HANCOCK WHITNEY CORP annual report, FY2019

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Hancock Whitney Corporation — 2019 Form 10-K Summary

Business and period: Regional bank and financial services company serving the Gulf South, with banking, lending, trust, investment and equipment-finance operations. This filing covers the fiscal year ended December 31, 2019; fourth-quarter figures are also summarized. Amounts are U.S. dollars.

Financial performance and position

  • Scale: Year-end assets were $30.6 billion, loans $21.2 billion and deposits $23.8 billion.
  • Revenue and earnings: GAAP net interest income was $895.2 million, up 5% from 2018; noninterest income was $315.9 million, up 11%. Net income was $327.4 million, up 1%, while diluted EPS was unchanged at $3.72. Operating diluted EPS, a non-GAAP measure excluding nonoperating items, was $4.01 versus $3.99.
  • Margins and returns: Net interest margin (taxable-equivalent) rose 6 basis points to 3.44%; loan yield increased 23 basis points to 4.81%. Return on average assets was 1.12% versus 1.17%, and return on average common equity was 9.91% versus 11.04%. The efficiency ratio increased to 58.50% from 57.77%.
  • Cash flow: Operating activities provided $351.9 million, compared with $449.2 million in 2018. Investing activities used $459.0 million, versus $846.9 million; financing activities provided $155.8 million, versus $394.1 million. Year-end cash and due from banks was $432.1 million.
  • Funding and debt: Deposits grew 3% year over year; noninterest-bearing deposits were 37% of deposits. Short-term borrowings rose to $2.71 billion from $1.59 billion, including $2.04 billion of FHLB advances. Long-term debt was $233.5 million. Brokered deposits fell to $166 million from $1.23 billion, with maturities replaced in part by FHLB funding.
  • Liquidity and capital: Core deposits were 93.54% of deposits; unpledged securities were 47.27% of total securities. The Bank had approximately $2.2 billion of remaining FHLB capacity and $2.6 billion of unused Federal Reserve discount-window capacity. Company CET1 and total risk-based capital ratios were 10.50% and 11.90%; tangible common equity was 8.45%, up from 8.02%. Both Company and Bank were reported well capitalized.

Changes versus 2018

  • Loans increased $1.19 billion, or 6%, and deposits increased $653 million, or 3%; total assets rose 8%. Growth reflected organic activity and the September 2019 MidSouth acquisition.
  • MidSouth added approximately $788 million of loans and $1.28 billion of deposits; Hancock Whitney issued about 5.0 million shares for the acquisition and recorded $63.4 million of goodwill. The transaction generated $32.7 million of acquisition expenses and was accretive beginning in the fourth quarter, according to management.
  • Noninterest expense increased 8% to $770.7 million, including MidSouth costs. Personnel, data-processing and other costs rose; deposit-insurance and regulatory fees declined.
  • Net charge-offs improved to $47.0 million, or 0.23% of average loans, from $52.3 million, or 0.27%. Total nonperforming loans declined 6% to $307.1 million and criticized commercial loans fell 7% to $580.7 million. Nonaccrual loans, however, rose to $245.8 million from $187.3 million.
  • Energy-related loans declined to approximately $1.0 billion, or 4.5% of loans. Energy nonperforming loans were $157.9 million, and 27% of the energy portfolio was criticized.

Quarter, outlook, risks and unusual items

  • Fourth quarter: Net income was $92.1 million, or $1.03 per diluted share, versus $96.2 million, or $1.10, in fourth-quarter 2018. Compared with third-quarter 2019, net income rose from $67.8 million; the third quarter included $28.8 million of merger costs, versus $3.9 million in the fourth quarter. Fourth-quarter margin was 3.43% (taxable-equivalent), up 2 basis points sequentially.
  • Management outlook: Management expected 2020 year-end loan growth in the mid-single digits and aimed to reduce energy lending to 2%–4% of loans. It described the company as positioned for continued growth, assuming economic conditions did not materially worsen. The filing gave an expected 2020 effective tax rate of approximately 18%–19%; it did not provide comprehensive earnings guidance.
  • CECL: The company adopted the expected-credit-loss standard on January 1, 2020. It estimated a $76.7 million increase in credit-loss reserves and a $44.1 million after-tax cumulative adjustment to retained earnings; it elected a three-year regulatory capital phase-in.
  • Other notable items: The company paid $185 million under an accelerated share-repurchase agreement and initially received approximately 3.6 million shares; final settlement was scheduled by the third quarter of 2020. The annual dividend increased to $1.08 per share. A $1.2 billion reclassification of securities from held-to-maturity to available-for-sale followed an accounting-standard election.
  • Risks and contingencies: Principal exposures include Gulf South economic conditions, energy and real-estate concentrations, interest-rate and deposit-cost changes, borrower losses, acquisition integration, cybersecurity and operational disruption, regulatory requirements, and the LIBOR transition. Approximately 31% of loans were variable-rate and LIBOR-linked at year-end. The filing says ordinary-course litigation and regulatory contingencies were not expected to materially affect consolidated financial position or liquidity. The auditor gave unqualified opinions on the financial statements and internal controls; the allowance’s qualitative component and MidSouth purchase-accounting valuations were identified as critical audit matters.

Investor verification points

  • Track MidSouth integration, realized cost savings, acquisition accretion and whether provisional purchase-accounting values change.
  • Assess the CECL reserve build, forecast assumptions and resulting credit performance, especially for energy and criticized loans.
  • Monitor deposit retention and pricing, brokered-deposit runoff, FHLB borrowing levels and overall funding costs.
  • Compare actual loan growth and energy exposure with management’s stated 2020 targets; evaluate earnings sensitivity to interest rates and the LIBOR transition.
  • Confirm final accelerated-share-repurchase settlement, capital and liquidity levels, and the company’s capacity to sustain dividends and repurchases.