Hancock Whitney Corporation — 2021 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2021, with fourth-quarter results also discussed. Hancock Whitney is a Gulf South-focused financial services company operating primarily through Hancock Whitney Bank, with consumer and commercial banking, lending, trust, investment, and related services. At year-end it reported $36.5 billion in assets, 177 banking locations, and 240 ATMs.
Financial performance and condition
- Earnings: 2021 net income was $463.2 million, or $5.22 per diluted share, versus a 2020 net loss of $45.2 million, or $0.54 per diluted share. Return on average assets was 1.32% and return on average common equity was 13.07%, compared with negative returns in 2020.
- Revenue and margins: Net interest income was $933.2 million, down 1% from 2020; taxable-equivalent net interest income was $944.4 million. Net interest margin fell 32 basis points to 2.95%, reflecting lower asset yields and excess liquidity. Noninterest income rose 12% to $364.3 million, including $11.0 million in nonoperating gains. Noninterest expense increased 2% to $807.0 million, including $46.9 million of nonoperating expenses. The reported efficiency ratio improved to 57.29% from 60.07%.
- Credit costs and quality: The company recorded a negative provision for credit losses of $77.5 million in 2021, versus a $602.9 million provision in 2020. Net charge-offs fell to $31.2 million, or 0.15% of average loans, from $394.8 million, or 1.78%. Nonperforming assets declined 57% to $66.8 million; criticized commercial loans declined 27% to $287.2 million. The year-end allowance for credit losses was $371.4 million, or 1.76% of loans.
- Loans and deposits: Total loans fell 3% to $21.1 billion, as $1.5 billion of PPP forgiveness more than offset $818.5 million in core loan growth. Deposits rose 10% to $30.5 billion, driven mainly by stimulus-related balances, PPP proceeds, and Hurricane Ida insurance proceeds. Noninterest-bearing deposits were 47% of deposits, up from 44%.
- Cash flow: Cash provided by operating activities was $585.7 million; investing activities used $3.2 billion and financing activities provided $2.5 billion. Cash and due from banks declined $125.1 million to $401.2 million; year-end interest-bearing bank deposits were $3.8 billion. These cash-flow figures reflect the bank’s substantial securities and liquidity management activity.
- Liquidity and debt: Management reported $21.4 billion in net available funding sources. The average loan-to-deposit ratio was 72.90%, down from 84.57%. Short-term borrowings were $1.7 billion and long-term debt was $244.2 million, down from $378.3 million. The company redeemed $150 million of 5.95% subordinated notes in June 2021.
- Capital and shareholder returns: Common equity totaled $3.7 billion. The CET1 ratio was 11.09%, up from 10.61%; tangible common equity to assets was 7.71%. The company paid $1.08 per share in annual dividends and repurchased 449,876 shares during 2021.
Material changes versus 2020
- Results returned to profitability primarily as the unusually large 2020 credit provision—reflecting the pandemic outlook and a substantial energy-loan portfolio sale—was replaced by a 2021 reserve release and much lower charge-offs.
- Core loans grew, but total loans declined because PPP balances were forgiven. Deposits and short-term investments increased sharply, leaving excess liquidity that weighed on margin.
- Noninterest income improved as customer activity and markets recovered; secondary mortgage income declined as refinancing slowed.
- Efficiency actions reduced headcount by approximately 13% year over year. The company completed a voluntary early retirement program, eliminated approximately 150 additional positions, and consolidated 18 financial centers in 2021.
- Accumulated other comprehensive income moved from positive $80.1 million to a loss of $53.9 million, primarily reflecting market-value changes in available-for-sale securities and cash-flow hedges. This also affected the fourth-quarter tangible common equity ratio.
Fourth-quarter results
Fourth-quarter net income was $137.7 million, or $1.55 per diluted share, compared with $129.6 million in the third quarter and $103.6 million in fourth-quarter 2020. Core loans grew $652.5 million during the quarter, exceeding $404.3 million of PPP forgiveness; deposits increased $1.3 billion. Net interest margin declined 14 basis points sequentially to 2.80%, largely due to excess liquidity. The quarter included $4.9 million of net nonoperating income, mostly hurricane-related insurance proceeds.
Outlook, management commentary, and risks
- Management forecast 6%–8% core loan growth in 2022 and expected most remaining PPP loans to be forgiven by the second quarter. Deposits were expected to remain elevated versus pre-pandemic levels and be relatively flat or slightly lower during 2022.
- Management expected margin to be flat to slightly lower in the first half of 2022, followed by expansion as liquidity is deployed into loans and securities. The filing also cites expected Federal Reserve rate increases and the bank’s asset-sensitive position.
- Management targeted a 55% efficiency ratio by fourth-quarter 2022, expected operating expenses to decline approximately 2% from the 2021 operating level, and anticipated noninterest income to remain relatively flat. These are forward-looking targets, not guarantees.
- Economic uncertainty remained elevated from COVID-19 variants, inflation, labor shortages, supply-chain disruption, and possible slowing of recovery. For the credit-loss estimate, management weighted a slower-growth scenario at 60% and baseline at 40%; it expected modest reserve releases over the next several quarters.
- Key exposures include Gulf South economic and weather risks; commercial, real-estate, healthcare, hospitality, and energy credit concentrations; interest-rate and deposit repricing; LIBOR transition (about 34% of loans were LIBOR-linked at year-end); cybersecurity and third-party operational risk; and regulatory or PPP-related litigation risk. Management stated pending legal matters were not expected to materially affect consolidated financial position or liquidity.
- The 2021 nonoperating items included $38.3 million for efficiency initiatives, $4.4 million of Hurricane Ida expenses, and $4.2 million for subordinated-debt redemption, partly offset by $11.0 million of gains. The filing reports no material adverse effect to date from cyberattacks. PwC issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether core loan growth and the forecast 6%–8% 2022 growth translated into sustainable total loan growth after PPP runoff.
- Whether margin expanded as projected, and how deposit costs, excess liquidity, and rate changes affected net interest income.
- Whether credit quality and reserve levels remained sound after the substantial 2021 reserve release, particularly in criticized industries and real-estate exposures.
- Whether the 55% efficiency-ratio target and expense reductions were achieved without impairing customer service, technology investment, or revenue generation.
- How securities valuation changes, AOCI, and the transition of LIBOR-linked contracts affected capital, earnings, and hedging results.
- Whether liquidity, capital, and parent-company cash remained sufficient to support dividends, repurchases, debt service, and potential adverse conditions.