Hancock Whitney Corporation — 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. This annual filing also reports fourth-quarter results. Hancock Whitney is a regional financial services company operating primarily across the Gulf South.
Financial performance and position
| Metric | 2020 | 2019 |
|---|---|---|
| Net interest income | $942.5 million | $895.2 million |
| Noninterest income | $324.4 million | $315.9 million |
| Noninterest expense | $788.8 million | $770.7 million |
| Provision for credit losses | $602.9 million | $47.7 million |
| Net income (loss) | $(45.2) million | $327.4 million |
| Diluted earnings (loss) per share | $(0.54) | $3.72 |
| Net interest margin, taxable-equivalent | 3.27% | 3.44% |
| Return on average assets | (0.14)% | 1.12% |
| Assets at year-end | $33.6 billion | $30.6 billion |
| Loans at year-end | $21.8 billion | $21.2 billion |
| Deposits at year-end | $27.7 billion | $23.8 billion |
Annual operating pre-provision net revenue (a non-GAAP measure) was $491.2 million, up $3.3 million. Fourth-quarter net income was $103.6 million, or $1.17 per diluted share, versus $92.1 million, or $1.03, in fourth-quarter 2019. Fourth-quarter net interest margin was 3.22%.
Operating cash flow was $355.2 million; investing cash flow was $(3.18) billion and financing cash flow was $2.92 billion. Cash and due from banks ended the year at $526.3 million. Management reported $17.45 billion of net available liquidity, including $4.31 billion from internal sources and $13.14 billion from external sources.
Year-end short-term borrowings were $1.67 billion and long-term debt was $378.3 million. The company issued $172.5 million of 6.25% subordinated notes due 2060, which qualify as Tier 2 capital. The company’s CET1 ratio was 10.61%, total risk-based capital ratio 13.22%, and leverage ratio 7.88%; the company and bank were described as well-capitalized. The annual dividend remained $1.08 per share.
Material changes and notable items
- The annual loss primarily reflects the sharp rise in credit-loss provisioning amid COVID-19 and the energy portfolio sale. Provision expense included $160.1 million associated with that sale and $442.8 million largely related to pandemic-affected borrowers.
- Hancock Whitney sold $497 million of energy loans in 2020 for net proceeds of approximately $254.4 million. Energy loans declined to $308 million from about $1.0 billion a year earlier. The sale included $242.6 million of net charge-offs and a reserve release, producing the reported $160.1 million net provision impact.
- Net charge-offs were $394.8 million, or 1.78% of average loans, versus $47.0 million, or 0.23%, in 2019. The allowance for credit losses ended at $480.1 million, or 2.20% of loans, compared with $195.2 million, or 0.92%, at year-end 2019.
- Nonperforming assets fell to $155.8 million from $337.5 million; criticized commercial loans declined 32% to $392.6 million. These improvements were substantially associated with the energy loan sale and related charge-offs, rather than evidence that all pandemic credit risks had resolved.
- Deposits rose 16%, with noninterest-bearing deposits reaching 44% of total deposits versus 37% in 2019. PPP loans totaled $2.0 billion at year-end; approximately $2.4 billion were originated during 2020. Deposit inflows and limited loan demand contributed to excess liquidity and margin pressure.
- Net interest income increased 5% on a taxable-equivalent basis, but margin declined 17 basis points to 3.27% as asset yields fell faster than funding costs. Secondary mortgage income more than doubled to $40.2 million, while deposit service charges declined 11% and trust fees declined 6%.
- The company adopted CECL on January 1, 2020. Adoption increased the allowance for credit losses by $76.7 million and reduced retained earnings by $44.1 million after tax and balance-sheet reclassifications.
Outlook, risks, and contingencies
Management anticipated near-term pressure on loan demand and earnings. It expected first-quarter 2021 net interest margin to compress by as much as 10 basis points from the fourth-quarter level, and loans to decline as PPP forgiveness continued. For first-quarter 2021, management expected provision expense of $10 million to $15 million, potentially lower depending on non-PPP loan growth, and said net charge-offs could exceed provision expense. It expected first-quarter expenses to be approximately flat with fourth-quarter levels, excluding nonrecurring initiative costs, and a 2021 effective tax rate of approximately 18%–20%, absent tax-law changes. These are management expectations, not guarantees.
Management’s CECL estimate weighted its baseline economic scenario at 65%, a slower-growth downside at 25%, and a recessionary downside at 10%. The filing stresses uncertainty around the pandemic, recovery timing, borrower performance, collateral values, and the accuracy of forecast and credit-model assumptions. Other key exposures include Gulf South industry and geographic concentrations—particularly healthcare, hospitality, retail, real estate, and remaining energy credits—interest-rate and LIBOR transition risk, liquidity and deposit trends, cybersecurity and third-party operational risks, hurricanes and climate-related impacts, and regulatory or litigation risks, including risks connected with PPP participation.
At year-end, 176 loans totaling $630.6 million had active short-term payment deferrals or other qualifying CARES Act modifications. The company said ordinary-course litigation and regulatory contingencies were not expected to materially affect consolidated financial position or liquidity. PwC issued unqualified opinions on the financial statements and internal control over financial reporting; the allowance for credit losses was identified as a critical audit matter. No goodwill impairment was recorded, though management noted future economic deterioration could lead to impairment.
Investor facts to verify
- How much of the large 2020 provision and charge-offs reflects the completed energy sale versus continuing weakness in other loan portfolios, and whether remaining energy exposure is performing as expected.
- Whether the $480.1 million allowance adequately covers lifetime losses under changing economic forecasts, including the $630.6 million of modified loans and concentrations in healthcare, hospitality, and retail.
- Whether PPP forgiveness, new originations, and deposit balances develop as management expected, and how excess liquidity affects loan growth and net interest margin.
- Whether expense reductions, branch closures, and workforce initiatives deliver sustainable savings without weakening customer service or control functions.
- Whether capital, liquidity, dividend capacity, and subordinated-debt costs remain consistent with management’s outlook and regulatory requirements.
- Whether LIBOR-linked contracts transition effectively and whether the stated tax benefits, including the expected IRS approval for a tax-method change, are realized.