Hancock Whitney Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Comparisons below are with Q3 or the first nine months of 2020 unless noted. Amounts are in U.S. dollars; financial statement amounts are generally rounded to millions. Hancock Whitney is a regional banking company operating through Hancock Whitney Bank.
Financial performance and condition
| Metric | Q3 2021 / September 30, 2021 | Comparable period / change |
|---|---|---|
| Net income; diluted EPS | $129.6 million; $1.46 | Q3 2020: $79.4 million; $0.90 |
| Net interest income (GAAP) | $234.7 million | Q3 2020: $235.2 million |
| Net interest margin (taxable-equivalent) | 2.94% | 3.23% in Q3 2020; 2.96% in Q2 2021 |
| Noninterest income; noninterest expense | $93.4 million; $194.7 million | Q3 2020: $83.7 million; $195.8 million |
| Loans; deposits | $20.9 billion; $29.2 billion | Loans down 6% year over year; deposits up 8% |
| Allowance for credit losses | $400.5 million; 1.92% of loans | $480.2 million; 2.16% at September 30, 2020 |
| Nonperforming assets | $71.9 million; 0.34% of loans and foreclosed assets | $192.2 million; 0.86% at September 30, 2020 |
| Stockholders’ equity; tangible common equity ratio | $3.63 billion; 7.85% | Tangible common equity ratio: 7.53% at September 30, 2020 |
Q3 pretax income was $160.3 million, versus $98.2 million a year earlier. The provision for credit losses was a benefit of $27.0 million, compared with a $25.0 million expense in Q3 2020. Q3 net charge-offs were $1.8 million, or 0.03% of average loans on an annualized basis, versus $24.0 million, or 0.43%, a year earlier. Management reported a 57.44% efficiency ratio, a non-GAAP measure.
For the first nine months of 2021, net income was $325.5 million, compared with a net loss of $148.7 million in 2020. Net interest income was $703.9 million versus $704.2 million; taxable-equivalent net interest margin was 3.00% versus 3.29%. The provision for credit losses was a benefit of $49.1 million, compared with a $578.7 million expense in 2020, which included pandemic-related reserve building and charges associated with an energy loan portfolio sale.
Cash flow, funding and capital
- For the first nine months, operating cash flow was $530.9 million, investing cash outflow was $1.91 billion and financing cash inflow was $1.38 billion. Cash and due from banks ended at $527.9 million; interest-bearing bank deposits were an additional $3.06 billion.
- Deposits totaled $29.21 billion, including $13.65 billion in noninterest-bearing deposits. Loans were $20.89 billion, including $935 million of PPP loans. Core loan growth excluding PPP was $219.7 million in Q3, while total loans declined $262.5 million, mainly due to PPP forgiveness.
- Short-term borrowings were $1.75 billion and long-term debt was $248.0 million. The company redeemed $150 million of 5.95% subordinated notes in June; remaining subordinated notes include $172.5 million due 2060 bearing 6.25% interest.
- Management reported $20.9 billion in net available liquidity sources. The company and bank were categorized as well capitalized; company total capital to risk-weighted assets was 13.06% and the bank’s was 12.51%.
- The quarterly dividend was $0.27 per share. The company repurchased 56,349 shares during Q3 at an average $44.52 per share under a program authorizing repurchases of up to 4.338 million shares through December 2022.
Material changes versus prior periods
- Earnings improved year over year, chiefly reflecting lower credit-loss provisioning and higher fee income; GAAP net interest income was nearly flat. The lower year-to-date credit-loss expense compared with 2020 was a major driver of the return to profitability.
- Credit indicators improved: nonperforming assets fell to $71.9 million from $192.2 million a year earlier, and criticized commercial loans declined 29% year over year to $294 million. The allowance also declined as economic forecasts and asset quality improved.
- Deposits rose $2.2 billion year over year, while total loans fell $1.4 billion, primarily because PPP balances declined. Excess liquidity and the low-rate environment weighed on net interest margin.
- Noninterest income increased 11% in Q3 year over year, including a $4.6 million gain on the sale of the remaining Hancock Horizon Funds. Mortgage banking income declined 46% year over year, reflecting lower activity and a prior-quarter income-recognition effect.
- Q3 noninterest expense was broadly flat year over year. The first nine months included $48.2 million of identified nonoperating expenses, including costs for efficiency initiatives, the debt redemption, and Hurricane Ida; operating expenses excluding these items declined 3% year over year.
Outlook, management commentary and risks
- Management expected Q4 2021 core loan growth of $400–$500 million and year-end deposits of approximately $29.4 billion. It expected remaining PPP balances of approximately $400–$500 million at year-end, with most forgiveness by mid-2022.
- Management projected Q4 2021 operating noninterest expense of about $187 million, approximately the expected quarterly run rate for 2022, and full-year 2021 operating expense down about 3% from 2020. It cited a goal of a 55% efficiency ratio by Q4 2022.
- Management expected Q4 net interest margin to compress by about 4 basis points, full-year 2021 margin to be down about 30 basis points from 2020, and full-year net interest income to be down approximately 1%. It expected fee income, excluding nonoperating items, to be relatively flat in Q4 and grow about 9% for full-year 2021.
- Subject to continued improvement in credit quality and economic assumptions, management expected a modest Q4 reserve release. It cautioned that uncertainty remained around borrower performance as stimulus waned and loan modifications expired. About $260 million of loans had active structured payment solutions at quarter-end; pandemic-focused sectors represented 16.8% of loans excluding PPP.
- COVID-19 Delta variant effects, inflation, supply-chain and labor constraints, Hurricane Ida, and the pace of economic recovery remain material uncertainties. Ida caused $5.1 million of Q3 expenses and disrupted some fee-generating activity; management did not expect significant further financial impact from storm damage.
- Interest-rate risk, LIBOR transition, credit deterioration, deposit and loan trends, cybersecurity and third-party service risks, regulation, and litigation are among the disclosed risks. Approximately 36% of loans excluding PPP were variable-rate loans tied to LIBOR at September 30, 2021; the bank had begun using replacement benchmarks including AMERIBOR and SOFR. Management said pending legal and regulatory matters were not expected to materially affect consolidated financial position or liquidity.
Most important facts for investors to verify
- Whether core loan growth offsets ongoing PPP runoff, and whether management’s year-end loan and deposit expectations were achieved.
- Whether net interest margin and net interest income track management’s stated outlook as excess liquidity is deployed and rates change.
- Whether reserve releases remain appropriate as stimulus fades and structured payment modifications expire, especially in hospitality, retail and healthcare-related exposures.
- How much reported earnings depend on reserve releases and nonoperating gains or costs, and whether expense reductions support the stated efficiency-ratio goal.
- Whether Hurricane Ida, COVID-19, LIBOR transition and other disclosed risks produce costs or credit effects beyond those reflected in this quarter.
Management’s non-GAAP measures, including taxable-equivalent net interest measures, operating expense and the efficiency ratio, are not substitutes for GAAP results and may not be comparable with similarly named measures used by other companies.