Hancock Whitney Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. The company is a regional bank holding company operating through Hancock Whitney Bank. Unless otherwise noted, amounts are U.S. dollars; financial statement amounts below are in millions.
Financial performance
| Metric | Q1 2021 | Comparison |
|---|---|---|
| Net income (loss) | $107.2 | $103.6 in Q4 2020; loss of $111.0 in Q1 2020 |
| Diluted EPS | $1.21 | $1.17 in Q4 2020; loss per share of $1.28 in Q1 2020 |
| Net interest income (GAAP) | $234.6 | $231.2 in Q1 2020 |
| Net interest income, taxable-equivalent (TE) | $237.5 | Down 2% from Q4 2020; up 1% from Q1 2020 |
| Net interest margin (TE) | 3.09% | 3.22% in Q4 2020; 3.41% in Q1 2020 |
| Noninterest income | $87.1 | Up 3% year over year |
| Noninterest expense | $193.1 | Down 5% year over year |
| Provision for credit losses | Benefit of $4.9 | Expense of $246.8 in Q1 2020 |
| Operating cash flow | $255.0 | $11.5 in Q1 2020 |
The Q1 2020 loss was primarily associated with a large pandemic-related provision for credit losses. Q1 2021 provision included a $23.2 million reserve release and $18.3 million of net charge-offs. The company reported a 58.12% efficiency ratio, 1.28% return on average assets, and 12.63% return on average common equity.
Balance sheet, liquidity and capital
- Total assets were $35.1 billion at March 31, up from $33.6 billion at year-end 2020. Total loans were $21.7 billion, down $125 million quarter over quarter; deposits were $29.2 billion, up $1.5 billion.
- PPP loans totaled $2.3 billion. Excluding PPP, core loans declined approximately $465 million during the quarter, reflecting muted loan demand and paydowns.
- Cash and interest-bearing bank deposits totaled approximately $2.85 billion; securities totaled $8.0 billion. Management reported $19.8 billion in net available liquidity sources.
- Short-term borrowings were $1.65 billion and long-term debt was $397.6 million. The company’s average cost of funds was 0.21%.
- Stockholders’ equity was $3.42 billion. CET1 was 11.00% and the company’s total risk-based capital ratio was 13.60%; management said the company and bank remained well capitalized. The tangible common equity ratio was 7.26%, down from 7.64% at year-end, partly reflecting asset growth and an after-tax $111.5 million quarterly other comprehensive loss, largely from securities valuation changes.
Material changes and asset quality
- Net interest margin declined 13 basis points from Q4 2020, mainly as deposit inflows and limited loan demand created excess liquidity invested in lower-yielding assets. Year-over-year margin fell 32 basis points.
- Nonperforming assets were $124.2 million, down from $155.8 million at year-end 2020 and $306.8 million in Q1 2020. Nonperforming loans were $114.8 million. Net charge-offs were 0.34% of average loans, versus 0.44% in Q4 2020 and 0.83% in Q1 2020.
- The allowance for credit losses was $456.9 million, or 2.11% of loans (2.35% excluding PPP loans). Management cited improving forecasts but said the reserve remained elevated because of uncertainty as stimulus fades and loan modifications expire.
- Commercial criticized loans declined 11% quarter over quarter to $348 million. Energy charge-offs were $14.6 million, including $13.8 million attributable to one legacy credit.
- Loans in pandemic-related sectors under focus totaled about $3.4 billion, or 17.7% of loans excluding PPP; these sectors included retail, hospitality, and healthcare/social assistance.
Outlook, commentary and notable items
- Management expected Q2 2021 net interest margin to compress by 10–15 basis points and TE net interest income to decline $2–$4 million quarter over quarter. It expected full-year 2021 TE net interest income to be down 1%–2% from 2020 and margin to be relatively flat in the second half.
- Management expected core loans to be flat in Q2 and grow $700–$800 million in the second half, with year-end core loans around $20.1 billion. It expected most PPP balances to be forgiven by year-end. Deposits were expected to be flat to slightly down in Q2 and to decline $500–$600 million in the second half.
- Management expected fee income to be flat to slightly lower in Q2, but up 4%–6% for full-year 2021. It projected noninterest expense, excluding nonrecurring items, to be flat to slightly higher in Q2 and down 2%–3% for the year. The expected effective tax rate was 19%–20%.
- The first-quarter results included $4.4 million of nonrecurring BOLI income and an approximately $4.7 million pandemic-related write-down of SBIC investments. Q1 2020 expenses included a $9.8 million write-down of energy-related equity interests.
- A voluntary early retirement program was expected to generate $15.3 million of Q2 costs and approximately $19 million of annualized net personnel expense savings. The planned June 2021 redemption of $150 million of 5.95% subordinated notes was expected to cost $4.2 million in Q2 and save about $9 million annually.
- After quarter-end, the board authorized a repurchase plan for up to 4.338 million shares, subject to applicable conditions. The quarterly dividend was $0.27 per share.
- Key risks include continued COVID-19 effects, uncertain loan demand and credit performance, concentrations in pandemic-affected industries, interest-rate and margin sensitivity, and the transition from LIBOR. About 34% of loans excluding PPP were LIBOR-linked. The filing also cites cybersecurity, third-party, regulatory, litigation, and execution risks. Management said pending legal matters were not expected to materially affect financial position or liquidity.
Important facts for investors to verify
- Whether core loan demand and deposits track management’s 2021 expectations as PPP forgiveness and stimulus-related balances unwind.
- Whether asset quality and reserve needs continue to improve, particularly in energy and pandemic-affected sectors, and as borrower modifications expire.
- Whether excess liquidity and lower asset yields produce the forecast margin and net interest income trends.
- The realized costs and savings from the early retirement program and subordinated-note redemption, and the effects of capital actions on capital ratios.
- Progress and execution risks in replacing LIBOR-linked contracts, systems, and models with alternative reference rates.