Hancock Whitney Corporation

Good day, ladies and gentlemen, and welcome to the Hancock Whitney Corporation second quarter 2021 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 turn the call over to your host for today's conference, Tricia 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 and 10-Q, including the risk 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 8K 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 Ackery, CFO, and Chris DeLuca, Chief Credit Officer. I will now turn the call over to John Hairston.

Good afternoon, everyone, and thank you for joining us. I'm very pleased to report Hancock Whitney's continuation of improving performance. Second quarter operating results either met or exceeded expectations for nearly every category for the quarter. with linked quarter PPNR up 6 million or 4%. Growth in core loans was well above expectations and guidance as our bankers and support teams returned fully to office in the first quarter and significantly outperformed our expected pull-through rate on a robust pipeline in most categories, and paydowns were well below our run rate for the pandemic. I do want to recognize and thank our entire team of associates for outperforming in nearly every category while simultaneously working towards right-sizing our expense base. Our credit metrics improved once again this quarter, facilitating another modest reserve release of $28 million and a negative provision of $17 million. Sticky deposits and PPP forgiveness combined to result in elevated levels of excess liquidity on our balance sheet, which in turn compressed our NIM once again. However, while we reported a decline in the overall ratio, note that thoughtful management of the balance sheet minimized the impact on net interest income, producing a stable run rate late quarter. As our markets continue to reopen and activity levels pick up, we are seeing growth in COVID-impacted lines of business within fee income. Bank card and ATM fees are up linked quarter, buoyed by the revival of leisure and family tourism. Continued success with our purchase card initiative, a helpful escalation of merchant transaction volume, and our merchant services and treasury solutions teams are winning a number of new clients. Deposit service charges and wealth management revenue also performed well in the quarter. As we've discussed with the market previously, 2021 brought into focus the importance of reassessing how we could meet the challenges the past year presented to our company and the whole banking industry. During the second quarter, we completed our previously announced phased-in plan to streamline and strengthen our operational framework according to our class, changing needs, and habits in the recovering economy. The initiatives we undertook included a voluntary early retirement package for 647 of our associates, of which 260 accepted it. the consolidation or announcement to consolidate 38 financial centers across our footprint, the closure of two trust offices in the Northeast, and a reduction in force via the phase-out of an additional 200 positions across the organization. With the right-sizing plan complete, we will continue reinvesting a portion of our harvested expenses back into revenue production for the benefit of future years. The net non-operating expenses associated with the entire plan are included in the second quarter's results and total $42 million, or $0.37 per share. See slide 26 in our presentation deck for details. So the takeaways from the commentary and slides in the investor deck should be the expense rationalization plan is complete, we've absorbed materially all the non-operating expenses, and the path is clear to achieving the 4Q21 run rate in our guidance. From this point, we are moving forward with renewed energy, focus, and a solid capital position. We've had a good start to 2021, but are keenly focused on navigating the remaining pandemic uncertainty while simultaneously dedicated to improving performance and value. I will now turn over the call to Mike for further comments. Thanks, John. Good afternoon, everyone. Results for the second quarter were very solid. Net income totaled $89 million per share. As John noted, the reported results included $42 million or $0.37 per share of net non-operating items. Excluding these items, EPS would have been $1.37 with operating earnings of over $121 million. So just a few comments on the major drivers of our balance sheet and NIM. Total loans declined $516 million as just over $1 billion in PPP loans were forgiven in the quarter. partially offsetting the decline of slightly over $100 million in new PPP funding and $412 million in organic loan growth. Core loan growth was one of the big headlines for us this quarter, and we were happy to see the results of our bankers' efforts. An increase in the pull-through rate for our pipeline led to growth across our footprint, both regionally and by specialty lines. As you can see from the chart on slide six in our earnings data, Growth was especially evident in our markets outside of Greater New Orleans, as well as in equipment finance and healthcare. A step down in payoffs compared to last quarter and stabilization in line utilization after several quarters of declines also contributed to the quarter's growth. Going forward, our goal is to build on this progress and deploy as much of our excess liquidity as possible into loans. while recognizing headwinds still exist from amortizing-only portfolios like Indirect and Energy, as well as elevated levels of residential mortgage payoffs. With the PPP process now closed and into forgiveness, going forward, the overall impact of the PPP loans in our balance sheet and earnings will wane from this point. Slide 7 in the earnings deck expands on those points. On the liability side of the balance sheet, our deposit levels remain resilient and have continued to increase. The elevated deposit levels and PPP forgiveness are combining to sustain and increase our levels of excess liquidity, which led to continued NIM compression. We are guiding to additional contraction in the second half of 21 versus what we said last quarter. That updated guidance really stems from the current levels of excess liquidity continuing to build through the end of this year, mostly from PPP forgiveness. We are expecting an additional $1.1 billion to be forgiven by year-end, but also slower deposit outflows, and in fact, we believe deposits will be up in the third quarter and then flat as we move into the fourth quarter. Another factor around the NIM guidance stems from the relative size of our bond portfolio and the level of current reinvestment yields. At nearly 25% of our in-assets and with reinvestment yields recently trending down, I think has brought us to the point where for now we're likely to not deploy excess liquidity into bonds. The potential for higher rates down the road are also a consideration. No major changes in the guide for what we're expecting for loan growth in the second half of 21. We are expecting to leverage our second quarter success in growing loans and believe we can further grow our loan book between $600 and $800 million over the second half of this year. So combining all those factors, we think the NIM could narrow another four basis points or so in the third quarter and then possibly a similar level in the fourth quarter. However, as our NII guidance indicates, we do expect NII to trend flat for the next two quarters. Before I turn the call back to John, I'd like to point out a few other slides in the deck. With the recent focus on interest rate risk and asset sensitivity in light of expectations for a rise in rates in the future, we added some additional information on slides 15 and 29 related to our hedge positions. Slide 15 also includes our usual disclosures on our variable rate loan portfolio and floors. And finally, you'll see our updated guidance on slide 20. As noted, the majority of our forward guidance is unchanged with the exception of NIM. With that, I'll turn the call back to John. Thanks, Mike. Let's open the call for questions.