification of different lines of business that we call specialty lines.
So certainly.
If you look at headwinds mortgage fees I think is going to be a headwind.
But there are also some tailwind that we think will pick up the slack and offset the.
Further decline in mortgage fees.
Okay.
And then the other big thing I wanted to just to make sure you know.
I cover was just around the margin and I know theres a lot of it.
Alrighty.
Parcel or things that might impact that but.
As I think about the four basis points of pressure in <unk> Theres definitely a better tailwind what the yield curve, possibly.
Do you think are getting close to the bottom on the margin on do you think it bumps along here if you can.
Difficult liquidity, obviously, you mentioned the $1 billion in securities, but it seem like there could be some opportunity for to improve over the next few quarters.
Just wanted to see if you might take a stab at that maybe some thoughts around that.
Yeah, I think thats, absolutely the case I mean, we're guiding to the four basis points of compression in the fourth quarter and that really.
<unk> centered around as much as anything else the drag on the NIM related to the cash we have on the balance sheet. So to the extent that we're able to deploy.
More of that cash into a combination of loans and bonds.
Certainly that had healthsouth and alleviate some of that pressure.
Also.
<unk> has signed a projecting.
A continuation of our ability to reduce our cost of deposits by around one basis point over the course of the fourth quarter. So certainly if we're able to do that I think that'll be helpful.
But kind of on a go forward basis.
Given the pathway to the efficiency ratio that we kind of talked about earlier.
So we certainly would expect earn into bottomed out and potentially be increasing as we go through 'twenty two.
And this is John and and wallets it may be more of a net interest income point them centrally.
With NIM.
The blade, we're experiencing now at PPP forgiveness.
Earlier, if you just presume for 500 million or so of that for the fourth quarter.
Got it it's around four to 500 million inorganic growth, we're nearing the point to where the impact of the runoff it gets a little closer to a push.
So on a net interest income basis, as we reach and pass.
As the inflection point to where the run off.
Overcome by the growth then that will help us.
Moving forward.
Okay, Great I appreciate all the color.
You bet. Thank you.
Thank you Mr. Robinson. The next question is from Brad Milsap with Piper.
Sir Please proceed.
Hey, good afternoon.
Hi, Brad.
Mike just kind of wanted to follow up kind of on the on the balance sheet management question again I. Appreciate all the color just kind of thinking about sort of that mid.
Mid single digit.
<unk> loan growth target.
Apply maybe $1 billion or so of 1 billion two of growth over the next 12 months, which essentially kind of replaces a lot of the PPP loans that you have left.
You still have upwards of close to $3 billion of cash.
It sounds like you know you might put a billion to work in the bond book, but that still leaves yet.
So it was quite a bit of funding assuming.
Deposits don't go higher can you talk through kind of what how you're thinking about sort of the remainder.
Of the cash excess liquidity that you have on the balance sheet and sort of thoughts around sort of putting putting that to work as well.
Yeah glad to Brad So again our goal as we.
In about the next five quarters and kind of marching toward that 55% efficiency ratio. It was really to deploy as much of that cash as we can.
Again over the next five quarters, and the $1 billion or so that I've mentioned.
<unk> too high.
We might deploy some of that into the bond portfolio again is really kind.
We think a soldier.
So I think we're prepared to do.
Think about that number is kind of a minimum over the next five quarters and certainly could deploy more into bonds.
I think it's also very dependent upon the rate environment. So if the rate environment next year cooperates.
Looking at better reinvestment yields.
Have a place related to our new bond purchases than I think we could certainly deploy more.
That particular asset category.
And in.
And again the loan growth number for 'twenty two.
It's really a jump off point for where we will end this year. So again, our guidance for the fourth quarter.
This $4 to $500 million and in the mid single digits would be off that number.
That's helpful. Thank you and then just as a follow up.
I appreciate all the detail on slide 13.
Regarding interest rate sensitivity it looks like that table is up quite a bit from some from.
<unk> second quarter disclosure it just kind of curious what deposit betas you guys are assuming to drive some of those numbers on slide 13.
Sure so.
In a way of deposit data is what I'll share with you is really just kind of what we experienced the last time rates were up in the last time rates were down.
And ironically, both numbers are in the 28, 29% range.
Both in an up rate environment as well as in a down rate environment and then on the loan side in an up rate environment, It's really close to about 50% downgrade so about 40%.
Great Mike Thank you very much.
Okay.
Thank you Mr Mills that.
The next question is from Catherine Mealor with <unk>. Please proceed.
Thanks, and just one follow up.
On the margin.
Conversation first on.
On the PPP was $17 6 million last.
On amortized Steve how much of that do you think comes in next quarter versus checking to check all of next year.
And then and then a secondary on the on the margin how much premium Andy are you assuming for next quarter as well versus the $12 million.
The indicator slide 10 for this quarter.
Okay, Great classic Catherine so youre.
Youre right, our unamortized fees at the end of the third quarter were just under $18 million and really just kind of all things equal we think in the fourth fourth quarter and certainly just depends a bit on the level of forgiveness.
The level of fees that will amortize in the coming quarter is somewhere around $8 million or so.
And related to your question about the premium amortization in the third quarter that was down about 900000 or so.
Labor kind of thinking about the fourth quarter, if we look at prepayments.
That is certainly the first month of the fourth quarter, they remain elevated but we could certainly.
See that moderating a bit in the remaining months of the quarter, especially if we are considering a little bit of a higher rate environment. So I think the conservative assumption.
Premium amortization is that it would largely be.
At about the same level as it was in the third quarter potentially down a little bit.
Okay. Great. So then if we've got 8 million in PPP fees come in in next quarter.
Versus $15 million this quarter than really most of that four bits of compression is coming from just PTP running.
And it feels like Youre corn and Israeli stabilizing.
Probably next quarter.
Yes, I think maybe ramp or is it dependent on liquidity.
Right I think that's right and as I mentioned before.
Obviously, the amount of cash that we're able to deploy will influence that number a good bit.
But you are correct to point out that certainly the run off of the PPP loans is having an impact as well so at the end of the third quarter, our PPP loans stood at about $935 million.
Based on the level of forgiveness that we see in the fourth quarter, we think that it'll be down to something like 400, maybe.
$150 million by.
By the end of the year and then really by the end of the second quarter I think the forgiveness game will be largely played out.
So at that point I would imagine, we probably have less than $50 million or so.
Okay great.
And then one follow up on fees, if we looked.
Service charges pre COVID-19.
Around the annual run rate of call it $86 million and looked back at 22019, and so as part of the path towards this higher efficiency ratio excuse me lower efficiency ratio does it does it factor in a rebound in service.
Look back and some other fees.
It did partially does Catherine this is John and some of that is simply because the offset.
To service charges through some of the analysis work with our analysis phase that are better because of so much of a large balance per account relative to normal we expect.
Charges again to bleed off next year as well so somewhat the stickiness of the deposit.
Size per account will affect how much of a fee increase we actually see in service charges.
Now, obviously that all changed your simply add more couch right sort of pace of adding deposit accounts that render things next year should pick up as digital.
That solutions are rolled out in Q2, so that would also help for 'twenty two as well.
Great. Thank you so much great quarter.
Okay. Thank you.
Thank you Ms. Mealor. The next question is from Jennifer demo with <unk> Securities. Please proceed.
Yeah.
Thank you good afternoon.
Good afternoon.
Loan pricing pressure I'm, just wondering how much loan pricing pressure you guys have seen.
In the last few months and are you running any or considering rounding any promotions.
In the county.
Proceeds thanks.
It's a good question. Thanks.
Thanks for asking it.
Obviously every bank that we compete with is is rather aggressive right now and pricing, particularly in call. It. The 36 month duration of down space. So that would include all of the revolving credit.
Might as well as shorter duration fixed and so it's very competitive on price if Chris wants to add anything about structure competition than they can do that one of them, but in terms of price. It is a rather aggressive.
So I would say that given our liquidity position, we are meeting that competition at price level with.
A six month duration business and down.
We've been very aggressive in the consumer space and actually even though the consumer whole number shows down Jennifer that's really because of the continued run off in the indirect portfolio and the HELOC portfolio, the HELOC portfolio and totally due to continued pressure.
Pressure on mortgage so that as we get into Wayne as Reits are going up and we're actually seeing some good healthy growth in the unsecured revolving consumer book and that's partly because of the price aggressiveness that we've had in terms of deploying new credit.
So that's been an offset to some of the larger credits that are not quite as impressive in New York.
Health care and equivalent.
Okay.
Thank you.
Yes, ma'am thank you.
Thank you Ms Sternberg.
The next question is from Matt Olney with Stephens. Please proceed.
Hi.
<unk> guys how are you.
Go ahead, thank you Matt.
Going back to the potential to build out the investment securities portfolio.
US appreciate just how large this could be as a percent of earning assets didn't know if there are any policies you have internally or any guidelines.
Youre walking through with that.
Yeah. Thanks, Matt So right now, but right now I mean at the end of the third quarter.
The bond book is at about $8 2 billion. So that's roughly.
About 25, 6% of earning assets if you keep the level of earning assets static.
Hi, Thanks can we grow it by say, a 1 billion inclusive of reinvesting cash flows and maturities than that percentage would increase to about 28, 5%. So while we don't have any hard and fast policies, our alco policies around the size of the bond book.
Certainly.
Once you get to around 30%, that's a level that becomes.
Pretty large for a bank our size in terms of the mix of our earning assets.
But again.
One of the implicit assumptions that I'm, making is really just kind of keeping the level of earning assets static.
So if you apply a little bit of a growth.
To a level of earning assets.
And I think we'll stay below that 30% level.
So hopefully that makes sense.
Yeah, No that's helpful. Mike.
And then going back to the loan growth discussion and I kind of I guess jenny's question as well.
Hum.
<unk> re color or any numbers you can give us behind the.
Loan yields on the more recent production just trying to appreciate just what's coming on the book at this point and how much slippage there could be on the overall loan yield. Thanks.
Yeah. So certainly as John mentioned, I mean, I think we and many banks are feeling some pressure.
Any more color on yields.
And if we look at the third quarter on production levels. What we're really good in fact, they were up a little bit more than 8% quarter over quarter and then when we look at the need the yield of new loans to the balance sheet. They.
They did drop some this quarter they were down about 15 18.
Basis points or so somewhere in the $3 50 range. So certainly there is some pressure on our overall loan yields and that was built into the guidance that we gave around the fourth quarter then.
Okay.
And just lastly from me I think you mentioned in the materials anticipate the TCE.
<unk> ratio approaching that 8% level by year end.
I'm curious kind of what that means for the bank and specifically does that unlock any ability to get more aggressive on the share repurchase plan.
No not specifically, but I think those that know our company know.
The 8% threshold is always something that we've kind of looked at as a.
A target if you will for our TCE.
Theres nothing magical I think that happens once we get to that level or exceeded.
And by that I mean, the way, we think about capital and the way we manage capital.
Really is unchanged I think once we get to 8%.
Thank you.
Youre welcome.
Thank you Mr. Amit.
There are no additional questions waiting at this time I will now pass the conference back to John Harrington for closing remarks.
Yeah.
Okay. Thank you and thanks for moderating night. Thanks.
Thanks, everyone for your interest and we look forward to this in view on the road in the next few weeks.
Great day.
That concludes the Hancock Whitney Corporation's third quarter 2021 earnings conference call enjoy the rest of your day.