Hancock Whitney Corporation — Q1 2023 10-Q
Reporting period: Three months ended March 31, 2023. Hancock Whitney is a regional bank holding company operating through Hancock Whitney Bank. Unless otherwise noted, amounts are U.S. dollars.
Financial performance and position
| Metric | Q1 2023 | Comparable period / change |
|---|---|---|
| Net income | $126.5 million; diluted EPS $1.45 | $123.5 million and $1.40 in Q1 2022; $143.8 million and $1.65 in Q4 2022 |
| Net interest income, taxable-equivalent | $287.6 million | Up 24% year over year; down $10.5 million from Q4 2022 |
| Net interest margin, taxable-equivalent | 3.55% | Up 74 basis points year over year; down 13 basis points from Q4 2022 |
| Noninterest income / expense | $80.3 million / $200.9 million | Income down 4% and expense up 12% year over year |
| Loans / deposits at period end | $23.4 billion / $29.6 billion | Loans up $290.5 million and deposits up $542.7 million from year-end 2022 |
| Net charge-offs | $5.7 million; 0.10% of average loans, annualized | $0.3 million in Q1 2022 and $1.0 million in Q4 2022 |
| Capital | CET1 ratio 11.60%; tangible common equity ratio 7.16% | CET1 was 11.41% and tangible common equity 7.09% at year-end 2022 |
Total assets were $37.5 billion and stockholders’ equity was $3.5 billion at March 31. The allowance for credit losses was $341.4 million, or 1.46% of loans. Nonaccrual loans were $54.3 million, or 0.23% of loans, compared with $39.0 million, or 0.17%, at year-end.
Operating cash flow was $85.9 million, versus $280.5 million in Q1 2022. Investing cash outflow was $2.2 billion, primarily reflecting a $2.0 billion increase in short-term investments and loan growth; financing cash inflow was $2.2 billion, including $1.6 billion of increased short-term borrowings and $542.7 million of deposit growth. These cash-flow movements reflect bank balance-sheet liquidity management.
Short-term borrowings were $3.5 billion, including $3.1 billion of FHLB advances; long-term debt was $242.1 million. The company reported $18.7 billion of total available liquidity, compared with approximately $10.7 billion of estimated uninsured, noncollateralized deposits. Available funding included $3.4 billion of remaining FHLB capacity and $4.9 billion at the Federal Reserve discount window.
Material changes versus comparable periods
- Year-over-year earnings rose modestly as higher asset yields lifted net interest income, partly offset by sharply higher deposit and borrowing costs.
- Sequentially, net income fell $17.3 million and the net interest margin declined 13 basis points. Management attributed margin pressure to higher-cost deposit mix and increased short-term borrowing, which more than offset improved earning-asset yields.
- Noninterest expense increased year over year, including higher personnel, technology, deposit-insurance and regulatory costs. The FDIC assessment rate increase contributed to the rise.
- Noninterest-bearing deposits declined $785.1 million from year-end, while interest-bearing deposits rose $1.3 billion. Core client deposits increased $233.7 million, but core deposits (as separately defined by the company) declined $441.1 million, including a shift into large retail time deposits.
- Available-for-sale securities had $676.9 million of gross unrealized losses at quarter-end; held-to-maturity securities had $204.1 million. Management characterized the losses as primarily non-credit-related and said it did not expect to need to sell the securities before recovery. AOCI loss improved to $687.5 million from $772.2 million at year-end.
Outlook, commentary and risks
- Management forecast low-to-mid-single-digit loan growth and relatively flat or low-single-digit deposit growth for full-year 2023. It expected noninterest income to rise 3%–4% and noninterest expense to rise 6%–7% versus 2022; excluding higher retirement and FDIC assessment costs, expense growth was expected at 4%–5%.
- Management expected further net interest margin compression in Q2, at a decline similar to Q1’s decline versus Q4 2022. It said margin could stabilize in the second half if deposit betas normalize. The reported monthly margin was 3.24% in April, or 3.41% excluding excess liquidity; management expected improvement in May after repayment of incremental FHLB advances.
- Management expected low-to-modest charge-offs and credit-loss provision for the remainder of 2023, while noting that loan growth, credit trends and economic forecasts could change reserves. Its reserve forecast weighted a baseline scenario 40%, a mild recession scenario 50%, and a moderate recession scenario 10%.
- In response to industry disruption, the company added approximately $568 million of brokered certificates of deposit and drew incremental FHLB funding during Q1 as a precaution. In early May, it repaid approximately $1.45 billion of FHLB borrowings using excess liquidity. Management reported limited seasonal deposit outflows through April 30 and said it had not experienced rapid deposit runoff.
- Key risks include deposit competition and confidence, rising funding costs and margin pressure, recession and inflation, credit deterioration, possible higher FDIC assessments (including an unknown special assessment related to bank failures), interest-rate exposure, and operational, cybersecurity, regulatory and litigation risks. The filing reports no material change to previously disclosed risk factors other than adding banking-industry developments as a risk.
- Legal proceedings arising in the ordinary course were not expected by management to materially affect financial position or liquidity. Disclosure controls were assessed as effective; management reported no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether deposit trends, including uninsured and noninterest-bearing balances, remain stable and how much funding is sourced from brokered deposits and FHLB advances.
- Whether deposit pricing and funding costs continue to compress net interest margin, and how actual Q2 and second-half margins compare with management’s expectations.
- Whether nonaccrual loans, criticized commercial credits and net charge-offs rise, particularly amid the filing’s recession scenarios and commercial real estate exposure.
- How securities market values and unrealized losses evolve, and whether liquidity needs could require securities sales.
- The eventual cost and timing of any special FDIC assessment, along with the impact of higher recurring FDIC fees and retirement expense on the expense outlook.